Page 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
AMENDMENT NO. 3
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
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.)
3101 North Elm Street, Greensboro, N. C. 27408
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 910-379-6220
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $ .10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of voting stock held by nonaffiliates of the
registrant as of February 29, 1996: $ 294,420,046.
Number of shares of common stock outstanding as of February 29, 1996:
27,381,933 shares.
Documents incorporated by reference: Portions of 1995 Annual Report to
Shareholders, Part II, Items 6, 7 & 8; Proxy Statement for Annual Meeting
to be held May 14, 1996, Part III, Items 10, 11, 12 and 13 of this report.
<PAGE>
FORM 10-K/A Page 2
The undersigned registrant hereby amends the following item
of its report on Form 10-K for the fiscal year ended December 31,
1995 by adding the following exhibits:
PART IV
ITEM 14. Exhibits, Financial Statements Schedules, and
Reports on Form 8-K
(a)(3) Exhibits. The following exhibits are filed with this
amendment:
Exhibit 23.3 Consent of Auditors of Compania
Industrial de Parras S.A. de C.V. with
respect to the incorporation by
reference in the Registrant's
Registration Statements on Form S-8
(Nos. 33-31977; 33-31979; 33-51951; 33-
51953; 33-53705; and 33-67800) of their
report on the consolidated financial
statements to be included in this Annual
Report on Form 10-K.
Exhibit 99.3 Consolidated Financial Statements of
Compania Industrial de Parras S.A. de
C.V.
<PAGE>
FORM 10-K/A Page 3
Exhibit 23.3
ARTHUR
ANDERSEN
ARTHUR ANDERSEN & CO, SC
Arthur Andersen & Co.
Bosque de Duraznos 127
Bosques de las Lomas
11700 Mexico DF
326 88 00
596 46 92 Fax
CONE MILLS CORPORATION
1201 Maple Street
Greensboro, N.C. 27405
To the Board of Directors:
As independent public accountants, we hereby consent to the
incorporation by reference in the Form 10-K of Cone Mills
Corporation for the fiscal year ended December 31, 1995 of our
report of Compania Industrial de Parras, S.A. de C.V. an
Subsidiaries dated March 15, 1996 and March 29, 1996 regarding
the reference to auditors' report of Parras Cone de Mexico, S.A.
de C.V. a 50% owned subsidiary, accounted for under the equity
method, audited by other auditors. It should be noted that we
have not examined any financial statements of the Company
subsequent to the date of our report.
Arthur Andersen
March 15, 1996 and March 29, 1996
regarding the auditors' report of
Parras Cone de Mexico, S.A. de C.V.
<PAGE>
FORM 10-K/A Page 4
Exhibit 99.3
Translation of financial statements originally issued
in Spanish
COMPANIA INDUSTRIAL DE PARRAS, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF
DECEMBER 31, 1995
TOGETHER WITH AUDITORS' REPORT
<PAGE>
FORM 10-K/A Page 5
Exhibit 99.3 (continued)
ARTHUR ANDERSEN & CO
Mexico, D.F.
Translation of financial statements originally issued
in Spanish
(See Note 1 to the financial statements)
To the Stockholders of
Compania Industrial de Parras, S.A. de C.V.:
We have examined the consolidated balance sheet of COMPANIA
INDUSTRIAL DE PARRAS, S.A. DE C.V. AND SUBSIDIARIES as of
December 31, 1995 and the related consolidated statements of
income (loss), stockholders' equity and changes in financial
position for the year then ended. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audit. We did not audit the financial
statements of Parras Cone de Mexico, S.A. de C.V.
(unconsolidated subsidiary) as of December 31, 1995, which
statements represent assets and revenues of 11.51% and 15.66%,
respectively of the consolidated totals. Those statements were
audited by other auditors whose report has been furnished to
us and our opinion, insofar as it relates to the amounts
included for Parras Cone de Mexico, S.A. de C.V., is based
solely on the report of the other auditors.
We conducted our examination in accordance with generally
accepted auditing standards, which require that the audit be
planned and performed to obtain reasonable assurance about
whether the financial statements are free of material
misstatement and that they are prepared in accordance with
generally accepted accounting principles. An audit includes
examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements; an audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our examination provides a reasonable basis for
our opinion.
In our opinion, based on our audit and the report of other
auditors, the consolidated financial statements referred to
above present fairly the financial position of Compania
Industrial de Parras, S.A. de C.V. and Subsidiaries as of
December 31, 1995 and the consolidated results of their
<PAGE>
FORM 10-K/A Page 6
Exhibit 99.3 (continued)
operations, the changes in their stockholders' equity and the
changes in their financial position for the year then ended,
in conformity with generally accepted accounting principles in
Mexico.
Accounting practices used by the company in preparing the
accompanying financial statements conform with generally
accepted accounting principles in Mexico, but do not conform
with accounting principles generally accepted in the United
States. A description of these differences and a complete
reconciliation of consolidated net income (loss) and
stockholders' equity to U.S. generally accepted accounting
principles is set forth in Note 15.
