Index to Exhibits-Pages 31-36
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 October 1, 1995
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)
(910) 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 November 1,
1995: 27,380,409 shares.
Page 1
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FORM 10-Q
CONE MILLS CORPORATION
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income
Thirteen and thirty-nine weeks ended
October 1, 1995 and October 2, 1994 (Unaudited). . 3
Consolidated Balance Sheets
October 1, 1995 and October 2, 1994
(Unaudited) and January 1, 1995. . . . . . . . 4 & 5
Consolidated Statements of Stockholders' Equity
Thirty-nine weeks ended October 1, 1995
and October 2, 1994 (Unaudited). . . . . . . . . . 6
Consolidated Statements of Cash Flows
Thirty-nine weeks ended October 1, 1995
and October 2, 1994 (Unaudited). . . . . . . . . . 7
Notes to Consolidated Financial Statements
(Unaudited). . . . . . . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . .18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . .29
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . .30
Page 2
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FORM 10-Q
PART I
Item 1.
<TABLE>
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CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share data)
Thirteen Thirteen Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
Oct. 1, 1995 Oct. 2, 1994 Oct. 1, 1995 Oct. 2, 1994
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net Sales $ 231,699 $ 203,475 $ 690,856 $ 601,056
Operating Costs and Expenses:
Cost of sales 190,635 163,951 567,888 477,161
Selling and administrative 22,075 18,932 64,852 57,212
Depreciation 7,201 5,802 21,603 17,405
219,911 188,685 654,343 551,778
Income from Operations 11,788 14,790 36,513 49,278
Other Income (Expense):
Interest income 114 279 499 416
Interest expense (3,928) (1,779) (11,038) (5,868)
(3,814) (1,500) (10,539) (5,452)
Income from Continuing Operations before Income Taxes
and Equity in Earnings (Loss) of Unconsolidated Affiliates 7,974 13,290 25,974 43,826
Income Taxes 2,791 4,731 9,091 15,716
Income from Continuing Operations before Equity
in Earnings (Loss) of Unconsolidated Affiliates 5,183 8,559 16,883 28,110
Equity in Earnings (Loss) of Unconsolidated Affiliates 683 - (8,255) 321
Income from Continuing Operations 5,866 8,559 8,628 28,431
Gain on Disposal - Discontinued Operations - (Net of
income tax of $276) - - - 439
Income before Cumulative Effect of Accounting Change 5,866 8,559 8,628 28,870
Cumulative Effect of Accounting Change for
Postemployment Benefits - (Net of income
tax benefit of $772) - - - (1,228)
Net Income $ 5,866 $ 8,559 $ 8,628 $ 27,642
Income Available to Common Shareholders:
Income from Continuing Operations $ 5,146 $ 7,887 $ 6,516 $ 26,415
Income before Cumulative Effect of
Accounting Change $ 5,146 $ 7,887 $ 6,516 $ 26,854
Cumulative Effect of Accounting Change - - - (1,228)
Net Income $ 5,146 $ 7,887 $ 6,516 $ 25,626
Earnings Per Share - Fully Diluted:
Income from Continuing Operations $ .19 $ .28 $ .24 $ .95
Income before Cumulative Effect of
Accounting Change $ .19 $ .28 $ .24 $ .96
Cumulative Effect of Accounting Change - - - (.04)
Net Income $ .19 $ .28 $ .24 $ .92
Weighted Average Common Shares and
Common Share Equivalents Outstanding -
Fully Diluted 27,530 27,853 27,506 27,859
</TABLE>
See Notes to Consolidated Financial Statements.
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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)
October 1, October 2, January 1,
ASSETS 1995 1994 1995
(Unaudited) (Unaudited) (Note)
Current Assets:
Cash $ 752 $ 2,850 $ 1,158
Accounts receivable - trade, less
provision for doubtful accounts $3,000 81,868 64,205 56,654
Inventories:
Greige and finished goods 83,632 83,813 83,377
Work in process 14,296 17,226 15,796
Raw materials 18,874 19,802 19,973
Supplies and other 31,266 28,485 30,274
148,068 149,326 149,420
Other current assets 8,900 4,834 6,007
Total Current Assets 239,588 221,215 213,239
Investments in Unconsolidated Affiliates 37,429 27,489 34,294
Other Assets 38,957 4,454 38,803
Property, Plant and Equipment:
Land 19,618 20,411 20,662
Buildings 83,094 72,697 79,418
Machinery and equipment 313,999 257,749 284,401
Other 32,123 27,172 30,581
448,834 378,029 415,062
Less accumulated depreciation 193,045 173,112 177,321
Property, Plant and Equipment-Net 255,789 204,917 237,741
$ 571,763 $ 458,075 $ 524,077
</TABLE>
Note: The balance sheet at January 1, 1995, has been
derived from the auditied financial statements at that date.
See Notes to Consolidated Financial Statements.
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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)
October 1, October 2, January 1,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994 1995
(Unaudited) (Unaudited) (Note)
Current Liabilities:
Notes payable $ 10,031 $ 11,400 $ 10,700
Current maturities of long-term debt 11,250 256 414
Accounts payable - trade 36,402 31,243 38,430
Sundry accounts payable and accrued expenses 41,123 34,789 39,881
Income taxes payable 1,289 942 -
Deferred income taxes 28,190 27,952 28,148
Total Current Liabilities 128,285 106,582 117,573
Long-Term Debt 161,822 75,744 126,108
Deferred Items:
Deferred income taxes 40,742 36,249 36,789
Other deferred items 6,605 6,095 6,727
47,347 42,344 43,516
Stockholders' Equity:
Class A Preferred Stock - $100 par value; authorized
1,500,000 shares; issued and outstanding 383,948
shares - Employee Stock Ownership Plan 38,395 38,395 38,395
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 27,380,409 shares;
1994, 27,749,221 shares and 27,403,621 shares 2,738 2,775 2,740
Capital in excess of par 71,090 75,361 71,354
Retained earnings 131,726 118,467 125,771
Currency translation adjustment (9,640) (1,593) (1,380)
Total Stockholders' Equity 234,309 233,405 236,880
$ 571,763 $ 458,075 $ 524,077
</TABLE>
Note: The balance sheet at January 1, 1995, has been
derived from the auditied financial statements at that date.
See Notes to Consolidated Financial Statements.
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FORM 10-Q
Item 1.(continued)
<TABLE>
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CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THIRTY-NINE WEEKS ENDED OCTOBER 1, 1995 AND OCTOBER 2, 1994
(amounts in thousands, except share data)
(Unaudited)
Class A Preferred
Stock
Shares Amount
Balance, January 1, 1995 383,948 $ 38,395
Net income - -
Currency translation loss (net
of income tax benefit of $3,630) - -
Class A Preferred Stock -
Employee Stock Ownership Plan:
Cash dividends paid - -
Shares Redeemed - -
Common Stock:
Options exercised - -
Purchase of common shares - -
Balance, October 1, 1995 383,948 $ 38,395
Class A Preferred Class A Preferred
Stock Stock - Escrow
Shares Amount Shares Amount
Balance, January 2, 1994 465,077 $ 46,508 (81,125) $ (8,113)
Net income - - - -
Currency translation loss (net
of income tax benefit of $1,002)
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 received from Employee Stock - - - -
Ownership Plan Trustee -
Cone Mills escrow account (86,804) (8,680) 86,804 8,680
Shares redeemed (4) - - -
Common Stock:
Options exercised - - - -
Purchase of common shares - - - -
Balance, October 2, 1994 383,948 $ 38,395 - $ -
</TABLE>
See Notes to Consolidated Financial Statements.
Page 6
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FORM 10-Q
Item 1.(continued)
<TABLE>
<S> <C> <C> <C> <C> <C>
CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THIRTY-NINE WEEKS ENDED OCTOBER 1, 1995 AND OCTOBER 2, 1994
(amounts in thousands, except share data)
(Unaudited)
Capital in Currency
Common Stock Excess Retained Translation
Shares Amount of Par Earnings Adjustment
Balance, January 1, 1995 27,403,621 $ 2,740 $ 71,354 $ 125,771 $ (1,380)
Net income - - - 8,628 -
Currency translation loss (net
of income tax benefit of $3,630) - - - - (8,260)
Class A Preferred Stock -
Employee Stock Ownership Plan:
Cash dividends paid - - - (2,673) -
Shares Redeemed - - - - -
Common Stock:
Options exercised 4,000 1 25 - -
Purchase of common shares (27,212) (3) (289) - -
Balance, October 1, 1995 27,380,409 $ 2,738 $ 71,090 $ 131,726 $ (9,640)
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 - - - 27,642 -
Currency translation loss (net
of income tax benefit of $1,002) - - - - (1,593)
Class A Preferred Stock -
Employee Stock Ownership Plan:
Cash dividends paid - - - (2,643) -
Shares issued (7.0% dividend on shares
held in Cone Mills escrow account) - - - - -
Shares received from Employee Stock
Ownership Plan Trustee -
Cone Mills escrow account - - - - -
Shares redeemed - - - - -
Common Stock:
Options exercised 13,000 1 72 - -
Purchase of common shares (8,562) - (108) - -
Balance, October 2, 1994 27,749,221 $ 2,775 $ 75,361 $ 118,467 $ (1,593)
</TABLE>
See Notes to Consolidated Financial Statements.
