Page 1 of 174
                                             Index to Exhibits - Pages 25-32

                              UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSION
                         Washington, D.C.  20549

                                FORM 10-Q

(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 3, 1999

                                    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.)

3101 North Elm Street, Greensboro, North Carolina   27408
(Address of principal executive offices)            (Zip Code)

                         (336) 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 October 29, 1999:
25,485,717 shares.

<PAGE>
                          CONE MILLS CORPORATION

                                 INDEX
                                                                         Page
                                                                        Number
PART I.      FINANCIAL INFORMATION

Item 1.      Financial Statements

                 Consolidated  Condensed  Statements of Operations
                    Thirteen and thirty-nine  weeks ended  October 3,
                    1999 and  September 27, 1998
                    (Unaudited)..............................................3

                 Consolidated Condensed Balance Sheets
                    October 3, 1999 and September 27, 1998 (Unaudited)
                    and January 3, 1999......................................4

                 Consolidated Condensed Statements of Cash Flows
                    Thirty-nine weeks ended October 3, 1999
                    and September 27, 1998 (Unaudited).......................5

                 Notes to Consolidated Condensed Financial Statements
                    (Unaudited)..............................................6

Item 2.      Management's Discussion and Analysis of
                 Financial Condition and Results of Operations..............15

Item 3.      Quantitative and Qualitative Disclosures about Market Risk.....22


PART II.     OTHER INFORMATION

Item 1.      Legal Proceedings..............................................22
Item 5.      Other Information..............................................24
Item 6.      Exhibits and Reports on Form 8-K...............................24

<PAGE>
Item 1.                                              Part I
<TABLE>
<S>                                              <C>               <C>             <C>              <C>

                                     CONE MILLS CORPORATION AND SUBSIDIARIES
                                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                      (in thousands, except per share data)

                                                     Thirteen         Thirteen       Thirty-Nine     Thirty-Nine
                                                    Weeks Ended     Weeks Ended      Weeks Ended     Weeks Ended
                                                    October 3,       September       October 3,       September
                                                       1999           27, 1998          1999          27, 1998
                                                   --------------   -------------   --------------  --------------
                                                    (Unaudited)     (Unaudited)     (Unaudited)      (Unaudited)


Net Sales                                               $147,197         187,359          478,946         574,834

Cost of Goods Sold                                       136,521         167,618          438,684         517,810
                                                   --------------   -------------   --------------  --------------
Gross Profit                                              10,676          19,741           40,262          57,024

Selling and Administrative                                11,992          14,663           37,022          42,484
Restructuring and Impairment of Assets                     3,100             132           16,017             132
                                                   --------------   -------------   --------------  --------------

Income (Loss) from Operations                             (4,416)          4,946          (12,777)          14,408
                                                   --------------   -------------   --------------  --------------

Other Income (Expense)
   Interest income                                           400             837            1,276            2,199
   Interest expense                                       (3,521)         (3,534)         (10,678)        (11,255)
   Other expense                                            (264)              -             (264)              -
                                                   --------------   -------------   --------------  --------------
                                                          (3,385)         (2,697)          (9,666)         (9,056)
                                                   --------------   -------------   --------------  --------------

Income (Loss) before Income Taxes (Benefit),
  Equity in Earnings (Losses) of Unconsolidated
  Affiliate and Cumulative Effect of Accounting
  Change                                                  (7,801)          2,249         (22,443)           5,352

Income Taxes (Benefit)                                    (2,808)            742          (7,775)           1,766
                                                   --------------   -------------   --------------  --------------

Income (Loss) before Equity in Earnings (Losses)
  of Unconsolidated Affiliate and Cumulative
  Effect of Accounting Change                             (4,993)          1,507         (14,668)           3,586
Equity in Earnings (Losses) of Unconsolidated
  Affiliate                                                 (405)          1,285           1,552            3,801
                                                   --------------   -------------   --------------  --------------

Income (Loss) before Cumulative Effect of
Accounting Change                                        (5,398)           2,792         (13,116)           7,387

Cumulative Effect of Accounting Change                        -                -          (1,038)               -
                                                   --------------   -------------   --------------  --------------
Net Income (Loss)                                $       (5,398)    $       2,792    $   (14,154)   $       7,387
                                                   ==============   =============   ==============  ==============
Income (Loss) Available to Common Shareholders
   Income (Loss) before Cumulative Effect of
   Accounting Change                             $       (6,188)    $      2,072     $   (15,416)   $       5,194
   Cumulative Effect of Accounting Change                     -                -          (1,038)               -
                                                   ==============   =============   ==============  ==============
    Net Income (Loss)                            $       (6,188)    $      2,072     $   (16,454)   $       5,194
                                                   ==============   =============   ==============  ==============