Arthur Andersen
March 15, 1996 and March 29, 1996
regarding the auditors' report of
Parras Cone de Mexico, S.A. de C.V.
<PAGE>
FORM 10-K/A Page 7
Exhibit 99.3 (continued)
Translation of financial statements originally issued
in Spanish
COMPANIA INDUSTRIAL DE PARRAS, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1994
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF
DECEMBER 31, 1995
(In thousands of Mexican pesos)
<TABLE>
<S> <C> <C>
ASSETS
1995 1994
CURRENT:
Cash and cash equivalents $ 9,551 $ 26,257
Notes and accounts receivable -
Trade 256,946 295,638
Allowance for doubtful accounts (18,611) (6,366)
238,335 289,272
Cone Mills Corporation 19,142 -
Prepaid taxes and other
accounts receivable 20,801 23,490
278,278 312,762
Inventories 129,526 155,831
Total current assets 417,355 494,850
INVESTMENT IN PARRAS CONE DE
MEXICO, S.A. DE C.V. 205,324 23,884
PROPERTY, PLANT AND EQUIPMENT, net 972,544 993,193
OTHER ASSETS 10,190 3,097
$ 1,605,413 $ 1,515,024
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
<PAGE>
FORM 10-K/A Page 8
Exhibit 99.3 (continued)
Translation of financial statements originally issued
in Spanish
COMPANIA INDUSTRIAL DE PARRAS, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1994
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF
DECEMBER 31, 1995
(In thousands of Mexican pesos)
<TABLE>
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994
CURRENT:
Bank loans $ 148,521 $ 99,657
Current portion of long-term debt 13,320 5,751
Notes payable to financial institutions
and cotton suppliers 178,850 137,427
Textiles Kamel Nacif, S.A. de C.V. 38,700 360,328
Notes and accounts payable to suppliers 38,390 32,588
Cone Mills Corporation - 15,128
Parras Cone de Mexico, S.A. de C.V. 353 -
Other accounts payable and accrued
liabilities 35,010 23,267
Asset tax and employee profit sharing 41 280
Total current liabilities 453,185 674,426
LONG-TERM DEBT 182,963 53,710
RESERVE FOR INDEMNITY PAYMENTS 6,504 5,734
Total liabilities 642,652 733,870
STOCKHOLDERS' EQUITY:
Capital stock 186,989 68,746
Capital stock restatement 370,588 359,612
Additional paid-in capital 229,915 158,908
Reserve for repurchase of shares 25,000 25,000
Retained earnings 455,291 443,441
Cumulative effect of restatement (449,965) (319,991)
817,818 735,716
Minority interest 144,943 45,438
Total stockholders' equity 962,761 781,154
$1,605,413 $1,515,024
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
<PAGE>
FORM 10-K/A Page 9
Exhibit 99.3 (continued)
Translation of financial statements originally issued
in Spanish
COMPANIA INDUSTRIAL DE PARRAS, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF
DECEMBER 31, 1995
(In thousands of Mexican pesos, except per share
information expressed in pesos)
<TABLE>
<S> <C> <C>
1995 1994
NET SALES $ 1,069,513 $ 558,804
COST OF SALES 861,645 471,149
Gross profit 207,868 87,655
OPERATING EXPENSES:
Administrative 53,251 39,450
Selling 44,374 47,343
97,625 86,793
Operating profit 110,243 862
COMPREHENSIVE COST OF FINANCING:
Interest income (9,146) (7,534)
Interest expense 111,452 22,045
Exchange loss, net 255,114 188,520
Gain on monetary position (241,484) (10,382)
115,936 192,649
Comprehensive cost of financing
capitalized - (12,340)
115,936 180,309
OTHER INCOME 18,958 4,746
Income (loss) before provisions
and equity in income of Parras
Cone de Mexico, S.A. de C.V. 13,265 (174,701)
</TABLE>
<PAGE>
FORM 10-K/A Page 10
Exhibit 99.3 (continued)
Translation of financial statements originally issued
in Spanish
COMPANIA INDUSTRIAL DE PARRAS, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF
DECEMBER 31, 1995
(In thousands of Mexican pesos, except per share
information expressed in pesos)
-2-
<TABLE>
<S> <C> <C>
1995 1994
PROVISIONS FOR:
Asset tax 46 3,984
Employee profit sharing - 290
46 4,274
Income (loss) before equity in
income of Parras Cone de
Mexico, S.A. de C.V. 13,219 (178,975)
EQUITY IN INCOME OF PARRAS CONE DE
MEXICO, S.A. DE C.V. 2,455 -
Net consolidated income (loss) $ 15,674 $ (178,975)
NET INCOME (LOSS) APPLICABLE TO:
Majority interest $ 11,850 $ (144,082)
Minority interest 3,824 (34,893)
$ 15,674 $ (178,975)
Earnings (losses) per share
(majority interest) $ .3045 $ (6.37)
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
<PAGE>
FORM 10-K/A Page 11
Exhibit 99.3 (continued)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Translation of financial statements originally issued in Spanish