Page 6a
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FORM 10-Q
Item 1. (continued)
<TABLE>
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CONE MILLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended
Oct. 1, 1995 Oct. 2, 1994
(Unaudited) (Unaudited)
Cash Flows Provided By Operating Activities $ 15,114 $ 23,752
Cash Flows from Investing Activities:
Investments in unconsolidated affiliates (19,650) (2,882)
Capital expenditures (41,092) (22,505)
Other 3,431 2,298
Net cash used in investing activities (57,311) (23,089)
Cash Flows from Financing Activities:
Principal payments - long-term debt (97,245) (47,517)
Proceeds from long-term debt borrowings 48,000 45,578
Proceeds from debentures issued 99,831 -
Other (8,795) 3,623
Net cash provided by financing activities 41,791 1,684
Net (decrease) increase in cash (406) 2,347
Cash at Beginning of Period 1,158 503
Cash at End of Period $ 752 $ 2,850
Supplemental Disclosures of Additional Cash Flow Information:
Cash payments for:
Interest, net of interest capitalized $ 12,455 $ 7,631
Income taxes, net of refunds $ 4,245 $ 13,573
Supplemental Schedule of Noncash Investing and Financing Activities:
Stock dividend paid to ESOP trustee for Cone escrow account $ - $ 567
Class A Preferred Stock issued $ - $ 567
Class A Preferred Stock received from ESOP trustee $ - $ 8,680
Class A Preferred Stock escrow account closed $ - $ 8,680
</TABLE>
See Notes to Consolidated Financial Statements.
Page 7
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FORM 10-Q
Item 1. (continued)
CONE MILLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 1, 1995
Note 1. Basis of Financial Statement Preparation
The Cone Mills Corporation (the "Company") condensed
consolidated financial statements for October 1, 1995
and October 2, 1994 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 October 1,
1995, January 1, 1995 and October 2, 1994 and the
related consolidated statements of income for the
respective thirteen and thirty-nine weeks ended
October 1, 1995 and October 2, 1994, and
stockholders' equity and cash flows for the thirty-
nine 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 1994.
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
October 1, 1995 and October 2, 1994 and related
consolidated statements of income 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.
Page 8
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FORM 10-Q
Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Sale of Accounts Receivable
The Company has an agreement with the subsidiary of
a major financial institution which allows the sale
without recourse of up to $50 million of an undivided
interest in eligible trade receivables. This
agreement, dated August 11, 1992, and amended June
30, 1994, is extendable to August 1997. Accounts
receivable is shown net of $32 million sold at
October 1, 1995, net of $45 million sold at October
2, 1994, and net of $50 million sold at January 1,
1995. As a result of the sale of the interest in
these receivables, cash flows provided by operating
activities include a decrease of $18 million and an
increase of $10 million for the thirty-nine weeks
ended October 1, 1995 and October 2, 1994,
respectively.
Note 3. Investments in Unconsolidated Affiliates
Investments in unconsolidated affiliated companies
are accounted for by the equity method. The
Company's equity in earnings (including foreign
currency transaction losses) and currency translation
adjustments are recorded on a one quarter delay
basis.
In December 1994, the Mexican government devalued the
peso and allowed it to freely trade against the U.S.
dollar resulting in a substantial decline in value of
the peso versus the U.S. dollar. On January 1, 1995,
the peso was trading at 4.94 pesos per U.S. dollar
versus an exchange rate of approximately 3.45 prior
to the devaluation. During the first quarter of 1995
the peso continued to devalue versus the U.S. dollar
and was trading at an exchange rate of 6.78 pesos per
U.S. dollar on April 2, 1995. In the second quarter
of 1995 the peso strengthened versus the U.S. dollar
and was trading at an exchange rate of 6.24 pesos per
U.S. dollar on July 2, 1995. The devaluation of the
peso created foreign currency transaction losses for
the Company's Mexican affiliates, primarily related
to debt denominated in U.S. dollars for Compania
Industrial de Parras S.A., ("CIPSA"). Primarily due
Page 9
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FORM 10-Q
Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to the devaluation of the peso, the Company has
recognized an $8.3 million loss as its pro rata share
of these losses in its income statement for the
thirty-nine weeks ended October 1, 1995.
Note 4. Long-Term Debt
On March 15, 1995 the Company completed the sale of
$100 million 8-1/8% Debentures through an
underwritten public offering. The unsecured
debentures are due March 15, 2005, and are not
redeemable prior to maturity. Interest is payable
semiannually each March 15 and September 15.
Proceeds were used to repay all outstanding
borrowings under the Revolving Credit Facility and
for general corporate purposes. In early 1995,
considering the uncertainty in the bond market, the
Company entered into an interest rate hedge contract
to fix the interest rate on the debentures. The
contract was terminated in conjunction with the
pricing of the debentures at a cost of $4.3 million.
Amortization of the loss on the interest rate hedge
and original issue discount, both over a 10-year
life, will result in an 8.57% effective rate for the
issue.
Page 10
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FORM 10-Q
Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The total Revolving Credit Facility of $80 million
remains available for future working capital
requirements. At October 1, 1995 and October 2,
1994, long-term debt consisted of the following:
October 2, 1995
Current
Total Maturity Long-Term
(amounts in thousands)
8% Senior Note $ 75,000 $ 10,714 $ 64,286
8-1/8% Debentures 95,795 - 95,795
Capital Lease Obligation 1,533 327 1,206
Industrial Revenue Bonds 589 174 415
Other 155 35 120
Total $173,072 $ 11,250 $161,822
October 2, 1994
Current
Total Maturity Long-Term
(amounts in thousands)
8% Senior Note $ 75,000 $ - $ 75,000
Industrial Revenue Bonds 813 224 589
Other 187 32 155
Total $ 76,000 $ 256 $ 75,744
Note 5. Class A Preferred Stock
The dividend rate for Class A Preferred Stock is 7.50%,
which is payable March 31, 1996.
On July 29, 1994, the Trustee of the Employee Stock
Ownership Plan, as Escrow Agent, released and returned to
the Company 86,804 shares of its Class A Preferred Stock
(see Note 8). The Escrow Agreement which controlled these
shares has now been terminated, and these Class A Preferred
shares are no longer outstanding.
Page 11
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FORM 10-Q
Item 1.(continued)
<TABLE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Stock Option Plans
1984 Stock Option Plan:
Option price per share $5.25 $6.50
Outstanding at 1/2/94 95,200 103,800
Exercised (9,000) (4,000)
Outstanding at 10/2/94 86,200 99,800
Exercised (8,000) -
Outstanding at 1/1/95 78,200 99,800
Exercised - (4,000)
Outstanding at 10/1/95 78,200 95,800
1992 Stock Option Plan:
Option price per share $15.625 $12.00
Outstanding 1/2/94 500,000
Canceled (8,000)
Outstanding 10/2/94 492,000
Granted 11/9/94 - 410,000
Outstanding at 1/1/95 492,000 410,000
Canceled (42,000)
Outstanding at 10/1/95 450,000 410,000
1994 Stock Option Plan:
Option price per share $12.875 $11.625
Granted 5/17/94 6,000
Granted 5/16/95 - 7,000
Outstanding at 10/1/95 6,000 7,000
Options exercisable
at 10/1/95 78,200 68,850 270,000 82,000 6,000 7,000
</TABLE>
Page 12
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FORM 10-Q
Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C> <C>
Note 7. Earnings Per Share
Thirteen Thirteen
Weeks Ended Weeks Ended
October 1, 1995 October 2, 1994
Fully Fully
Primary Diluted Primary Diluted
(amounts in thousands,
except per share data)
Income from
continuing operations $ 5,866 $ 5,866 $ 8,559 $ 8,559
Less: Class A Preferred
dividends (720) (720) ( 672) ( 672)
Adjusted net income $ 5,146 $ 5,146 $ 7,887 $ 7,887
Weighted average common
shares outstanding 27,380 27,380 27,749 27,749
Common share equivalents
from assumed exercise
of outstanding options,
less shares assumed
repurchased 150 150 104 104
Weighted average common
shares and common share
equivalents outstanding 27,530 27,530 27,853 27,853
Earnings per common
share and common share
equivalent $ .19 $ .19 $ .28 $ .28
</TABLE>
Page 13
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FORM 10-Q
Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
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Note 7. Earnings Per Share (continued)
Thirty-nine Thirty-nine
Weeks Ended Weeks Ended
October 1, 1995 October 2, 1994
Fully Fully
Primary Diluted Primary Diluted
(amounts in thousands, except per share data)
Income from continuing
operations $ 8,628 $ 8,628 $28,431 $ 28,431
Less: Class A Preferred
dividends (2,112) (2,112) (2,016) (2,016)
Adjusted income from
continuing operations 6,516 6,516 26,415 26,415
Gain on disposal-
discontinued operations - - 439 439
Adjusted income before
cumulative effect of
accounting change 6,516 6,516 26,854 26,854
Cumulative effect of
accounting change - - (1,228) (1,228)
Adjusted net income $ 6,516 $ 6,516 $25,626 $ 25,626
Weighted average common
shares outstanding 27,380 27,380 27,748 27,748
Common share equivalents from:
Assumed exercise of out-
standing options, less
shares assumed repurchased 101 126 111 111
Weighted average common shares
and common share equivalents
outstanding 27,481 27,506 27,859 27,859
Earnings per common share and
common share equivalent:
Income from continuing
operations $ .24 $ .24 $ .95 $ .95
Income before cumulative effect
of accounting change $ .24 $ .24 $ .96 $ .96
Cumulative effect of
accounting change $ - $ - $ (.04) $ (.04)
Net income $ .24 $ .24 $ .92 $ .92
</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 14
<PAGE>
FORM 10-Q
Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. 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 was 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
Page 15
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FORM 10-Q
Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
credit and 75,330 shares of Class A Preferred Stock
valued at $7.5 million which 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 could establish detrimental reliance creating
estoppel of the Company.