Earnings (Loss) Per Share - Basic and Diluted
   Income (Loss) before Cumulative Effect of
   Accounting Change                             $        (0.24)   $        0.08     $     (0.61)   $        0.20
   Cumulative Effect of Accounting Change                     -                -           (0.04)               -
                                                   ==============   =============   ==============  ==============
   Net Income (Loss)                             $        (0.24)   $        0.08     $     (0.65)   $        0.20
                                                   ==============   =============   ==============  ==============
Weighted-Average Common Shares Outstanding
   Basic                                                 25,486           25,972           25,453          26,107
                                                   ==============   =============   ==============  ==============
   Diluted                                               25,486           25,994           25,453          26,162
                                                   ==============   =============   ==============  ==============
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<S>                                                                 <C>             <C>               <C>
                                     CONE MILLS CORPORATION AND SUBSIDIARIES
                                      CONSOLIDATED CONDENSED BALANCE SHEETS
                                 (in thousands, except share and par value data)


                                                                      October 3,      September 27,    January 3,
                                                                         1999            1998             1999
                                                                     --------------  --------------   -------------
                                                                      (Unaudited)     (Unaudited)        (Note)

ASSETS
  Current Assets
      Cash                                                              $    3,925       $     624       $     639
      Accounts receivable, less allowances of $5,050; 1998, $1,500          48,798          29,237          26,010

      Subordinated note receivable                                               -          28,515          10,414

      Inventories                                                          118,393         118,200         120,430

      Other current assets                                                  10,504          15,524          10,253
                                                                    --------------  --------------   -------------
         Total Current Assets                                              181,620         192,100         167,746

    Investments in Unconsolidated Affiliates                                46,003          40,582          45,489

    Other Assets                                                            36,158          35,848          36,616

    Property, Plant and Equipment                                          222,543         250,104         238,666
                                                                    --------------  --------------   -------------

                                                                        $  486,324      $  518,634      $  488,517
                                                                     ==============  ==============   =============
LIABILITIES AND STOCKHOLDERS' EQUITY
    Current Liabilities                                                 $        -      $    8,500      $    1,000
      Notes payable                                                         67,714          10,714          10,714
      Current maturities of long-term debt
                                                                            41,280          34,317          27,255
      Accounts payable

      Sundry accounts payable and accrued liabilities                       34,688          48,233          42,071

      Deferred income taxes                                                 15,158          20,230          22,670
                                                                     --------------  --------------   -------------
       Total Current Liabilities                                           158,840         121,994         103,710

    Long-Term Debt                                                         119,004         146,274         161,385

    Deferred Income Taxes                                                   32,588          42,949          30,050

    Other Liabilities                                                       11,702          11,315          11,448


    Stockholders' Equity
      Class A preferred  stock - $100 par value;  authorized  1,500,000  shares;
         issued and outstanding 372,638 shares;
         1998, 383,948 shares                                               37,264          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 25,485,717 shares;
         1998, 25,459,433 shares and 25,432,233 shares                       2,549           2,546           2,543
      Capital in excess of par                                              57,522          57,418          57,264
      Retained earnings                                                     75,761         106,860          92,799
      Deferred compensation - restricted stock                                (448)           (617)           (579)
      Accumulated other comprehensive loss, currency translation
      adjustment                                                            (8,458)         (8,500)         (8,498)
                                                                     --------------  --------------   ------------
       Total Stockholders' Equity                                          164,190         196,102         181,924
                                                                     --------------  --------------   -------------
                                                                        $  486,324      $  518,634      $  488,517
                                                                     ==============  ==============   =============
</TABLE>
Note:  The balance sheet at January 3, 1999,  has been derived from
        the financial statements at that date.

See Notes to Consolidated Condensed Financial Statements.
<PAGE>
<TABLE>
<S>                                                                       <C>                 <C>
                                     CONE MILLS CORPORATION AND SUBSIDIARIES
                                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                                  (in thousands)

                                                                             Thirty-Nine           Thirty-Nine
                                                                             Weeks Ended           Weeks Ended
                                                                           October 3, 1999     September 27, 1998
                                                                          ------------------   --------------------
                                                                             (Unaudited)           (Unaudited)

CASH PROVIDED BY OPERATIONS                                                   $       1,327         $       19,636
                                                                          ------------------   --------------------
INVESTING
     Proceeds from sale of property, plant and equipment                              2,824                  5,495
     Capital expenditures                                                            (8,040)               (21,933)
                                                                          ------------------   --------------------

       Cash used in investing                                                       (5,216)               (16,438)
                                                                          ------------------   --------------------

FINANCING
     Net borrowings (payments) under line of credit agreements                       (1,000)                 4,000
     Decrease in checks issued in excess of deposits                                 (2,377)                (5,945)
     Principal payments on long-term debt                                           (10,714)               (10,714)
     Proceeds from long-term debt borrowings                                         25,000                 17,000
     Proceeds from sale of common stock                                                 326                      -
     Purchase of outstanding common stock                                               (45)                (4,795)
     Dividends paid - Class A Preferred                                                 (87)                (2,976)
     Redemption of Class A Preferred stock                                           (3,928)                     -
                                                                          ------------------   -------------------
        Cash provided by (used in) financing                                          7,175                 (3,430)
                                                                          ------------------   --------------------