COMPANIA INDUSTRIAL DE PARRAS, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF DECEMBER 31, 1995
(In thousands of Mexican pesos)
Additional Reserve for Cumulative Total
Capital Stock Paid-in Repurchase Retained Effect of Minority Stockholders'
Historical Restatement Capital of Shares Earnings Restatement Interest Equity
BALANCES AS OF
DECEMBER 31, 1993 $ 50,000 $ 304,599 $ 57,154 $ 25,000 $ 601,838 $ (512,555) $ 1,941 $ 527,977
Increase in capital stock 18,746 55,013 101,754 - - - - 175,513
Increase in minority
stockholders' equity - - - - - - 52,730 52,730
Dividends declared - - - - (14,315) - - (14,315)
Net loss for the year - - - - (144,082) - (34,893) (178,975)
Change in equity in real
terms - - - - - 192,564 25,660 218,224
BALANCES AS OF
DECEMBER 31, 1994 68,746 359,612 158,908 25,000 443,441 (319,991) 45,438 781,154
Increase in capital stock 118,243 10,976 71,007 - - - - 200,226
Increase in minority
stockholders' equity - - - - - - 77,146 77,146
Net income for the year - - - - 11,850 - 3,824 15,674
Change in equity in real
terms - - - - - (129,974) 18,535 (111,439)
BALANCES AS OF
DECEMBER 31, 1995 $ 186,989 $ 370,588 $ 229,915 $ 25,000 $ 455,291 $ (449,965) $ 144,943 $ 962,761
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
FORM 10-K/A Page 12
Exhibit 99.3 (continued)
Translation of financial statements originally issued
in Spanish
COMPANIA INDUSTRIAL DE PARRAS, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF
DECEMBER 31, 1995
(In thousands of Mexican pesos)
<TABLE>
<S> <C> <C>
1995 1994
OPERATIONS:
Net consolidated income (loss) $ 15,674 $ (178,975)
Add (deduct) - Items that did not require
(generate) resources
Depreciation and amortization 50,101 48,764
Equity in income of Parras Cone de
Mexico, S.A. de C.V. (2,455) -
Comprehensive cost of financing
capitalized - (12,340)
Net increase in allowance for
doubtful accounts 12,245 4,386
Net increase in reserve for indemnity
payments 770 4,013
Resources obtained from (applied to)
results 76,335 (134,152)
Changes in working capital other than
financing
Notes and accounts receivable, net 22,239 (185,042)
Inventories, net (41,157) (57,385)
Notes and accounts payable to suppliers 47,225 35,926
Other accounts payable and accrued
liabilities (3,028) 13,543
Asset tax and employee profit sharing (239) (3,952)
Net resources obtained from (applied
to) operations 101,375 (331,062)
INVESTMENTS:
Additions to property, plant and equipment
less net book value of retirements (66,075) (559,463)
Investment in stock of Parras Cone de
Mexico, S.A. de C.V. (186,343) (12,550)
(Increase) decrease in other assets (7,093) 783
(259,511) (571,230)
<PAGE>
FORM 10-K/A Page 13
Exhibit 99.3 (continued)
Translation of financial statements originally issued
in Spanish
COMPANIA INDUSTRIAL DE PARRAS, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF
DECEMBER 31, 1995
(In thousands of Mexican pesos)
-2-
1995 1994
FINANCING:
Bank loans, notes payables and long-term
debt 240,094 140,362
(Decrease) increase in constant pesos of
debt (54,408) 73,561
Textiles Kamel Nacif, S.A. de C.V. (321,628) 360,327
Increase in capital stock 200,226 175,513
Increase in minority stockholders' equity 77,146 52,730
Dividends declared - (14,315)
141,430 788,178
Decrease in cash and cash
equivalents (16,706) (114,114)
Cash and cash equivalents at the
beginning of the year 26,257 140,371
Cash and cash equivalents at the
end of the year $ 9,551 $ 26,257
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
<PAGE>
FORM 10-K/A Page 14
Exhibit 99.3 (continued)
Translation of financial statements originally issued
in Spanish
COMPANIA INDUSTRIAL DE PARRAS, S.A. DE C.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF
DECEMBER 31, 1995
(In thousands of Mexican pesos)
1. Explanation Added for Translation to English:
These financial statements are presented on the basis of
generally accepted accounting principles in Mexico.
Certain accounting practices applied by the Companies
that conform with generally accepted accounting
principles in Mexico do not conform with generally
accepted accounting principles in the United States. A
description of these differences and a complete
reconciliation of consolidated net income (loss) and
stockholders' equity to U.S. generally accepted
accounting principles is set forth in Note 15.
2. Company Operations:
The Company and its subsidiaries are engaged in the
manufacturing and distribution of denim fabric and
apparel.