On April 19, 1995, the District Court granted a motion by
the Company for summary judgment on the issues of
equitable estoppel and third-party beneficiary of
contract which had been remanded to it by the Court of
Appeals. The court ruled that the Plaintiffs could not
forecast necessary proof of detrimental reliance. The
District Court, however, granted Plaintiffs motion to
amend the complaint insofar as they sought to pursue a
"new" claim for unjust enrichment, but denied their
motion to amend so far as they sought to add claims for
promissory estoppel and unilateral contract. The court
further denied the Company's motion to decertify the
class.
Page 16
<PAGE>
FORM 10-Q
Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The District Court held a hearing on July 24, 1995 to
decide on the merits Plaintiffs' lone remaining claim of
unjust enrichment, and in an order entered September 25,
1995, the District Court dismissed that claim with
prejudice. On October 20, 1995, the Plaintiffs appealed
to the Court of Appeals from the April 19, 1995 and
September 25, 1995 orders of the District Court. Due to
the uncertainties inherent in the litigation process, it
is not possible to predict the ultimate outcome of this
lawsuit. However, the Company has defended 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 affect on the Company's
financial condition.
Because the original 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 17
<PAGE>
FORM 10-Q
Item 2.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
Third Quarter Ended October 1, 1995 Compared with Third
Quarter Ended October 2, 1994.
Net sales for the third quarter of 1995 were a record $231.7
million, up 13.9% as compared with third quarter 1994 net
sales of $203.5 million. Excluding the results of Raytex and
Greeff operations, which were acquired subsequent to third
quarter 1994, net sales were up 10.8%. This sales increase,
excluding the impact of acquisitions, resulted from higher
sales of denim fabrics partially offset by lower sales of
specialty sportswear and home furnishings fabrics. Export
sales for the third quarter of 1995 accounted for 21.7% of
total sales compared with 17.3% for the third quarter of 1994,
primarily the result of strong export denim markets. Economic
conditions in domestic textile markets during the third
quarter of 1995 were mixed as retail sales of apparel weakened
except for jeanswear which experienced continued strength.
Net income for the third quarter of 1995 was $5.9 million or
$.19 per common share, including a $.7 million gain from
Mexican affiliates, primarily related to exchange rate
changes. For comparison, net income was $8.6 million or $.28
per common share for third quarter 1994. The decline resulted
from weaker operating results in specialty sportswear and home
furnishings products and higher interest costs, partially
offset by improved denim earnings.
Gross profit (net sales less cost of sales and depreciation)
declined to 14.6% of sales as compared with 16.6% of sales for
the third quarter of 1994. This decline resulted primarily
from lower margins in specialty sportswear and home
furnishings fabrics operations arising from weak markets and,
and to a lesser extent, higher depreciation and amortization
costs associated with the Company's growth initiatives.
Page 18
<PAGE>
FORM 10-Q
Item 2. (continued)
Business Segment. Cone Mills operates in two principal
business segments, apparel fabrics and home furnishings
products. The following table sets forth certain net sales and
operating income information regarding these segments for the
third quarters of 1995 and 1994.
Third Quarter
1995 1994
(Dollar amounts in millions)
NET SALES
Apparel $ 180.3 77.8% $ 152.6 75.0%
Home Furnishings 51.4 22.2 50.9 25.0
Total $ 231.7 100.0% $ 203.5 100.0%
OPERATING INCOME (LOSS)(1)
Apparel $ 12.4 6.9% $ 11.1 7.3%
Home Furnishings (1.2) (2.3) 4.8 9.4
(1) Operating income (loss) excludes general corporate
expenses. Percentages reflect operating income as a
percentage of segment net sales.
Apparel Fabrics. Sales of apparel fabrics were $180.3
million, up 18.1% from 1994 levels. Denim sales were strong
as the Company benefited from sharply higher volume and
higher prices. However, specialty sportswear fabrics sales
declined during the quarter as a result of weak sales of
apparel at retail and corresponding moves by garment
manufacturers and retailers to reduce inventory levels.
Average prices for the apparel segment, excluding the
effects of mix changes, increased approximately 5%.
Apparel segment profit margins declined to 6.9% of sales as
compared with 7.3% of sales for the third quarter of 1994.
Even though the Company was able to raise denim prices,
denim margin improvement was more than offset by lower
margins in specialty sportswear fabrics. Apparel segment
export sales, primarily denims, were $49.3 million, up
45.3% as compared with previous year amounts.
Home Furnishings. Sales of the home furnishings segment
were $51.4 million for the quarter, essentially the same as
third quarter 1994 sales of $50.9 million. Sales increases
of foam products and real estate were partially offset by
Page 19
<PAGE>
FORM 10-Q
Item 2. (continued)
overall lower home furnishings fabrics sales. Home
furnishings fabrics sales additions from the acquisitions
of Raytex and Greeff were more than offset by lower sales
at Carlisle and John Wolf. Decorative print home
furnishings markets continued to deteriorate during the
quarter, the result of overall weak furniture markets and
customer fashion preferences for fabrics other than prints.
The home furnishings segment had an operating loss of $1.2
million compared with income of $4.8 million for 1994,
primarily the result of the lower sales volume and under-
absorbed overhead in decorative print operations caused by
operating at lower levels of capacity utilization, and by
start-up costs associated with growth initiatives.
Total Company selling and administrative expenses increased as
a percent of sales from 9.3% for the third quarter of 1994 to
9.5% for the most recent quarter because of lower than
capacity sales activity in specialty sportswear and home
furnishings fabrics. Selling and administrative expenses for
the third quarter of 1995 were $22.1 million, up 16.6% from
the third quarter of 1994.
Interest expense for the third quarter of 1995 increased $2.1
million compared with the third quarter of 1994, primarily the
result of higher borrowing levels required to support the
Company's expansion strategy in core businesses.
Income taxes as a percent of taxable income were 35.0% in the
third quarter of 1995 compared with 35.6% for the 1994 period.
Both periods reflect tax benefits resulting from operation of
the Company's foreign sales corporation.
Nine Months Ended October 1, 1995 Compared with Nine Months
Ended October 2, 1994.
Throughout the first nine months of 1995, the Company
experienced strong demand for denim apparel fabrics. In the
specialty sportswear market, following a strong first quarter,
sales began to deteriorate. Throughout 1995, the market for
decorative prints has deteriorated. Net sales for the first
nine months of 1995 were $690.9 million, up 14.9% as compared
with net sales of $601.1 million for the first nine months of
Page 20
<PAGE>
FORM 10-Q
Item 2. (continued)
1994. Excluding the results of the recently acquired Raytex
and Greeff operations, net sales were up 11.2%. Export sales
for the 1995 period accounted for 18.9% of total sales as
compared with 17.3% for the 1994 period.
Net income for the first nine months of 1995 was $8.6 million
compared with $27.6 million for the first nine months of 1994.
However, 1995 earnings were negatively affected by a $8.3
million noncash charge from unconsolidated Mexican affiliates
related primarily to the peso devaluation. Income for the
first nine months of 1994 was increased by a gain of $.4
million, arising from the final disposal of assets of the
Company's discontinued operations, and reduced by $1.2 million
from the cumulative effect of adoption of SFAS NO. 112,
"Employers' Accounting for Postemployment Benefits". Net
income for the first nine months of 1995 after preferred
dividends was $.24 per share, or $.54 per share excluding
Mexican affiliates losses, as compared with net income of $.92
per share last year.
Gross profit (net sales less cost of sales and depreciation)
declined to 14.7% of sales as compared with 17.7% of sales for
the first nine months of 1994. This decline resulted from the
inability to pass on higher cotton costs through increased
pricing in the first half of 1995, lower margins in specialty
sportswear and home furnishings operations and, to a lesser
extent, higher depreciation and amortization costs associated
with the Company's growth initiatives.
Business Segment. Cone Mills operates in two principal
business segments, apparel fabrics and home furnishings
products. The following table sets forth certain net sales and
operating income information regarding these segments for the
first nine months of 1995 and 1994.