        Net change in cash                                                            3,286                   (232)

Cash at Beginning of Period                                                             639                    856
                                                                          ------------------   --------------------
Cash at End of Period                                                         $       3,925          $         624
                                                                          ==================   ====================

Supplemental Disclosures of Additional Cash Flow Information:
Cash payments for:
     Interest                                                                 $      13,588         $       14,376
                                                                          ==================   ====================
     Income taxes, net of refunds                                              $        280         $       (7,058)
                                                                          ==================   ====================

Supplemental Schedule of Noncash Investing and Financing Activities:
     Stock dividend - Class A Preferred Stock                                 $       2,797         $            -
                                                                          ==================   ====================
     Purchase of outstanding common stock through incurrence of accounts
     payable                                                                  $           -         $          153
                                                                          ==================   ====================

See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>


                      CONE MILLS CORPORATION AND SUBSIDIARIES
               NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS




Note 1.  Basis of Financial Statement Preparation

The Cone Mills  Corporation  (the "Company")  consolidated  condensed  financial
statements for October 3, 1999 and September 27, 1998 are unaudited,  but in the
opinion of management  reflect all  adjustments  necessary to present fairly the
consolidated condensed balance sheets of Cone Mills Corporation and Subsidiaries
at October 3, 1999,  September  27, 1998,  and January 3, 1999,  and the related
consolidated  condensed statements of operations for the respective thirteen and
thirty-nine  weeks ended  October 3, 1999 and  September 27, 1998 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 year 1998.

Inventories  are stated at the lower of cost or market.  The last-in,  first-out
(LIFO) method is used to determine cost of most domestically produced goods. The
first-in, first-out (FIFO) or average cost methods are used to determine cost of
all other inventories. Because amounts for inventories under the LIFO method are
based  on an  annual  determination  of  quantities  as  of  the  year-end,  the
inventories  at October 3, 1999 and September 27, 1998 and related  consolidated
condensed  statements of operations for the thirteen and thirty-nine  weeks then
ended are based on certain  estimates  relating to quantities and cost as of the
end of the fiscal year.

Note 2.  Inventories
<TABLE>
<S>                             <C>               <C>              <C>
(in thousands)                    10/03/99           9/27/98          1/03/99

Greige and finished goods        $  86,745         $  79,820        $  87,087
Work in process                      6,554            10,751            9,810
Raw materials                       13,685            15,403           11,508
Supplies and other                  11,409            12,226           12,025
                                 $ 118,393         $ 118,200        $ 120,430

Note 3.  Long-Term Debt

(in thousands)                    10/03/99           9/27/98         1/03/99

Senior Note                      $  32,143         $  42,858        $  42,858
Revolving Credit Agreement          57,000            17,000           32,000
8 1/8% Debentures                   97,575            97,130           97,241
                                   186,718           156,988          172,099
Less current maturities             67,714            10,714           10,714
                                 $ 119,004         $ 146,274        $ 161,385

</TABLE>
<PAGE>



The  Senior  Note  agreement  and  Revolving   Credit   Agreement  both  contain
restrictive covenants that require, among other requirements, the maintenance of
defined levels of tangible net worth and interest coverage.  At October 3, 1999,
the Company did not comply with these specific  covenant  requirements for which
the Company received waivers and amendments on October 3, 1999.

Note 4.  Class A Preferred Stock

On  February  11,  1999,  the  Company  declared  a 7.5% stock  dividend  on the
Company's  Class A  Preferred  Stock,  which  was paid on March  31,  1999.  The
dividend was charged to retained  earnings in the amount of  approximately  $2.8
million.  The 2000  dividend rate for Class A Preferred  Stock is 8.0%,  payable
March 31, 2000.

Note 5.  Depreciation and Amortization

The following  table  presents  depreciation  and  amortization  included in the
consolidated condensed statements of operations.
<TABLE>
<S>                          <C>                  <C>                <C>                <C>

                                Thirteen            Thirteen           Thirty-Nine       Thirty-Nine
                               Weeks Ended         Weeks Ended         Weeks Ended        Weeks Ended
                                10/03/99            9/27/98             10/03/99            9/27/98

Depreciation                       $ 5,709             $ 7,110            $ 18,801           $ 21,333
Amortization                           664                 664               2,014              2,013
                                   $ 6,373             $ 7,774            $ 20,815           $ 23,346

</TABLE>
<PAGE>


Note 6.  Earnings (Loss) Per Share

The following  table sets forth the  computation  of basic and diluted  earnings
(loss) per common share ("EPS").
<TABLE>
<S>                                                                      <C>                   <C>

(in thousands, except                                                       Thirteen              Thirteen
  per share data)                                                         Weeks Ended           Weeks Ended
                                                                           10/03/99               9/27/98

Net income (loss)                                                            $ (5,398)             $ 2,792