Due to the economic situation in Mexico, the Company's
management has implemented certain measures to improve
its operational and financial situation, of which the
most significant are:
- Beginning in 1996 the Company's apparel manufacturing
division will be closed, to avoid direct competition with
its customers. Most of the clothing was manufactured by
companies outside the group.
- Restructuring of its financing debt, which includes a
partial payment of $33 million U.S. dollars to Textiles
Kamel Nacif, S.A. de C.V. with a discount of $2 million
U.S. dollars (equivalent to $15,237 Mexican pesos, which
is presented under other income). This payment was
financed through an increase in capital stock and paid-in
<PAGE>
FORM 10-K/A Page 15
Exhibit 99.3 (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
capital of approximately $28 million U.S. dollars.
Additionally, negotiations are underway to restructure
short and long-term debt with foreign financial
institutions at preferential interest rates.
- Complete the construction of the plant of Parras Cone
de Mexico, S.A. de C.V. for the manufacturing of denim
fabric, which is 50% owned by the Company; the fabric
production is focused on the export markets and this
plant began operations in September 1995. This project
was financed with Company resources and additional
financing of $20 million U.S. dollars, as described in
Note 10.
3. Significant Accounting Policies:
The accompanying financial statements were prepared in
Mexican pesos ($), which is the name of the new Mexican
peso (N$) as of January 1, 1996.
The significant accounting policies followed by the
Companies, which are in accordance with generally
accepted accounting principles in Mexico, are as follows:
Recognition of the effects of inflation -
The Companies follow the accounting rules prescribed by
Bulletin B-10 and its amendments and, accordingly, all
financial statements have been restated in terms of the
purchasing power of currency as of the end of the latest
year.
Basis for consolidation -
The consolidated financial statements include the
financial statements of Compania Industrial de Parras,
S.A. de C.V. and its majority owned and controlled
subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation. The
subsidiary Hilaturas Parras, S.A. de C.V. which is
engaged in the manufacturing and distribution of denim
fabric, began operations during August 1994.
<PAGE>
FORM 10-K/A Page 16
Exhibit 99.3 (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
The main subsidiaries are:
% of
Ownership
Fabrica la Estrella, S.A. de C.V. 99.9
Hilaturas Parras, S.A. de C.V. 70.0
Telas Parras, S.A. de C.V. 99.9
Prendas Textiles, S.A. de C.V. 99.9
Lavapar, S.A. de C.V. 99.9
Parras Williamson, S.A. de C.V. 85.0
Servicios Corporativos Cipsa, S.A. de C.V. 99.9
Servi Parras, S.A. de C.V. 99.9
Lecrest, S.A. de C.V. and Subsidiary 59.0
</TABLE>
Cash equivalents -
Cash equivalents are primarily bank deposits and
acceptances, valued at market (cost plus accrued
interest).
Inventories and cost of sales -
Inventories are originally recorded at their acquisition
or production cost and subsequently restated to the lower
of replacement cost or market. The restated cost of
sales is determined with the specific production cost for
each month.
Investment in unconsolidated company -
The Company owns 50% of the common stock of Parras Cone
de Mexico, S.A. de C.V., which began operations in
September 1995. This investment is recognized using the
equity method (the Company does not have control over
this company), based on financial statements prepared
under the same bases as those of the Company. Following
is a condensed balance sheet of Parras Cone de Mexico,
S.A. de C.V. as of December 31, 1995 and the related
condensed statement of income for the period then ended:
<PAGE>
FORM 10-K/A Page 17
Exhibit 99.3 (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
Condensed balance sheet
Assets
Current assets $ 105,067
Property, plant and equipment, net 819,406
Prepaid expenses and others 54,156
$ 978,629
Liabilities
Current liabilities $ 85,573
Long-term liabilities 482,409
567,982
Stockholders' equity 410,647
$ 978,629
Condensed statement of income
Net sales and others $ 39,308
Cost of sales 34,398
Net income for the year $ 4,910
</TABLE>
Property, plant and equipment -
Property, plant and equipment are originally recorded at
acquisition or construction cost and are subsequently
restated to their net replacement cost, as determined by
independent appraisers approved by the Mexican National
Banking and Securities Commission.
Depreciation of property, plant and equipment (at cost
and restated values) are computed using the straight-line
method based on the remaining useful lives determined by
the appraisers.
Income taxes and employee profit sharing -
The Company recognizes by means of the liability method
the future effects of income taxes and employee profit
sharing related to the cumulative temporary differences
between accounting and taxable income, which arise from
specific items whose turnaround period can be determined
and which are not expected to be replaced by items of a
similar nature and amount.
<PAGE>
FORM 10-K/A Page 18
Exhibit 99.3 (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Since there are no significant nonrecurring temporary
differences, the Companies have not recorded any deferred
or prepaid income taxes and employee profit sharing
effects.
Employee severance benefits -
Under Mexican labor law, the Companies are liable for
separation payments to employees terminating under
certain circumstances.
The liability for seniority premiums, pensions and
severance payments is recorded through book reserves and
irrevocable trust funds, for which annual contributions
based on actuarial computations determined using the
projected unit credit method are made.