Page 21
<PAGE>
FORM 10-Q
Item 2. (continued)
Nine Months
1995 1994
(Dollar amounts in millions)
NET SALES
Apparel $ 528.7 76.5% $ 448.6 74.6%
Home Furnishings 162.2 23.5 152.5 25.4
Total $ 690.9 100.0% $ 601.1 100.0%
OPERATING INCOME (1)
Apparel $ 32.8 6.2% $ 37.2 8.3%
Home Furnishings 4.2 2.6 14.8 9.7
(1) Operating income excludes general corporate expenses.
Percentages reflect operating income as a percentage of
segment net sales.
Apparel Fabrics. Sales of apparel fabrics were $528.7
million, up 17.9% as compared with year-ago levels. The
increase came from stronger denim sales primarily resulting
from higher unit volume as average prices for the apparel
segment, excluding the effect of mix changes, increased
approximately 3%. Apparel segment profit margins declined
to 6.2% of sales as compared with 8.3% of sales for the
first nine months of 1994. The decrease was caused
primarily by the large unrecovered increase in cotton
costs, weaker specialty sportswear results, partially
offset by increased denim volume and improved capacity
utilization as denim plants operated at full capacity.
Export sales for the apparel segment, primarily denims,
were $127.3 million, up 28.0% as compared with the 1994
period.
Home Furnishings. For nine months 1995, sales of the home
furnishings segment increased by 6.3% to $162.2 million as
the effect of the Raytex and Greeff acquisitions were
partially offset by fashion weaknesses in demand for the
Company's home furnishings fabrics.
Home furnishings operating income declined to $4.2 million
as compared with $14.8 million for the first nine months of
1994. This decline resulted from a combination of lower
sales volume at John Wolf and Carlisle, lower levels of
capacity utilization and less favorable mix at Cone
Finishing, start-up costs associated with growth
initiatives and higher raw material costs at the Olympic
Products division.
Page 22
<PAGE>
FORM 10-Q
Item 2. (continued)
Total Company selling and administrative expenses decreased as
a percent of sales from 9.5% for the first nine months of 1994
to 9.4% for the most recent nine months.
Interest expense for the first nine months of 1995 increased
$5.2 million compared with the first nine months of 1994,
primarily the result of higher borrowing levels associated
with the Company's expansion strategy in core businesses.
Income taxes as a percent of taxable income were 35.0% in the
first nine months of 1995 compared with 35.9% for the 1994
period.
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"), its 8 1/8% Debentures due March
15, 2005 (the "Debentures"), issued on March 15, 1995 as
described below, and stockholders' equity. Primary sources of
liquidity are internally generated funds, an $80 million
Credit Agreement with a group of banks 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.
On March 15, 1995, the Company completed the sale of
$100,000,000 of Debentures through an underwritten public
offering. A portion of the proceeds were used to repay all
outstanding borrowings under the Revolving Credit Facility.
Amounts repaid under the Revolving Credit Facility will remain
available for future borrowings. On October 1, 1995, the
Company had funds available of $98.0 million under its
Revolving Credit Facility and Receivables Purchase Agreement.
During the first nine months of 1995, the Company generated
$40.8 million of cash from earnings before noncash charges
from depreciation, amortization and unconsolidated Mexican
affiliate results, which was a 9.7% decrease in cash generated
as compared with the comparable period of 1994. Working
capital investments increased primarily from a reduction of
$18.0 million of receivables sold under the purchase
agreement, resulting in a net cash flow of $15.1 million
Page 23
<PAGE>
FORM 10-Q
Item 2. (continued)
provided by operating activities. Additional uses of cash
include capital spending of $41.1 million, investment of $19.7
million in the joint venture in Mexico, and the preferred
stock dividend of $2.7 million. Funding came primarily from
the $100,000,000 of debentures sold in March of 1995.
During the first nine months 1994, the Company generated $23.8
million in funds from operating activities, including $45.2
million from net income adjusted for noncash depreciation and
amortization expenses and noncash results from unconsolidated
Mexican affiliates, which was 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 $22.5
million for capital expenditures, $2.6 million for preferred
stock dividends and $2.9 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.
On October 1, 1995, the Company's long-term capital structure
consisted of $173.1 million of long-term debt, including
current maturities, and $234.3 million of stockholders'
equity. For comparison, on October 2, 1994 the Company had
$76.0 million of long-term debt and $233.4 million of
stockholders' equity. Long-term debt as a percent of long-term
debt and stockholders' equity was 42% on October 1, 1995,
compared with 25% on October 2, 1994.
The Company accounts for investments in unconsolidated
affiliated companies using the equity method on a one quarter
delay basis. In December 1994, the Mexican government devalued
the peso and allowed it to trade freely against the U.S.
dollar resulting in a substantial decline in the value of the
peso versus the U.S. dollar. On January 1, 1995, the peso was
trading at 4.94 pesos per U.S. dollar versus an exchange rate
of approximately 3.45 prior to the devaluation. During the
first quarter of 1995 the peso continued to devalue versus the
U.S. dollar and was trading at an exchange rate of 6.78 pesos
per U.S. dollar on April 2, 1995. In the second quarter of
1995 the peso strengthened versus the U.S. dollar and was
trading at an exchange rate of 6.24 pesos per U.S. dollar on
July 2, 1995. The devaluation of the peso created foreign
currency transaction losses for the Company's Mexican
affiliates, primarily related to debt denominated in U.S.
Page 24
<PAGE>
FORM 10-Q
Item 2. (continued)
dollars for Compania Industrial de Parras S.A., ("CIPSA").
Primarily due to the devaluation of the peso, the Company has
recognized an $8.3 million loss as its pro rata share of these
losses in its income statement for the thirty-nine weeks ended
October 1, 1995.
Accounts receivable on October 1, 1995, were $81.9 million, up
$17.7 million from $64.2 million at October 2, 1994. At the
end of third quarter 1995, the Company had sold $32 million of
accounts receivable, compared with $45 million at third
quarter end 1994. Receivables also increased as a result of
the higher sales level in the 1995 period. Receivables,
including those sold pursuant to the Receivables Purchase
Agreement, represented 46 days of sales outstanding at October
1, 1995 and 50 days at October 2, 1994.
Inventories on October 1, 1995, were $148.1 million,
essentially the same as the October 2, 1994 amount of $149.3
million.
Capital spending in 1995 is expected to be approximately $63
million, including $15 million for a new jacquard plant. Other
projects include new weaving machines that replace 1970's
vintage weaving machines, additional dyeing capacity to
increase production flexibility, an additional screen printing
machine and approximately $6 million for computers, software
and information systems. Capital spending for the first nine
months of 1995 was $41.1 million compared with $22.5 million
for the first nine months of 1994. In addition to capital
expenditures, the Company expects for 1995 to invest
approximately $32 million on the Mexican affiliates, of which
$19.7 million was invested in the first nine months of the
year on the Company's 50/50 joint venture. Also, the company
has agreements with CIPSA to purchase up to 33% of the
outstanding common stock of the joint venture for an amount up
to $20 million, if CIPSA does not meet certain financial
obligations.
Financial Outlook and Strategy
In 1995, even though the Company has had strong sales growth
in denims, net income is lower than the comparable period of
1994 as a result of sharp increases in cotton costs not
recovered in pricing, the peso devaluation and weak demand for
Page 25
<PAGE>
FORM 10-Q
Item 2. (continued)
specialty sportswear and home furnishings fabrics. For the
remainder of 1995, if current market conditions continue,
results are expected to compare unfavorably with the previous
year. However, the Company continues to execute its growth
strategy in core businesses by investing for the future in
markets where Cone has competitive advantages.
In addition to the Company's plans to maintain modern
manufacturing facilities through capital reinvestment, the
Company has set priorities for the use of cash flow and debt
capacity. Cone's first priority is international denim
manufacturing and marketing opportunities. In 1993, the
Company purchased a 20% ownership of CIPSA, and signed
agreements with CIPSA providing for the formation of the joint
venture denim manufacturing facility which is currently in the
production start-up phase.
Cone's second priority for cash flow and debt capacity is
acquisitions and expansion in related home furnishings product
lines. Results of this strategy are the acquisition of Raytex
and Greeff and the construction of a new jacquard weaving
facility which is currently in the production start-up phase.
The Company also from time to time reviews and will continue
to review acquisitions and other investment opportunities
(some of which may be material to the Company) that permit
Cone to add value through its manufacturing and marketing
expertise. However, the Company currently has no agreement,
arrangement or understanding to make any such acquisition or
investment.
Other potential uses of cash include additional common stock
repurchases, the reduction of outstanding preferred stock, or
cash dividends, depending on the expected benefits to
shareholders. On February 17, 1994, the Board of Directors of
the Company authorized the repurchase, from time to time, of
up to 2.5 million shares of the Company's outstanding common
stock in market transactions. As of October 1, 1995, 385,400
shares had 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. No
stock repurchases have been made since January 1995.
The Company believes its internally generated operating funds
and funds available under its existing credit facilities, will
Page 26
<PAGE>
FORM 10-Q
Item 2. (continued)
be sufficient to meet its working capital, capital spending,
possible stock repurchases, and financing commitment needs for
the foreseeable future.