Preferred stock dividends                                                        (790)                (720)

Basic EPS - income (loss) available
  to common shareholders                                                       (6,188)               2,072

Effect of dilutive securities                                                      -                     -

Diluted EPS - income (loss) available to
  common shareholders after assumed
  conversions                                                                $ (6,188)            $  2,072

Determination of shares:

Basic EPS - weighted-average shares                                            25,486               25,972

Effect of dilutive securities                                                       -                   22

Diluted EPS - adjusted weighted-average
  shares after assumed conversions                                             25,486               25,994

Earnings (loss) per share - basic and diluted                                $ ( 0.24)            $   0.08


<PAGE>


Note 6.  Earnings (Loss) Per Share (continued)

The following  table sets forth the  computation  of basic and diluted  earnings
(loss) per common share ("EPS").

(in thousands, except                                                     Thirty-Nine           Thirty-Nine
  per share data)                                                          Weeks Ended           Weeks Ended
                                                                            10/03/99               9/27/98

Income (loss) before cumulative                                             $ (13,116)             $ 7,387
  effect of accounting change

Preferred stock dividends                                                      (2,300)              (2,193)

Income (loss) before cumulative
  effect of accounting change
  available to common shareholders                                            (15,416)               5,194

Cumulative effect of accounting change                                         (1,038)                   -

Basis EPS - income (loss) available
  to common shareholders                                                      (16,454)               5,194

Effect of dilutive securities                                                      -                     -

Diluted EPS - income (loss) available to
  common shareholders after assumed
  conversions                                                                $(16,454)            $  5,194

Determination of shares:

Basis EPS - weighted-average shares                                            25,453               26,107

Effect of dilutive securities                                                       -                   55

Diluted EPS - adjusted weighted-average
  shares after assumed conversions                                             25,453               26,162

Earnings (loss) per share - basic and diluted
  Income (loss) before cumulative effect
    of accounting change                                                     $ ( 0.61)            $   0.20

  Cumulative effect of accounting change                                       ( 0.04)                   -

  Net income (loss)                                                          $ ( 0.65)            $   0.20

Common  stock  options  outstanding  at October 3, 1999 were not included in the
computation  of  diluted  earnings  per share  because  to do so would have been
antidilutive.
</TABLE>

<PAGE>


Note 7.  Segment Information

The Company has four principal  business  segments,  which are based upon
organizational  structure:  1) denim and khaki; 2) yarn-dyed products; 3)
commission finishing; and 4) decorative fabrics.

Operating  income  (loss)  for each  segment  is total  revenue  less  operating
expenses  applicable  to  the  segment.  Intersegment  revenue  relates  to  the
commission finishing segment. Equity in earnings of unconsolidated  affiliate is
included in the denim and khaki segment.  Restructuring  and impairment of asset
expenses,  unallocated expenses,  interest and other expenses,  income taxes and
cumulative  effect of  accounting  change are not included in segment  operating
income (loss).

Net sales and income (loss) from operations for the Company's operating segments
are as follows:
<TABLE>
<S>                                                                       <C>                 <C>

(in thousands)                                                              Thirteen            Thirteen
                                                                           Weeks Ended         Weeks Ended
                                                                            10/03/99             9/27/98
Net Sales
     Denim and Khaki                                                       $ 108,493           $ 144,777
     Yarn-Dyed Products                                                        1,760               5,130
     Commission Finishing                                                     20,453              26,134
     Decorative Fabrics                                                       19,689              15,390
     Other                                                                       348                 692
                                                                             150,743             192,123
     Less Intersegment Sales                                                   3,546               4,764
                                                                           $ 147,197           $ 187,359
Income (Loss) from Operations
     Denim and Khaki                                                       $   2,380           $  15,923
     Yarn-Dyed Products                                                       (1,290)             (3,943)
     Commission Finishing                                                     (1,993)             (3,892)
     Decorative Fabrics                                                          422                  53
     Other                                                                      (153)               (445)
     Unallocated Expenses                                                     (1,087)             (1,465)
                                                                              (1,721)              6,231
     Restructuring and Impairment of Assets                                   (3,100)                  -
                                                                              (4,821)              6,231
   Less Equity in Earnings (Losses) of
     Unconsolidated Affiliate                                                   (405)              1,285
                                                                              (4,416)              4,946

     Other Expense, Net                                                       (3,385)             (2,697)
     Income (Loss) before Income Taxes (Benefit),
       Equity in Earnings (Losses) of
       Unconsolidated Affiliate and Cumulative
       Effect of Accounting Change                                          $  (7,801)         $   2,249