Therefore, the liability is being accrued at present
value and will cover the obligation from benefits
projected to the estimated retirement date of the
Company's employees, as follows:
Projected benefit obligation (PBO) $ 14,733
Funds and reserves 13,123
Past service cost to be amortized $ 1,610
As of December 31, 1995 the amount of funds and reserves
exceeds the accumulated benefit obligation, (equivalent
to PBO without projecting the salaries to the date of
retirement) by $7,759.
The net periodic employee benefits expense for 1995 and
1994 are as follows:
<TABLE>
<S> <C> <C> <C>
1995 1994
Service cost $ 1,923 $ 1,741
Amortization of unrecognized obligations 391 861
Financial cost 1,291 2,455
3,605 5,057
Less - Return on plan assets (935) (1,074)
Net cost for the year $ 2,670 $ 3,983
</TABLE>
<PAGE>
FORM 10-K/A Page 19
Exhibit 99.3 (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stockholders' equity restatement -
Capital stock and retained earnings are restated by
applying the National Consumer Price Index (NCPI) from
the date of contribution or generation, thereby
reflecting the amount necessary to maintain stockholders'
investment in terms of purchasing power of the amounts
originally invested or retained.
The cumulative effect of restatement represents, in
essence, the total by which nonmonetary assets changed in
value as compared to the NCPI.
Revenues and expenses -
Revenues and expenses which are associated with a
monetary item (trade receivables, cash and liabilities,
etc.) are restated from the month in which they arise
through year end, based on factors derived from the NCPI.
Costs and expenses associated with nonmonetary items are
restated through year end, as a function of the
restatement of the nonmonetary asset which is consumed or
sold.
Comprehensive cost of financing -
The comprehensive cost of financing is the sum of
interest income and expense, exchange gain or loss and
gain from monetary position, which is the result of
maintaining monetary assets and liabilities whose real
purchasing power is affected by inflation.
The Companies follow the practice of capitalizing the
comprehensive financing costs incurred during the
construction period on debt used to finance the additions
to property, plant and equipment, and the capitalized
amounts are amortized over the average depreciation
period of the corresponding assets.
Transactions in foreign currency are recorded at the
exchange rate as of the date of the transaction and the
assets and liabilities in foreign currency are adjusted
at the exchange rate as of year end, affecting income as
part of the integral cost of financing.
<PAGE>
FORM 10-K/A Page 20
Exhibit 99.3 (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income per share -
The income per share was determined based on the majority
result and the weighted average of outstanding shares
during the years.
4. Reclassification of Prior Year Financial Statements:
Certain amounts in the financial statements at December
31, 1994 have been reclassified in order to conform with
the presentation of the financial statements at December
31, 1995.
5. Foreign Currency Denominated Assets and Liabilities:
In December 1994, Banco de Mexico (central bank) allowed
the Mexican peso to float freely on the exchange markets,
which resulted in a significant devaluation. The
Companies valued their foreign currency denominated
assets and liabilities, mainly in U.S. dollars, at the
sale exchange rates effective at December 31, 1995 and
1994, which were $7.74 and $4.94 pesos per U.S. dollar,
because it is expected to use their foreign currency
denominated assets to liquidate their foreign currency
denominated liabilities.
The effect of the devaluation during 1994 resulted in an
exchange loss amounting to $182,165, which was recorded
as part of the comprehensive cost of financing. As the
Companies have significant liabilities in U.S. dollars,
which were used to finance construction in progress and
installed equipment, the Companies capitalized the
related integral cost of financing.
The foreign currency position at the end of period
consisted of the following:
<TABLE>
<S> <C> <C> <C>
Thousands Thousands of
of U.S. Mexican
Dollars Pesos
Current assets $ 15,988 $ 123,747
Liabilities
Current 34,793 269,298
Long-term 16,316 126,286
51,109 395,584
Net liability position in
foreign currency $ 35,121 $ 271,837
</TABLE>
<PAGE>
FORM 10-K/A Page 21
Exhibit 99.3 (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended December 31, 1995, the Companies
had the following significant transactions in foreign
currency:
<TABLE>
<S> <C> <C> <C>
Thousands Thousands of
of U.S. Mexican
Dollars Pesos
Direct and indirect export sales $ 81,071 $ 551,228
Foreign purchases other than
fixed assets 53,414 350,391
Net $ 27,657 $ 200,837
</TABLE>
At March 15, 1996, the unaudited foreign exchange
position was similar to that at year end, and the
exchange rate was $7.58 pesos per U.S. dollar.