Regulatory Matters
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.
Legal Proceedings
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 the United States District Court in
Greenville, South Carolina entered a judgement in the amount
of $15.5 million (including an attorneys' fees award) 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, certain individual defendants and the Plaintiffs
appealed.
On May 6, 1994, the United States Court of Appeals for the
Fourth Circuit, sitting en banc, affirmed the prior conclusion
of a panel of three of its judges and unanimously reversed the
$15.5 million judgement 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
detrimental reliance, Plaintiffs could establish that a letter
to salaried employees on December 15, 1983 created an
enforceable obligation that 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 could establish detrimental reliance creating
estoppel of the Company.
Page 27
<PAGE>
FORM 10-Q
Item 2. (continued)
On April 19, 1995, the District Court granted a motion by the
Company for summary judgement on the issues of equitable
estoppel and third-party beneficiary of contract which had
been remanded to it by the Court of Appeals. The court ruled
that the Plaintiffs could not forecast necessary proof of
detrimental reliance. The District Court, however, granted
Plaintiffs motion to amend the complaint insofar as they
sought to pursue a "new" claim for unjust enrichment, but
denied their motion to amend so far as they sought to add
claims for promissory estoppel and unilateral contract. The
court further denied the Company's motion to decertify the
class.
The District Court held a hearing on July 24, 1995 to decide
on the merits Plaintiffs' lone remaining claim of unjust
enrichment, and in an order entered September 25, 1995, the
District Court dismissed that claim with prejudice. On
October 20, 1995, the Plaintiffs appealed to the Court of
Appeals from the April 19, 1995 and September 25, 1995 orders
of the District Court. Due to the uncertainties inherent in
the litigation process, it is not possible to predict the
ultimate outcome of this lawsuit. However, the Company has
defended 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 affect 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 28
<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 certain other
defendants in which the Plaintiffs asserted a variety of
claims related to the Cone Mills Corporation 1983 ESOP
(the "1983 ESOP") and certain other employee benefit
plans maintained by the Company. In March 1992, the
United States District Court in Greenville, South
Carolina entered a judgment in the amount of $15.5
million (including an attorneys' fee award) 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, certain individual defendants and the
Plaintiffs appealed.
On May 6, 1994, the United States Court of Appeals for
the Fourth Circuit, 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 detrimental reliance, Plaintiffs could establish
that a letter to salaried employees on December 15, 1983
created an enforceable obligation that 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 could establish
detrimental reliance creating estoppel of the Company.
On April 19, 1995, the District Court granted a motion by
the Company for summary judgment on the issues of
equitable estoppel and third-party beneficiary of
contract which had been remanded to it by the Court of
Appeals. The court ruled that the Plaintiffs could not
forecast necessary proof of detrimental reliance. The
District Court, however, granted Plaintiffs motion to
amend the complaint insofar as they sought to pursue a
"new" claim for unjust enrichment, but denied their
motion to amend so far as they sought to add claims for
promissory estoppel and unilateral contract. The court
further denied the Company's motion to decertify the
class.
Page 29
<PAGE>
FORM 10-Q
Item 1. (continued)
The District Court held a hearing on July 24, 1995 to
decide on the merits Plaintiffs' lone remaining claim of
unjust enrichment, and in an order entered September 25,
1995, the District Court dismissed that claim with
prejudice. On October 20, 1995, the Plaintiffs appealed
to the Court of Appeals from the April 19, 1995 and
September 25, 1995 orders of the District Court. Due to
the uncertainties inherent in the litigation process, it
is not possible to predict the ultimate outcome of this
lawsuit. However, the Company has defended 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 affect 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.
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 30
<PAGE>
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
* 2.1 Receivables Purchase Agreement dated
as of August 11, 1992, between the
Registrant and Delaware Funding
Corporation filed as Exhibit 2.01 to
the Registrant's report on Form 8-K
dated August 13, 1992.
* 2.1(a) Amendment to Receivables Purchase
Agreement dated April 4, 1994, between
the Registrant and Delaware Funding
Corporation filed as Exhibit 2.1 to
the Registrant's report on Form 8-K
dated March 1, 1995.
* 2.1(b) Amendment to Receivables Purchase
Agreement dated June 7, 1994, between
the Registrant and Delaware Funding
Corporation filed as Exhibit 2.2 to
the Registrant's report on Form 8-K
dated March 1, 1995.
* 2.1(c) Amendment to Receivables Purchase
Agreement dated as of June 30, 1994,
between the Registrant and Delaware
Funding Corporation filed as Exhibit
2.1 to the Registrant's report on
Form 10-Q for the quarter ended
July 3, 1994.
* 2.1(d) Amendment to Receivables Purchase
Agreement dated as of November 15, 1994,
between the Registrant and Delaware
Funding Corporation filed as Exhibit
2.4 to the Registrant's report on
Form 8-K dated March 1, 1995.
* 2.1(e) Amendment to Receivables Purchase
Agreement dated as of June 30, 1995,
between the Registrant and Delaware
Funding Corporation filed as Exhibit
2.1(e) to the Registrant's report on
Form 10-Q for the quarter ended
July 2, 1995.
Page 31
<PAGE>
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
* 2.2(a) Investment Agreement dated as of
June 18, 1993, among Compania Industrial
de Parras, S.A. de C.V., Sr. Rodolfo
Garcia Muriel, and Cone Mills
Corporation, with following exhibits
thereto attached, filed as Exhibit 2.2(a)
to Registrant's report on Form 10-Q for
the quarter ended July 4, 1993:
* 2.2(b) Commercial Agreement dated as of June
25, 1993, among Compania Industrial de
Parras, S.A. de C.V., Cone Mills
Corporation and Parras Cone de Mexico,
S.A., filed as Exhibit 2.2(b) to
Registrant's report on Form 10-Q for the
quarter ended July 4, 1993.
* 2.2(c) Guaranty Agreement dated as of June 25,
1993, between Cone Mills Corporation and
Compania Industrial de Parras, S.A. de
C.V., filed as Exhibit 2.2(c) to
Registrant's report on Form 10-Q for the
quarter ended July 4, 1993.
* 2.2(d) Joint Venture Agreement dated as of
June 25, 1993, between Compania
Industrial de Parras, S.A. de C.V., and
Cone Mills (Mexico), S.A. de C.V. filed as
Exhibit 2.2(d) to Registrant's report on
Form 10-Q for the quarter ended
July 4, 1993.
* 2.2(e) First Amendment to Joint Venture
Agreement dated as of June 14, 1995,
between Compania Industrial de Parras,
S.A. de C.V., and Cone Mills (Mexico),
S.A. de C.V., filed as Exhibit 2.2(e)
to the Registrant's report on Form 10-Q
for the quarter ended July 2, 1995.
* 2.2(f) Joint Venture Registration Rights
Agreement dated as of June 25, 1993,
among Parras Cone de Mexico, S.A.,
Compania Industrial de Parras, S.A. de
C.V. and Cone Mills (Mexico),
S.A. de C.V. filed as Exhibit 2.2(e)
to Registrant's report on Form 10-Q
for the quarter ended July 4, 1993.
Page 32
<PAGE>
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
* 2.2(g) Parras Registration Rights Agreement
dated as of June 25, 1993, between Compania
Industrial de Parras, S.A. de C.V. and
Cone Mills Corporation filed as Exhibit
2.2(f) to the Registrant's report on Form
10-Q for the quarter ended July 4, 1993.
* 2.2(h) Guaranty Agreement dated as of June 14,
1995, between Compania Industrial de
Parras, S.A. de C.V. and Cone Mills
Corporation filed as Exhibit 2.2(h) to
the Registrant's report on Form 10-Q
for the quarter ended July 2, 1995.
* 2.2(i) Guaranty Agreement dated as of June 15,
1995, between Cone Mills Corporation
and Morgan Guaranty Trust Company of
New York filed as Exhibit 2.2(i) to
the Registrant's report on Form 10-Q
for the quarter ended July 2, 1995.
* 2.2(j) Support Agreement dated as of June 25,
1993, among Cone Mills Corporation, Sr.
Rodolfo L. Garcia, Sr. Rodolfo Garcia
Muriel and certain other person listed
herein ("private stockholders") filed
as Exhibit 2.2(g) to Registrant's
report on Form 10-Q for the quarter
ended July 4, 1993.
2.2(k) Call Option dated September 25, 1995,
between Registrant and SMM Trust, 1995
- M, a Delaware business trust. 38
2.2(l) Put Option dated September 25, 1995,
between Registrant and SMM Trust, 1995
- M, a Delaware business trust. 46
* 2.3 Asset Purchase Agreement dated as
of December 2, 1994 between the
Registrant, Lancer Industries, Inc.
and M.P.M. Transportation, Inc.,
filed as Exhibit 2 to the Registrant's
Current Report on Form 8-K dated
December 2, 1994.
Page 33
<PAGE>
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
* 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.