</TABLE>
<PAGE>



                                                                  32

Note 7.  Segment Information (continued)
<TABLE>
<S>                                                                      <C>                 <C>
(in thousands)                                                            Thirty-Nine         Thirty-Nine
                                                                           Weeks Ended         Weeks Ended
                                                                            10/03/99             9/27/98
Net Sales
     Denim and Khaki                                                       $ 348,366           $ 432,890
     Yarn-Dyed Products                                                       15,831              29,163
     Commission Finishing                                                     72,694              81,343
     Decorative Fabrics                                                       54,037              41,049
     Other                                                                     1,248               4,141
                                                                             492,176             588,586
     Less Intersegment Sales                                                  13,230              13,752
                                                                           $ 478,946           $ 574,834
Income (Loss) from Operations
     Denim and Khaki                                                       $  18,947              44,655
     Yarn-Dyed Products                                                        (5,095)            (7,275)
     Commission Finishing                                                      (5,665)            (12,499)
     Decorative Fabrics                                                        1,295                 (668)
     Other                                                                       (411)               (933)
     Unallocated Expenses                                                      (4,279)             (5,071)
                                                                               4,792              18,209
     Restructuring and Impairment of Assets                                   (16,017)                 -
                                                                              (11,225)            18,209
     Less Equity in Earnings of
       Unconsolidated Affiliate                                                1,552               3,801
                                                                              (12,777)            14,408

     Other Expense, Net                                                        (9,666)             (9,056)

     Income (Loss) before Income Taxes (Benefit),
       Equity in Earnings of Unconsolidated
       Affiliate and Cumulative Effect of
       Accounting Change                                                    $ (22,443)         $   5,352
</TABLE>
Note 8.  Comprehensive Income (Loss)

Comprehensive  income (loss) is the total of net income (loss) and other changes
in equity,  except those resulting from investments by owners and  distributions
to owners not reflected in net income (loss).  Total comprehensive income (loss)
for the periods was as follows:
<TABLE>
<S>                                                                <C>                       <C>
(in thousands)                                                       Thirteen                  Thirteen
                                                                    Weeks Ended               Weeks Ended
                                                                     10/03/99                    9/27/98
Net income (loss)                                                      $ (5,398)                   $ 2,792
Other comprehensive income,
  currency translation adjustment                                           59                          38

                                                                       $ (5,339)                   $ 2,830


Note 8.  Comprehensive Income (Loss) (continued)

(in thousands)                                                     Thirty-Nine               Thirty-Nine
                                                                   Weeks Ended               Weeks Ended
                                                                    10/03/99                   9/27/98

Net income (loss)                                                      $(14,154)                 $ 7,387
Other comprehensive income,
  currency translation adjustment                                            40                        4
                                                                      $ (14,114)                 $ 7,391
</TABLE>
Note 9.  Reclassification of Selling and Administrative

In the first  quarter of 1999 the Company  changed the  criteria for items to be
included  in selling  and  administrative  expenses  to  conform  to  prevailing
industry  practices.  The  Company  has  restated  its prior  year  consolidated
condensed  statement of operations to reflect the new  classification  criteria.
This  resulted in the  reclassification  of $7.5 million and $22.1  million from
selling and  administrative  expenses to cost of goods sold for the thirteen and
thirty-nine weeks ended September 27, 1998, respectively.

Note 10.  Cumulative Effect of Accounting Change

Beginning in fiscal year 1999, the Company adopted Statement of Position ("SOP")
98-5,  "Reporting on the Costs of Start-Up  Activities,"  which requires  future
start-up  costs to be expensed as incurred and previously  capitalized  start-up
costs to be expensed when SOP 98-5 is adopted.  The Company  recognized a charge
of $1.0 million, the Company's 50% portion of Parras Cone's unamortized start-up
costs,  as a cumulative  effect of an accounting  change in the first quarter of
1999.  Had SOP 98-5 not been adopted  during the first quarter of 1999, net loss
would have been reduced by $0.8 million, or $0.03 per share, for the thirty-nine
weeks ended October 3, 1999.

Note 11.  Securitization of Accounts Receivable

Funds generated by the sale of receivables in the U.S. are provided through Cone
Receivables II LLC ("CRIILLC").  CRIILLC's sole business is the ongoing purchase
of certain  trade  receivables  from Cone Mills  Corporation.  CRIILLC  sells an
undivided 100% ownership  interest in these  receivables under an agreement (the
"Accounts   Receivable   Facility")   with   Redwood   Receivables   Corporation
("Redwood"), whose purchases yield proceeds of up to $50 million at any point in
time.  Redwood issues commercial paper backed by, among other things,  Redwood's
ownership  interest in the receivables.  CRIILLC is a separate  corporate entity
with its own separate  creditors who, in the event of its  liquidation,  will be
entitled to be satisfied  out of CRIILLC's  assets prior to any value in CRIILLC
becoming available to the Company.  This Accounts Receivable Facility expires in
August 2004.

Under  this  securitization  agreement,  the  sale  price  to  CRIILLC  for  the
receivables  will be subject to a purchase  discount equal to a percentage  over
Redwood's  commercial  paper interest rate, which percentage may vary based upon
the  Company's  operating  performance.  At  present,  the  percentage  over the
commercial  paper  rate is 1.00%.  As of  October  3,  1999,  the  total  amount
outstanding  under the  Accounts  Receivable  Facility was $48.7  million.  Fees
incurred in connection with the sale of accounts receivable for the three months
ended October 3, 1999, were $264,000 and were recorded as other expense.