6. Cash and Cash Equivalents:
Cash and cash equivalents are as follows:
<TABLE>
<S> <C> <C> <C>
1995 1994
Cash and banks $ 4,571 $ 8,960
Investments with maturities less
than 3 months 4,980 17,297
$ 9,551 $ 26,257
</TABLE>
7. Inventories:
Inventories are as follows:
<TABLE>
<S> <C> <C> <C>
1995 1994
Finished goods $ 36,470 $ 69,227
Work in process 32,166 13,259
Cotton 31,900 52,125
Dyes and other supplies 8,800 9,849
Advances to suppliers 20,190 7,169
Merchandise in transit - 4,202
$ 129,526 $ 155,831
</TABLE>
<PAGE>
FORM 10-K/A Page 22
Exhibit 99.3 (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Property, Plant and Equipment:
Property, plant and equipment is as follows:
<TABLE>
<S> <C> <C> <C>
1995 1994
Building and installations $ 222,240 $ 234,957
Machinery and equipment 1,086,351 965,653
Transportation equipment 5,885 6,660
Furniture and fixtures 12,099 16,242
1,326,575 1,223,512
Less - Accumulated depreciation (410,431) (277,653)
916,144 945,859
Land 35,373 30,416
Projects in process 2,732 -
Materials and supplies 18,295 16,102
Advances to suppliers of machinery - 816
$ 972,544 $ 993,193
</TABLE>
The average depreciation rates are:
<TABLE>
<S> <C> <C> <C>
1995 1994
Buildings and installations 2.03% 2.12%
Machinery and equipment 5.77% 5.54%
Transportation equipment 9.62% 9.31%
Furniture and fixtures 11.82% 11.48%
</TABLE>
9. Transactions with Related Parties:
The Company had the following transactions with
related parties:
<TABLE>
<S> <C> <C> <C>
Thousands Thousands
of U.S. of Mexican
Dollars Pesos
Cone Mills Co.
Sales $ 61,609 $ 404,148
Purchases 5,193 34,066
Net $ 56,416 $ 370,082
Parras Cone de Mexico, S.A. de C.V.
Purchases $ 27,021
</TABLE>
<PAGE>
FORM 10-K/A Page 23
Exhibit 99.3 (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Bank Loans, Notes Payable and Long-Term Debt:
Long-term debt is as follows:
<TABLE>
<S> <C> <C> <C>
Due Interest
Type of Credit Date Rate Amount
Loans in U. S. dollars
Equipment loan 1996 8.2 to 23.35% $ 182,217
Unsecured 1996 8.50% 47,869
Loan secured by shares 1998 LIBOR + 0.5% 148,392
Inventory loan 1999 LIBOR + 1.6% 6,369
Inventory loan 2000 11.97 to 12.00% 39,134
Total in U.S. dollars 423,981
Loans in Mexican pesos
Unsecured 1996 53.50% 86,184
Financing lease 1996 50.81% 3,489
Simple interest loan 1999 TIIP + 1.25% 10,000
Total in Mexican pesos 99,673
Total in dollars and Mexican
pesos 523,654
Less - Part current portion 340,691
Total long-term debt $ 182,963
</TABLE>
The maturity of the long-term debt are as follows:
<TABLE>
<S> <C> <C>
Year of
Maturity
1997 $ 11,132
1998 159,368
1999 10,981
2000 1,482
$ 182,963
</TABLE>
Inventory loans, equipment loans and financial leases are
payable in monthly, quarterly and semi-annual
installments and are guaranteed by the property acquired
with these loans and export sales billings. Certain
covenants have been established which have been complied
with.
<PAGE>
FORM 10-K/A Page 24
Exhibit 99.3 (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The simple interest loan is payable in semi-annual
installments and prepayments have been made. The related
contract establishes certain covenants. The Company has
not complied with the total liabilities to stockholders'
equity ratio, however, the related waiver has been
obtained.
On September 28, 1995, the Company signed a loan contract
with Morgan Guaranty Trust Company of New York in the
amount of $20 million U.S. dollars, which is due on
September 28, 1998 and guaranteed with a trust created
with the Company's stock in Parras Cone de Mexico, S.A.
de C.V.. The Company maintains its voting rights, and the
collateral will be released upon repayment of the loan.
11. Tax Environment:
Income and asset tax regulations -
The Companies are subject to income taxes (ISR) and asset
tax (IMPAC). ISR is computed taking into consideration
the taxable and deductible effects of inflation, such as
depreciation calculated on restated asset values, the
deduction of purchases in place of cost of sales, which
permits the deduction of current costs, and taxable
income is increased or reduced by the effects of
inflation on certain monetary assets and liabilities
through the inflationary component, which is similar to
the gain from monetary position. ISR is calculated in
terms of currency when the transactions occurred and not
in terms of currency as of the end of the year.
The IMPAC is computed at an annual rate of 1.8% (2% until
1994) of the average of the majority of restated assets
less certain liabilities, and the tax is paid only to the
extent that it exceeds the ISR of the period. Any
required payment of IMPAC is creditable against the
excess of income taxes over IMPAC in the following ten
years. Also, ISR paid in the last three years can be
credited against IMPAC for the year. The Company
credited in 1995, ISR of prior years against IMPAC in the
amount of $5,005.
The Companies obtained an authorization to file a
consolidated ISR and IMPAC return and the corresponding
benefit is recorded in the Holding Company. Employee
profit sharing is calculated based on the individual
results of each of the operating companies.