* 4.3(a) Letter Agreement dated September 11, 1992,
amending the Note Agreement dated August 13,
1992, between the Registrant and The
Prudential Insurance Company of America
filed as Exhibit 4.2 to the Registrant's
report on Form 8-K dated March 1, 1995.
* 4.3(b) Letter Agreement dated July 19, 1993,
amending the Note Agreement dated
August 13, 1992, between the Registrant
and The Prudential Insurance Company of
America filed as Exhibit 4.3 to the
Registrant's report on Form 8-K dated
March 1, 1995.
* 4.3(c) Letter Agreement dated June 30, 1994,
amending the Note Agreement dated
August 13, 1992, between the Registrant
and The Prudential Insurance Company of
America filed as Exhibit 4.4 to the
Registrant's report on Form 8-K dated
March 1, 1995.
* 4.3(d) Letter Agreement dated November 14, 1994,
amending the Note Agreement dated
August 13, 1992, between the Registrant
and The Prudential Insurance Company of
America filed as Exhibit 4.5 to the
Registrant's report on Form 8-K dated
March 1, 1995.
Page 34
<PAGE>
FORM 10-Q INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
* 4.3(e) Letter Agreement dated as of June 30,
1995, amending the Note Agreement dated
August 13, 1992, between the Registrant
and the Prudential Insurance Company
of America filed as Exhibit 4.3(e) to
the Registrant's report on Form 10-Q
for the quarter ended July 2, 1995.
* 4.4 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.
* 4.4(a) Amended and Restated Credit Agreement
dated November 18, 1994, among the
Registrant, various banks and Morgan
Guaranty Trust Company of New York,
as Agent, filed as Exhibit 4.1
to the Registrant's report on Form 8-K
dated March 1, 1995.
* 4.4(b) Amendment to Credit Agreement dated as of
June 30, 1995, amending the Amended and
Restated Credit Agreement dated
November 18, 1994, among the Registrant,
various banks and Morgan Guaranty Trust
Company of New York, as Agent filed as
Exhibit 4.4(b) to the Registrant's
report on Form 10-Q for the quarter
ended July 2, 1995.
* 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 35
<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 of Cone Mills
Corporation, amended and restated
effective December 1, 1994,filed as
Exhibit 4.8 to the Registrant's
report on Form 10-K for year ended
January 1, 1995.
* 4.9 Cone Mills Corporation 1983 ESOP as
amended and restated effective
December 1, 1994, filed as Exhibit 4.9
to the Registrant's report on Form 10-K
for year ended January 1, 1995.
* 4.10 Indenture dated as of February 14,
1995, between Cone Mills Corporation
and Wachovia Bank of North Carolina,
N.A. as Trustee, filed as Exhibit 4.1
to Registrant's Registration Statement
on Form S-3 (File No. 33-57713)
* 4.11 Form of 8 1/8% Debenture in aggregate
principal amount of $100,000,000 due
March 15, 2005, filed as Exhibit 4.11
to the Registrant's report on Form 10-K
for the year ended January 1, 1995.
27 Financial Data Schedule 54
* Incorporated by reference to the statement or report
indicated.
Page 36
<PAGE>
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 13, 1995 JOHN L. BAKANE
John L. Bakane
Executive Vice President and
Chief Financial Officer
Page 37
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Cone Mills
Corporation consolidated financial statements dated October 1, 1995, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> OCT-01-1995
<CASH> 752
<SECURITIES> 0
<RECEIVABLES> 84,868
<ALLOWANCES> 3,000
<INVENTORY> 148,068
<CURRENT-ASSETS> 239,588
<PP&E> 448,834
<DEPRECIATION> 193,045
<TOTAL-ASSETS> 571,763
<CURRENT-LIABILITIES> 128,285
<BONDS> 161,822
<COMMON> 2,738
0
38,395
<OTHER-SE> 193,176
<TOTAL-LIABILITY-AND-EQUITY> 571,763
<SALES> 690,856
<TOTAL-REVENUES> 690,856
<CGS> 589,491
<TOTAL-COSTS> 654,343
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,539
<INCOME-PRETAX> 17,719
<INCOME-TAX> 9,091
<INCOME-CONTINUING> 8,628
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,628
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
FORM 10-Q
EXHIBIT 2.2(k)
CONE CALL OPTION
September 25, 1995
Cone Mills Corporation
1201 Maple Street
Greensboro, North Carolina 27405
Attention: General Counsel
Re: Equity Option Transaction
The purpose of this letter is to confirm the terms and
conditions of the Equity Option Transaction (the
"Transaction") entered into between us on September 25, 1995
(the "Trade Date").
It is our intention to have this Confirmation serve as the
final documentation for this trade and, accordingly, no letter
Confirmation will follow.
Each party hereby agrees to make each payment specified in
this Transaction as being payable by it, no later than the due
date in the place of the account specified below (or as
specified in writing to the other party at the address
specified below), in freely transferable funds and in the
manner customary for payments in the lawful currency of the
United States which shall be the contractual currency of this
Transaction.
Any capitalized term used herein and not otherwise defined
shall have the meaning given to such term in the form of
Master Agreement (Multicurrency - Cross Border) published by
the International Swap Dealers Association, Inc.
The terms of the Transaction to which this Confirmation
relates are as follows:
1. Parties
The parties are:
(1) SMM TRUST 1995-M
(the "Trust")
Page 38
<PAGE>
FORM 10-Q
EXHIBIT 2.2(k) continued
Office through which this Transaction is booked and
address for notices:
SMM Trust 1995-M
c/o Delaware Trust Company,
acting solely as Owner Trustee
900 Market Street, HO2M12
Wilmington, Delaware 19801-0001
Attention: Corporate Trust Department, Richard Smith
Telex: 6734692
Answerback: MERIDIAN
Telecopy No.: (302) 421-7387
Account for Payments: [To be advised]
(2) CONE MILLS CORPORATION
(the "Counterparty")
Office through which this Transaction is booked and
address for notices:
Cone Mills Corporation
1201 Maple Street
Greensboro, North Carolina 27405
Attention: General Counsel
Telecopy No.: (910) 379-6972
Telephone No.: (910) 379-6567
Account for Payments: [To be advised.]
2. Option and Payments
(a) Call Option. Upon the occurrence of an Exercise
Event, the Counterparty shall have the right, but
not the obligation, to purchase from the Trust all,
or part of, of the Underlying Shares, or in the
event any Underlying Shares shall have been
purchased pursuant to the Cipsa Call Option, all or
part of the remaining Underlying Shares, in
exchange for the Counterparty paying to the account
designated by the Broker in Dollars, the Cash
Settlement Amount on the Settlement Date. The
Counterparty shall notify the Trust of its exercise
of the Call Option by delivering written notice
(the "Exercise Notice") to the Broker on or prior
to the Exercise Date, specifying the extent to
which the purchase right set forth in this Section
2(a) is being exercised. For purposes of this
Section 2(a):
Page 39
<PAGE>
FORM 10-Q
EXHIBIT 2.2 (k) continued
(i) "Cash Settlement Amount" means the product of
(x) a fraction, the numerator of which is the
aggregate number of Underlying Shares to be
purchased by the Counterparty and the denominator
of which is the total number of Underlying Shares
and (y) the sum of US $20,000,000 plus any accrued
but unpaid interest under the Equity Swap
Transaction to the Settlement Date;
(ii) "Exercise Date" means the Business Day
immediately following receipt of notice by the
Counterparty of the occurrence of an Exercise
Event;
(iii) "Exercise Event" means the earlier of (A)
September 7, 1998 or (B) the second Business Day
following the earlier of (x) the Exercise Date (as
defined in the Cipsa Call Option) if Cipsa shall
not have delivered an Exercise Notice (as defined
in the Cipsa Call Option) by the close of business
on such Exercise Date or (y) the Settlement Date
(as defined in the Cipsa Call Option) if all the
Underlying Shares shall not have been purchased
from the Trust prior to the close of business on
such Settlement Date. If an Exercise Event shall
occur on a day that is not a Business Day then the
Exercise Event shall be deemed to be the
immediately following Business Day; and
(iii) "Settlement Date" means that day which is two
Business Days immediately following the delivery of
the Exercise Notice.
(b) on the Settlement Date, the Trust or the Broker
acting on its behalf, shall deliver and transfer to
the Counterparty the Underlying Shares being
purchased hereunder against payment therefor of the
Cash Settlement Amount, in the manner customary for
the transfer of such Underlying Shares on the books
and records of the Company.
(c) In the event that prior to the occurrence of an
Exercise Event, Cipsa and/or the Substitute
Purchasers (as defined in the Cipsa Call Option)
shall have purchased all of the Underlying Shares
pursuant to the Cipsa Call Option, then, other than
the provisions contained in Sections 5 and 6, this
Call Option shall terminate and be of no further
effect.
Page 40
<PAGE>
FORM 10-Q
EXHIBIT 2.2(k) continued
(d) The Broker agrees to provide notice to the Trust
and the Counterparty of the occurrence of an
Exercise Event (other than an Exercise Event
referred to in clause (A) of the definition
thereof) no later than the close of business on the
Business Day immediately following the Broker
having actual knowledge of the occurrence thereof.