Note 12.  Subsequent Event - Amendment of the Articles of Incorporation

On October 14, 1999,  the  Company's  Board of Directors  amended the  Company's
Restated Articles of Incorporation  creating a series of Class B Preferred Stock
(the "Class B Preferred  Stock (Series A)").  The number of shares  constituting
the Class B Preferred  Stock (Series A) is 500,000.  The Class B Preferred Stock
(Series A) is junior to the Class A Preferred  Stock and senior to Common  Stock
in dividends or distributions of assets upon liquidation, dissolution or winding
up of the  Company.  Dividends  on the Class B  Preferred  Stock  (Series A) are
cumulative and accrue from the quarterly  dividend  payment date.  Each share of
Class B Preferred  Stock (Series A) entitles the holder  thereof to 100 votes on
all  matters  submitted  to a vote of  shareholders  of the  Company.  Except as
otherwise provided,  the holders of shares of Class B Preferred Stock (Series A)
and the  holders of shares of the  Company's  common  stock vote  together  as a
single class on all matters  submitted to a vote of shareholders of the Company.
These shares were reserved  under the  Shareholder  Rights Plan.  See Note 13 to
Consolidated Condensed Financial Statements.

Note 13.  Subsequent Event - Shareholder Rights Plan

On October 14, 1999, the Company's Board of Directors  adopted a new Shareholder
Rights Plan (the  "Plan").  Under the terms of the Plan,  Company  common  stock
acquired by a person or a group buying 20% or more of the Company's common stock
would be diluted, except in transactions approved by the Board of Directors.

Under the terms of the Plan the Company's Board of Directors declared a dividend
distribution  of one  right  (a  "Right")  for  each  outstanding  share  of the
Company's  common stock paid on November 1, 1999, to  shareholders  of record at
the close of business on October 25, 1999.  Each Right  entitles the  registered
holder  to  purchase  from  the  Company  a unit (a  "Unit")  consisting  of one
one-hundredth  of a share of Class B  Preferred  Stock  (Series A) at a purchase
price of $30 per Unit. Under the Plan, the Rights detach and become  exercisable
upon the earlier of (i) ten days following public  announcement that a person or
group of affiliated or associated persons has acquired, or obtained the right to
acquire,  beneficial  ownership of 20% or more of the outstanding  shares of the
Company's common stock, or (ii) ten business days following the commencement of,
or first public  announcement of the intent of a person or group to commence,  a
tender  offer  or  exchange  offer  that  would  result  in a  person  or  group
beneficially  owning  20% or more of such  outstanding  shares of the  Company's
common stock.  The exercise price,  the kind and the number of shares covered by
each right are  subject to  adjustment  upon the  occurrence  of certain  events
described in the Plan.

If the Company is acquired in a merger or  consolidation in which the Company is
not  the  surviving  corporation,   or  the  Company  engages  in  a  merger  or
consolidation  in  which  the  Company  is the  surviving  corporation  and  the
Company's  common  stock  is  changed  or  exchanged,  or more  than  50% of the
Company's  assets or earning power is sold or transferred,  the Rights entitle a
holder (other than the acquiring person or group) to buy, at the exercise price,
stock of the acquiring Company having a market value equal to twice the exercise
price.  Following  an  acquisition  by any person or group of 20% or more of the
Company's  common stock, but prior to the acquisition by such person or group of
50% or more of the  outstanding  common stock,  the Company's Board of Directors
may exchange  the Rights  (other than the Rights owned by such person or group),
in whole or in part, at an exchange  ratio of one share of the Company's  common
stock, or one one-hundredth of a share of Preferred Stock, per Right.

The Rights  expire on October 13, 2009,  and are  redeemable  upon action by the
Board of  Directors  at a price of $.01 per right at any time before they become
exercisable.

<PAGE>
Item 2.
                               MANAGEMENT'S DISCUSSION
                        AND ANALYSIS OF FINANCIAL CONDITION
                              AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Third Quarter Ended October 3, 1999 Compared with Third Quarter Ended  September
27, 1998.

Cone  Mills  had sales for the third  quarter  of 1999 of $147.2  million,  down
21.4%, as compared with the third quarter of 1998 sales of $187.4  million.  For
the 1999 period,  sales of denim and khaki,  yarn-dyed products,  and commission
finishing  decreased,  partially  offset by increased  decorative  fabric sales.
Starting in the fourth quarter of 1998,  and  continuing  through the first nine
months of 1999, denim sales slowed significantly,  the result of weaker consumer
interest in denims.

Gross  profit  for the third  quarter  of 1999  decreased  to 7.3% of sales,  as
compared  with 10.5% for the previous  year.  Lower volume and pricing in denims
more than offset the improved  operating  results in  commission  finishing  and
decorative fabrics.