<PAGE>
FORM 10-K/A Page 25
Exhibit 99.3 (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Employee profit sharing is calculated based on taxable
income, after certain adjustments, primarily depreciation
and exchange gains or losses are recognized only when are
realized.
Tax loss carryforwards and recoverable asset tax -
At December 31, 1995, the Company had the following
restated tax loss carryforwards and recoverable asset tax
which will be indexed for inflation through the year in
which they are used or applied:
<TABLE>
<S> <C> <C> <C>
Expiration Tax Loss Asset Tax
Date Carryforwards Recoverable
2004 $ 217,130 $ 6,390
2005 233,785 -
$ 450,915 $ 6,390
</TABLE>
12. Stockholders' Equity:
During a General Extraordinary Stockholders' Meeting held
on October 4, 1995, an increase in the Company's capital
stock through the issuance of 47,312,456 shares was
approved, of which 34,411,323 represent the fixed capital
stock and 12,901,133 the variable capital stock, with a
par value of $4 Mexican pesos each. The theoretical
nominal value per share is $2.4992 Mexican pesos, and the
remaining $1.5008 relates to the additional paid-in
capital.
As of December 31, 1995, the capital stock is as follows:
<TABLE>
<S> <C> <C> <C>
Shares Amount
Nominative Series "A" without par
value which may only be acquired
by Mexicans 59,855,757 $ 149,591
Nominative Series "B" without par
value which are freely
subscribable 14,963,941 37,398
74,819,698 $ 186,989
</TABLE>
The non-withdrawable fixed capital stock in the amount of
$136,000 is represented by Class I shares and the
<PAGE>
FORM 10-K/A Page 26
Exhibit 99.3 (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
variable capital stock is represented by Class II shares.
The variable portion may not exceed ten times the non-
withdrawable fixed capital stock. These shares are
common, nominative and without par value.
Dividends paid from the net taxable income account (UFIN)
in the approximate amount of $432,000 in 1995 are not
subject to income taxes. Dividends paid in excess of UFIN
are subject to 34% income tax withholding. In the event
capital is reduced, the excess of the reduction over the
price-level adjusted paid-in capital will be taxable as
a dividend in accordance with the formula prescribed by
tax law.
The annual net income of each Company is subject to the
legal requirement that 5% thereof be transferred to a
legal reserve each year until the reserve equals 20% of
capital stock. This reserve may not be distributed to
stockholders during the existence of the Companies,
except in the form of a stock dividend. At December 31,
1995 and 1994 the legal reserve of Compania Industrial de
Parras, S.A. de C.V. amounts to $5,716 (nominal value)
and is included in retained earnings.
13. Contingencies:
Certain subsidiaries have indirect export sales through
their domestic customers and are exempt for value added
tax purposes once the export certificates are obtained.
At December 31, 1995, the Company is in the process of
obtaining the export certificates in the approximate
amount of $7,000 which will support the legal exemption
for value added tax purposes.
14. Commitments:
The Companies have signed contracts which establish
commitments for future cotton purchases with an average
price per pound of U.S.$0.8146 and an approximate amount
of $46.6 million U.S. dollars. The market price at the
date of issuance of these financial statements is
U.S.$0.8850.
<PAGE>
FORM 10-K/A Page 27
Exhibit 99.3 (continued)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Reconciliation of Differences Between Mexican and U.S. GAAP:
Following is the reconciliation of the Balance Sheet as of December 31, 1995 and Statement of Income (Loss) for the year
then ended from generally accepted accounting principles in Mexico (Mexican GAAP) to generally accepted accounting
principles in the United States (U.S. GAAP).