3. Definitions
"Broker" means J.P. Morgan Securities Inc.
"Business Day" means any day on which commercial
banks are open for business (including dealings in
foreign exchange and foreign currency deposits) in
New York City.
"Calculation Agent" means Morgan. All
determinations and calculations by the Calculation
Agent shall (a) be made in good faith and in the
exercise of its commercially reasonable judgment
and (b) be determined, where applicable, on the
basis of then prevailing market rates or prices.
All such determinations and calculations shall be
binding on the Counterparty in the absence of
manifest error.
"Cipsa" means Compania Industrial de Parras, S.A.
de C.V., a Mexican corporation.
"Cipsa Call Option" means the Call Option dated
September 25, 1995 between Cipsa and the Trust.
"Cipsa Put Option" means the Put Option dated
September 25, 1995 between Cipsa and the Trust.
"Company means Parras Cone de Mexico, S.A. de C.V.,
a Mexican corporation.
"Cone Acceleration Event" shall have the meaning
given to such term in the Cone Put Option.
"Cone Put Option" means the Put Option dated
September 25, 1995 between the Counterparty and the
Trust.
Page 41
<PAGE>
FORM 10-Q
EXHIBIT 2.2(k) continued
"Equity Swap Transaction" means the Equity Swap
Transaction relating to the Trust dated September
25, 1995, between Morgan and Cipsa.
"Morgan" shall mean Morgan Guaranty Trust Company
of New York.
"Notes" means the US $19,800,000 in aggregate
principal amount of Floating Rate Notes Due 1998
issued by the Trust.
"Shares" means the ordinary voting Class I stock,
par value N$1.00 per share of the Company.
"Underlying Shares" means 99,850,000 Shares,
constituting the number of Shares which the Trust
holds as a result of the sale by Cipsa to the Trust
of such shares.
4. Other Provisions
(a) General Adjustments. Upon the declaration by the
Company of the terms of any change affecting the
Shares, including, without limitation, a
capitalization issue, rights issue, share split,
merger, consolidation, amalgamation, sub-division,
recapitalization, reclassification, dissolution,
liquidation, winding up or other similar event,
which occurs after the Trade Date but before the
Exercise Date, the Calculation Agent shall adjust
the number of Underlying Shares to preserve as
nearly as practicable, the economic equivalent of
the obligations of the parties hereunder prior to
such change.
(b) Transfer. Neither party may transfer any or all of
its rights or obligations under this Transaction
without the prior written consent of the
nontransferring party.
(c) Governing Law. This Agreement and the Transaction
to which it refers shall be governed by and
construed in accordance with the laws of the State
of New York without reference to the choice of law
doctrine.
Page 42
<PAGE>
FORM 10-Q
EXHIBIT 2.2 (k) continued
(d) Jurisdiction. With respect to any suit, action or
proceedings relating to this Transaction
("Proceedings"), each party irrevocably submits to
the jurisdiction of the courts of the State of New
York and the United States District Court located
in the Borough of Manhattan in New York City and to
the courts of its own corporate domicile with
respect to actions brought against it as a
defendant and waives any objection which it may
have at any time to the laying of venue of any
Proceedings brought in any such court, waives any
claim that such Proceedings have been brought in an
inconvenient forum and further waives the right to
object, with respect to such Proceedings, that such
court does not have jurisdiction over such party.
5. Expenses. If the Counterparty shall have failed to
perform its obligations hereunder, the Counterparty will,
on demand, indemnify and hold harmless the Trust for and
against all reasonable out-of-pocket expenses, including
legal fees, incurred by the Trust by reason of the
enforcement and protection of its rights hereunder or by
reason of the early termination of this Transaction,
including but not limited to, costs of collection.
6. No Tax or Withholding. All payments required to be made
by the Counterparty hereunder shall be made without any
deduction or withholding for or on account of any tax, of
any nature, and shall be made without any set-off,
counterclaim or other deduction. The Counterparty shall
indemnify the Trust for any withholdings required to be
made by the Counterparty in connection with this
Transaction, of any nature, for any tax required to be
paid by the Trust to any tax authorities in connection
with this Transaction and any costs and reasonable
expenses (including costs and reasonable expenses related
to any filings that may be required in connection with
the transfer of the Underlying Shares) related to such
tax liabilities.
7. No Reliance, etc. The Counterparty represents that (i) it
is entering into the Transaction evidenced hereby as
principal (and not as agent or in any other capacity);
(ii) in entering into this Transaction the Trust is not
Page 43
<PAGE>
FORM 10-Q
EXHIBIT 2.2 (k) continued
acting as a fiduciary for it; (iii) in entering into this
Transaction it is not relying upon any representations
except those expressly set forth in this Confirmation;
(iv) it has consulted with its own legal, regulatory,
tax, business, investment, financial, and accounting
advisors to the extent it has deemed necessary, and it
has made its own investment, hedging, and trading
decisions based upon its own judgment and upon any advice
from such advisors as it has deemed necessary and not
upon any view expressed by the other party; and (v) it is
entering into this transaction with a full understanding
of the terms, conditions and risks thereof and it is
capable of and willing to assume those risks.
8. Limitation of Liability. The parties hereto agree that
Delaware Trust Company is executing this Call Option
solely in its capacity as Owner Trustee and, accordingly,
Delaware Trust Company shall incur no Personal liability
in connection herewith or the transactions contemplated
hereby.
9. Restrictions on Sale. Unless and until Cipsa and Cone
shall have failed to purchase the Underlying shares
pursuant to this Call Option, the Cipsa Call Option, the
Cipsa Put Option and the Cone Put Option, the Trust shall
not and shall not agree to sell, transfer or otherwise
assign any Underlying Shares and shall not grant any
right, option or warrant to purchase any Underlying
Shares other than pursuant to his Call Option, the Cipsa
Call Option, the Cipsa Put Option and the Cone Call
Option.
Page 44
<PAGE>
FORM 10-Q
EXHIBIT 2.2 (k)
Please confirm your agreement to be bound by the terms of the
foregoing by executing the copy of this Confirmation enclosed
for that purpose and returning it to us.
Very truly yours,
SMM TRUST 1995-M
By: Delaware Trust Company,
not in its individual
capacity but Solely as
Owner Trustee
By: /s/ Richard N. Smith
Title: Vice President
Accepted and confirmed as of
the date first above written:
CONE MILLS CORPORATION
By: /s/ John L. Bakane
Title: Executive Vice President
ACKNOWLEDGED:
J.P. MORGAN SECURITIES INC.,
as Broker
By: /s/ Russell Church
Title: Vice President
Page 45
<PAGE>
FORM 10-Q
EXHIBIT 2.2 (l)
CONE PUT OPTION
September 25, 1995
Cone Mills Corporation
1201 Maple Street
Greensboro, North Carolina 27405
Attention: General Counsel
Re: Equity Option Transaction
The purpose of this letter is to confirm the terms and
conditions of the Equity Option Transaction (the
"Transaction") entered into between us on September 25, 1995
(the "Trade Date").
It is our intention to have this Confirmation serve as the
final documentation for this trade and, accordingly, no letter
Confirmation will follow.
Each party hereby agrees to make each payment specified in
this Transaction as being payable by it, no later than the due
date in the place of the account specified below (or as
specified in writing to the other party at the address
specified below), in freely transferable funds and in the
manner customary for payments in the lawful currency of the
United States which shall be the contractual currency of this
Transaction.
Any capitalized term used herein and not otherwise defined
shall have the meaning given to such term in the form of
Master Agreement (Multicurrency - Cross Border) published by
the International Swap Dealers Association, Inc.
The terms of the Transaction to which this Confirmation
relates are as follows:
1. Parties
The parties are:
(1) SMM TRUST 1995-M
(the "Trust")
Page 46
<PAGE>
FORM 10-Q
EXHIBIT 2.2 (l) continued
Office through which this Transaction is booked and
address for notices:
SMM Trust 1995-M
c/o Delaware Trust Company,
acting solely as Owner Trustee
900 Market Street, HO2M12
Wilmington, Delaware 19801-0001
Attention: Corporate Trust Department, Richard Smith
Telex: 6734692
Answerback: MERIDIAN
Telecopy No.: (302) 421-7387
Account for Payments: To be advised]
(2) CONE MILLS CORPORATION
(the "Counterparty")
Office through which this Transaction is booked and
address for notices:
Cone Mills Corporation
1201 Market Street
Greensboro, North Carolina 27405
Attention: General Counsel
Telecopy No.: (910) 379-6972
Telephone No.: (910) 379-6567
Account for Payments: [To be advised.]
2. Option and Payments
(a) Put Option. Upon the occurrence of a Mandatory
Put Event, but only in the event Cipsa shall not
have purchased all of the Underlying Shares
pursuant to the Cipsa Put Option, the Broker, on
behalf of the Trust, shall put all, but not less
than all, of the Underlying Shares which have not
been purchased pursuant to the Cipsa Call Option,
the Cone Call Option and the Cipsa Put Option to
the Counterparty and the Counterparty shall be
obligated to purchase from the Trust the Underlying
Shares in exchange for the Counterparty paying to
the account designated by the Broker in Dollars,
the Cash Settlement Amount on the Settlement Date.