Segment Information.  Cone operates in four principal business segments: denim
and khaki, yarn-dyed products,  commission finishing and decorative fabrics.
See Note 7 to Notes to Consolidated Condensed Financial Statements (unaudited)
included in Part 1, Item 1.

     Denim and Khaki.  For the third  quarter of 1999,  denim and khaki  segment
     sales were $108.5 million,  down 25.1% from the third quarter of 1998 sales
     of  $144.8  million.  Lower  sales  volume  and  prices  in denim  resulted
     primarily from the negative  impact of weaker  consumer  interest in denims
     and the  resulting  over-supply  conditions,  coupled  with price  pressure
     associated  with supply and demand,  declining  cotton prices and inventory
     adjustments  at the mill and retail  level.  For the third quarter of 1999,
     operating income for the denim and khaki segment was $4.4 million,  or 4.0%
     of sales before a $2.0 million  inventory charge for the exit of piece-dyed
     shirting as  discussed  below in the  Commission  Finishing  segment.  This
     compared with income of $15.9 million,  or 11.0%,  for the third quarter of
     1998.  The reduced margin and income  resulted  primarily from lower volume
     and prices and reduced plant operating schedules.  Operating income for the
     segment includes the equity in earnings (losses) from the Parras Cone joint
     venture.



<PAGE>


     Yarn-Dyed  Products.  As part of the  restructuring  program,  the  Company
     ceased manufacturing  yarn-dyed products in May 1999. For the third quarter
     of 1999,  sales of yarn-dyed  products were $1.8 million,  as compared with
     $5.1 million in the 1998  period.  While most of the  operating  losses for
     this segment were  previously  reserved  under the Company's  restructuring
     plan,  a loss of $1.3  million was  included in segment  data for the third
     quarter of 1999 due  primarily  to  realization  of lower than  anticipated
     prices on inventory.  For the 1998 period,  the yarn-dyed  products segment
     had an operating loss of $3.9 million.

     Commission  Finishing.  Outside  sales  of  commission  finishing  from the
     Carlisle  and Raytex  plants were $16.9  million  for the third  quarter of
     1999,  down 20.9% from $21.4 million for the third  quarter of 1998.  Lower
     sales of print home furnishings and over-the-counter  fabrics accounted for
     the decline.  Despite the sharply  reduced sales,  the segment had improved
     operating  results.  For the  third  quarter  of  1999,  the  loss was $2.0
     million,  an  improvement  of 48.8% from the loss of $3.9  million  for the
     third  quarter  of 1998.  During  the  third  quarter  of 1999 the  Company
     implemented a substantial  restructuring,  downsizing and refocusing of the
     Carlisle Finishing plant.  Refocusing the product line included the exiting
     of the piece-dyed shirting (chamois) business. Associated with the Carlisle
     restructuring  initiative,  the Company recognized restructuring charges of
     $2.7  million  in the  quarter  for  severance  pay and  related  benefits,
     consulting expenses and writedown of certain production equipment.

     Decorative Fabrics.  For the third quarter of 1999, sales of the decorative
     fabrics  segment were $19.7  million,  up 27.9% from sales of $15.4 million
     for the third quarter of 1998. Cone  Jacquard's  sales improved as capacity
     expanded  and  John  Wolf  decorative  fabrics  sales  were up as the  unit
     improved its product offering and marketing effort.  The decorative fabrics
     segment had earnings of $0.4 million for the third quarter of 1999 compared
     with $0.1 million for the third quarter of 1998.

Selling and  administrative  expenses  for the third  quarter of 1999 were $12.0
million,  or 8.1% of sales, as compared with $14.7 million,  or 7.8% of sales in
the third quarter of 1998. The lower dollar amount of selling and administrative
expense  reflects  the cost savings  realized  from  restructuring  initiatives.
Selling  and  administrative  expenses  for 1998 were  restated  to  conform  to
industry practices.

Interest expense for the third quarter of 1999 was $3.5 million, the same as the
third quarter of 1998.

For the third  quarter  of 1999,  the  income  tax  benefit  as a percent of the
taxable loss was 36.0%. For the third quarter of 1998, income taxes as a percent
of taxable income were 33%.

Equity in earnings (losses) of Parras Cone, the Company's joint venture plant in
Mexico,  was a loss of $0.4 million for the third  quarter of 1999,  as compared
with income of $1.3 million for the 1998 period.  The change  represents  higher
cotton costs as a percentage of sales and  additional  marketing and  management
fees paid to the joint venture partners.



<PAGE>


For the third quarter of 1999, Cone Mills had net loss of $5.4 million,  or $.24
per share  after  preferred  dividends.  Included in the  quarter  were  pre-tax
charges of $5.1 million for restructuring and exit inventory charges,  resulting
primarily from the implementation of the Company's  turnaround plan at Carlisle.
Also,  there  was a loss of $0.8  million  associated  with the  liquidation  of
remaining yarn-dyed shirting inventories.  Excluding those charges, the loss was
$.09 per share. For comparison,  third quarter 1998 net income was $2.8 million,
or $.08 per share after preferred dividends.