Balance Sheet -
Foreign
CIPSA Exchange Loss
Mexican Deferred Capitalized Participation CIPSA
GAAP Income Tax in Property, in Parras Cone U.S. GAAP
Financial Inflation and Employee Plant and de Mexico, Financial
Statements Accounting Profit Sharing Equipment,net S.A. de C.V. Statements
ASSETS
Cash and cash equivalents $ 9,551 $ - $ - $ - $ - $ 9,551
Accounts receivable, net 238,335 - - - - 238,335
Cone Mills Corporation 19,142 - - - - 19,142
Other accounts receivable 20,801 - - - - 20,801
Inventories 129,526 (3,749) - - - 125,777
Investment in Parras Cone
de Mexico, S.A. de C.V. 205,324 (34,037) - - (92,376) 78,911
Property, plant and
equipment, net 972,544 (639,209) - (8,121) - 325,214
Deferred income taxes - - 110,229 - - 110,229
Other assets 10,190 - - - - 10,190
Total assets $1,605,413 $(676,995) $ 110,229 $ (8,121) $ (92,376) $ 938,150
LIABILITIES AND
STOCKHOLDERS' EQUITY
Total current liabilities $ 453,185 $ - $ 56,376 $ - $ - $ 509,561
Long-term debt liabilities 189,467 - - - - 189,467
Total liabilities 642,652 - 56,376 - - 699,028
Minority interest 144,943 (83,856) 15,939 - - 77,026
STOCKHOLDERS' EQUITY
Capital Stock 557,577 (370,588) - - - 186,989
Additional paid-in capital 229,915 - - - - 229,915
Reserve for stock repurchase 25,000 - - - - 25,000
Retained earnings 443,441 (404,315) 20,671 (8,121) (21,514) 30,162
Correction to retained
earnings arising from
capitalization of
restatement effects - (43,238) - - - (43,238)
Net income (loss) for
the period 11,850 (224,963) 17,243 - (70,862) (266,732)
Cumulative restatement
effect (449,965) 449,965 - - - -
Total stockholders'
equity 817,818 (593,139) 37,914 (8,121) (92,376) 162,096
Total liabilities and
stockholders'
equity $1,605,413 $(676,995) $ 110,229 $ (8,121) $ (92,376) $ 938,150
<PAGE>
FORM 10-K/A Page 28
Exhibit 99.3 (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-2-
Foreign
CIPSA Exchange Loss
Mexican Deferred Capitalized Participation CIPSA
GAAP Income Tax in Property, in Parras Cone U.S. GAAP
Financial Inflation and Employee Plant and de Mexico, Financial
Statements Accounting Profit Sharing Equipment,net S.A. de C.V. Statements
Statement of income (loss) -
Net sales $1,069,513 $(131,065) $ $ $ $ 938,448
Cost of sales 861,645 (117,726) 743,919
Gross profit 207,868 (13,339) - - - 194,529
Operating expenses 97,625 (12,509) - - - 85,116
Operating profit 110,243 (830) - - - 109,413
Comprehensive financing
cost 115,936 (180,074) - - - 296,010
Other income, net (18,958) (3,798) - - - (15,160)
Income (loss) before
provisions,equity in
income of Parras Cone
de Mexico, S.A. de C.V.
and minority interest 13,265 (184,702) - - - (171,437)
Income taxes and employee
profit sharing:
Current 46 (6) - - - 40
Deferred - - - (38,136) - (38,136)
Equity in income of Parras
Cone de Mexico, S.A.
de C.V. 2,455 (22) - - (70,862) (68,429)
Minority interest 3,824 40,245 - 20,893 - 64,962
Net income (loss)
for the year $ 11,850 $(224,963) $ - $ 17,243 $ (70,862) $(266,732)
The principal differences between Mexican GAAP and U.S. GAAP are described below together
with an explanation, where appropriate, of the method used in the determination of the adjustments
that affect the Balance Sheet and the Statement of Income (Loss):
Inflation accounting -
Under Mexican GAAP the financial statements are prepared in accordance with Bulletin B-10
"Recognition of the Effects of Inflation on Financial Information" as amended, issued by the Mexican
Institute of Public Accountants, which recognizes the effects of inflation and, accordingly the
financial statements have been restated to the purchasing power of the Mexican peso as of
December 31, 1995, using the Mexican National Consumer Price Index (the "NCPI") published
by the Banco de Mexico (Central Bank). Under U.S. GAAP historical cost basis must be used.
</TABLE>
<PAGE>
FORM 10-K/A Page 29
Exhibit 99.3 (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes -
Under Mexican GAAP, deferred taxes are provided only for non-
recurring differences which are defined as items which will
reverse and not be replaced by a similar item. Under U.S.
GAAP, which requires the liability method of accounting,
deferred income taxes are recognized for the tax consequences
of all temporary differences, both recurring and non-
recurring, between the financial statement carrying amounts
and the tax bases of assets and liabilities. Deferred income
taxes under U.S. GAAP arise principally due to the deduction
of purchases and production costs remaining in inventory for
book purposes which are charged to expense for tax purposes,
differences due to indexation of depreciation, and the
recording of tax loss carryforwards as deferred tax assets,
which is prohibited under Mexican GAAP.
Capitalized financing costs -
The Company capitalized the integral cost of financing related
to construction in progress, which included the interest and
the exchange losses. Under U.S. GAAP only interest expense may
be capitalized and accordingly the necessary adjustment to
reverse the capitalized exchange loss has been included.
Participation in Parras Cone de Mexico, S.A. de C.V.:
As explained above, under Mexican GAAP the Company capitalized
the integral cost of financing and accordingly its subsidiary
follows the same accounting policy. Therefore, the additional
adjustment to reverse the capitalized exchange loss, net of the
applicable monetary position for that subsidiary, has been also
included.
Minority interest -
Under Mexican GAAP, Bulletin B-8, minority interest in
subsidiaries must be included as a component of stockholders'
equity. Consequently, minority interest in the income of
subsidiaries is not presented as an expense in the statement
of income. Under U.S. GAAP, minority interest in subsidiaries
is shown below liabilities on the balance sheet, and is not
part of stockholders' equity.
<PAGE>
FORM 10-K/A Page 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 June 28, 1996 /s/ John L. Bakane
John L. Bakane
Executive Vice President and
Chief Financial Officer