Page 47
<PAGE>
FORM 10-Q
EXHIBIT 2.2 (l) continued
The Broker, on behalf of the Trust, shall notify
the Counterparty of the exercise of this Put Option
by delivering written notice (the "Put Notice") to
the Counterparty no later than the close of
business on the Business Day immediately following
the Broker having actual knowledge of the
occurrence of a Mandatory Put Event. For purposes
of this Section 2(a):
(i) "Cash Settlement Amount" means the product of
(x) a fraction, the numerator of which is the
aggregate number of Underlying Shares which have
not been purchased by pursuant to the Cipsa Call
Option, Cipsa Put Option and the Cone Call Option
and the denominator of which is the total number of
Underlying Shares and (y) the sum of US $20,000,000
and any accrued but unpaid interest under the
Equity Swap Transaction to the Settlement Date;
(ii) "Mandatory Put Event" means the earlier to
occur of (A) September 21, 1998 or (B) the second
Business Day following the Settlement Date (as
defined in the Cipsa Put Option) if all the
Underlying Shares shall not have been purchased
from the Trust prior to the close of business on
such Settlement Date. If a Mandatory Put Event
shall occur on a day that is not a Business Day
then the Mandatory Put Event shall be the Business
Day immediately following the date of such
occurrence.
(iii) "Settlement Date" means the day which is two
Business Days immediately following the delivery of
the Put Notice.
(b) On the Settlement Date, the Trust, or the Broker
acting on its behalf, shall deliver and transfer to
the Counterparty against payment therefor of the
Cash Settlement Amount, the Underlying Shares being
purchased hereunder, in the manner customary for
the transfer of such Underlying Shares on the books
and records of the Company.
(c) In the event that prior to the occurrence of a
Mandatory Put Event Cipsa, the Substitute
Purchasers and/or Cone shall have purchased all of
Page 48
<PAGE>
FORM 10-Q
EXHIBIT 2.2 (l) continued
the Underlying Shares pursuant to the Cipsa Call
Option, the Cone Call Option and/or Cipsa Put
Option, then, other than the provisions contained
in Sections 5 and 6, this Put Option shall
terminate and be of no further effect
(d) The Broker agrees to provide notice to the Trust
and the Counterparty of the occurrence of a
Mandatory Put Event (other than a Mandatory Put
Event referred to in clause (A) of the definition
thereof) no later than the close of business on the
Business Day immediately following the Broker
having actual knowledge of the occurrence thereof.
3. Definitions
"Broker" means J.P. Morgan Securities Inc.
"Business Day" means any day on which commercial
banks are open for business (including dealings in
foreign exchange and foreign currency deposits) in
New York City.
"Calculation Agent" means Morgan. All
determinations and calculations by the Calculation
Agent shall (a) be made in good faith and in the
exercise of its commercially reasonable judgment
and (b) be determined, where applicable, on the
basis of then prevailing market rates or prices.
All such determinations and calculations shall be
binding on the Counterparty in the absence of
manifest error.
"Cipsa" means Compania Industrial de Parras, S.A.
de C.V., a Mexican corporation.
"Cipsa Call Option" means the Call Option dated
September 25, 1995 between Cipsa and the Trust.
"Cipsa Put Option" means the Put Option dated
September 25, 1995 between Cipsa and the Trust.
"Company" means Parras Cone de Mexico, S.A. de
C.V., a Mexican corporation.
Page 49
<PAGE>
FORM 10-Q
EXHIBIT 2.2 (l) continued
"Cone Call Option" means the Call Option dated
September 25, 1995 between the Counterparty and the
Trust.
"Equity Swap Transaction" means the Equity Swap
Transaction relating to the Trust dated September
25, 1995, between Morgan and Cipsa.
"Morgan" shall mean Morgan Guaranty Trust Company
of New York.
"Shares" means the ordinary voting Class I stock,
par value N$1.00 per share of the Company.
"Underlying Shares" means 99,850,000 Shares,
constituting the number of Shares which the Trust
holds as a result of the sale by Cipsa to the Trust
of such shares.
4. Other Provisions
(a) General Adjustments. Upon the declaration by the
Company of the terms of any change affecting the
Shares, including, without limitation, a
capitalization issue, rights issue, share split,
merger, consolidation, amalgamation, sub-division,
recapitalization, reclassification, dissolution,
liquidation, winding up or other similar event,
which occurs after the Trade Date but before the
Exercise Date, the Calculation Agent shall adjust
the number of Underlying Shares to preserve as
nearly as practicable, the economic equivalent of
the obligations of the parties hereunder prior to
such change.
(b) Nationalization. If the holders of Shares become
bound to transfer the Shares held by them to, or to
the order of, any agency or authority of the United
Mexican States (or any political subdivision
thereof) or any entity controlled by the United
Mexican States (or any political subdivision
thereof), then the Counterparty shall be obligated
to perform under this Put Option on or prior to
such nationalization and pay the Cash Settlement
Amount in exchange for the Underlying Shares.
Page 50
<PAGE>
FORM 10-Q
EXHIBIT 2.2 (l) continued
(c) Liquidation. In the event the Company is
liquidated or wound-up (whether voluntarily or
involuntarily) then the Counterparty shall be
obligated to perform under this Put Option on or
prior to such liquidation and pay the Cash
Settlement Amount in exchange for the Underlying
Shares.
(d) Transfer. Neither party may transfer any or all of
its rights or obligations under this Transaction
without the prior written consent of the
nontransferring party.
(e) Governing Law. This Agreement and the Transaction
to which it refers shall be governed by and
construed in accordance with the laws of the State
of New York without reference to the choice of law
doctrine.
(f) Jurisdiction. With respect to any suit, action or
proceedings relating to this Transaction
("Proceedings"), each party irrevocably submits to
the jurisdiction of the courts of the State of New
York and the United States District Court located
in the Borough of Manhattan in New York City and to
the courts of its own corporate domicile with
respect to actions brought against it as a
defendant and waives any objection which it may
have at any time to the laying of venue of any
Proceedings brought in any such court, waives any
claim that such Proceedings have been brought in an
inconvenient forum and further waives the right to
object, with respect to such Proceedings, that such
court does not have jurisdiction over such party.
5. Expenses. If the Counterparty shall have failed to
perform its obligations hereunder, the Counterparty
will, on demand, indemnify and hold harmless the Trust
for and against all reasonable out-of-pocket expenses,
including legal fees, incurred by the Trust by reason of
the enforcement and protection of its rights hereunder or
by reason of the early termination of this Transaction,
including but not limited to, costs of collection.
Page 51
<PAGE>
FORM 10-Q
EXHIBIT 2.2 (l) continued
6. No Tax or Withholding. All payments required to be made
by the Counterparty hereunder shall be made without any
deduction or withholding for or on account of any tax, of
any nature, and shall be made without any set-off,
counterclaim or other deduction. The Counterparty shall
indemnify the Trust for any withholdings required to be
made by the Counterparty in connection with this
Transaction for any tax, of any nature, required to be
paid by the Trust to any tax authorities in connection
with this Transaction and any costs and reasonable
expenses (including costs and reasonable expenses related
to any filings that may be required in connection with
the transfer of the Underlying Shares) related to such
tax liabilities.
7. No Reliance. etc. The Counterparty represents that (i)
it is entering into the Transaction evidenced hereby as
principal (and not as agent or in any other capacity);
(ii) in entering into this Transaction, the Trust is not
acting as a fiduciary for it; (iii) in entering into
this Transaction, it is not relying upon any
representations except those expressly set forth in this
Confirmation; (iv) it has consulted with its own legal,
regulatory, tax, business, investment, financial, and
accounting advisors to the extent it has deemed
necessary, and it has made its own investment, hedging,
and trading decisions based upon its own judgment and
upon any advice from such advisors as it has deemed
necessary and not upon any view expressed by the other
party; and (v) it is entering into this Transaction with
a full understanding of the terms, conditions and risks
thereof and it is capable of and willing to assume those
risks.
8. Limitation of Liability. The parties hereto agree that
Delaware Trust Company is executing this Put Option
solely in its capacity as Owner Trustee and, accordingly,
Delaware Trust Company shall incur no personal liability
in connection herewith or the transactions contemplated
hereby.
Page 52
<PAGE>
FORM 10-Q
EXHIBIT 2.2 (l)
Please confirm your agreement to be bound by the terms of the
foregoing by executing the copy of this Confirmation enclosed
for that purpose and returning it to us.
Very truly yours,
SMM TRUST 1995-M
By: Delaware Trust Company,
not in its individual
capacity but solely as
Owner Trustee
By: /s/ Richard N. Smith
Title: Vice President
Accepted and confirmed as
of the date first above written:
CONE MILLS CORPORATION
By: /s/John L. Bakane
Title: Executive Vice President
ACKNOWLEDGED:
J.P. MORGAN SECURITIES INC.,
as Broker,
By: /s/Russell Church
Title: Vice President
Page 53