Nine Months Ended October 3, 1999 Compared with Nine Months Ended September 27,
1998

For the first nine months of 1999, Cone Mills had sales of $478.9 million,  down
16.7% from sales of $574.8 million for the first nine months of 1998,  primarily
due to a sales  shortfall  in denim.  Lower  denim  sales  resulted  from weaker
consumer   interest  in  jeans  and  adjustments  to  retail  and  manufacturing
inventories.

Gross profit for the first nine months of 1999  decreased  to 8.4% of sales,  as
compared with 9.9% for the previous year. Lower volume and pricing in denims and
the  aggressive  elimination of  unprofitable  lines and  inventories  more than
offset the improved  operating  results in commission  finishing and  decorative
fabrics.

Segment Information.  Cone operates in four principal business segments: denim
and khaki, yarn-dyed products,  commission finishing and decorative fabrics.
See Note 7 to Notes to Consolidated Condensed Financial Statements (unaudited)
included in Part 1, Item 1.

     Denim and Khaki. For the first nine months of 1999, denim and khaki segment
     sales were  $348.4  million,  down 19.5% from the first nine months of 1998
     sales of $432.9 million.  Almost all of the sales  shortfall  resulted from
     lower sales volume and prices for denims. Operating income of the denim and
     khaki segment for the first nine months of 1999 was $21.2 million excluding
     exit   inventory   charges   for   piece-dyed   shirting   and  denim  yarn
     manufacturing, or 6.1% of sales, compared with $44.7 million, or 10.3%, for
     the first nine  months of 1998.  The  reduced  margin  and income  resulted
     primarily from lower sales volume,  lower prices,  reduced plant  operating
     schedules and closeouts on khaki  inventories as the Company refocused this
     product  line.  Operating  income for the  segment  includes  the equity in
     earnings from the Parras Cone joint venture plant.

     Yarn-Dyed Products. The Company ceased manufacturing  yarn-dyed products in
     May 1999.  For the first nine months of 1999,  sales of yarn-dyed  products
     were $15.8  million,  down from $29.2  million in the 1998 period.  For the
     first nine months of 1999, the yarn-dyed  products segment had an operating
     loss of $5.1 million, as compared with a loss of $7.3 million for the first
     nine months of 1998.


     Commission  Finishing.  Outside sales of the commission  finishing segment,
     which  consists of the Carlisle and Raytex  plants,  were $59.5 million for
     the first nine months of 1999,  down 12.0% from $67.6 million for the first
     nine months of 1998.  Anticipated  recovery in print demand in 1999 has not
     materialized.  For the 1999 period, the operating loss was $5.7 million, an
     improvement of 54.7% from the loss of $12.5 million for the 1998 period. As
     discussed   earlier,   during  the  third  quarter  of  1999,  the  Company
     implemented a substantial  restructuring,  downsizing and refocusing of the
     Carlisle Finishing plant.

     Decorative  Fabrics.  For the  first  nine  months  of  1999,  sales of the
     decorative fabrics segment were $54.0 million, up 31.6% from sales of $41.0
     million for the 1998 period.  Cone  Jacquard's  sales  improved as capacity
     expanded and John Wolf decorative  fabrics sales  improved.  The decorative
     fabrics  segment had earnings of $1.3 million for the 1999 period  compared
     with a loss of $0.7 million for the first nine months of 1998.  Results for
     1999 were  negatively  impacted  by higher  than  expected  start-up  costs
     related to capacity additions at the jacquard plant.



<PAGE>


Selling and administrative expenses for the first nine months of 1999 were $37.0
million,  or 7.7% of sales, as compared with $42.5 million,  or 7.4% of sales in
the 1998 period. The lower dollar amount of selling and administrative  expenses
reflects the cost savings realized from restructuring  initiatives.  Selling and
administrative expenses for 1998 were restated to conform to industry practices.

Interest expense for the first nine months of 1999 was $10.7 million,  down from
$11.3 million for the 1998 period.

For the first nine  months of 1999,  the income tax  benefit as a percent of the
taxable loss was $34.6%.  In the 1998 period,  income tax as a percent of income
was 33.0%.

Equity in earnings of Parras Cone, the Company's  joint venture plant in Mexico,
was $1.6  million  for the first  nine  months of 1999,  as  compared  with $3.8
million for the 1998 period.  In the 1999 period,  the plant had lower  capacity
utilization,  higher  cotton  costs as a  percentage  of sales,  and  additional
marketing and management fees paid to the joint venture partners.

For the first nine months of 1999,  the Company had a net loss of $14.2 million,
or $.65 per share  after  preferred  dividends.  This  included  a $1.0  million
after-tax charge from the cumulative  effect of an accounting  change related to
capitalized  start-up costs. In the period,  the Company also recognized pre-tax
restructuring  and  related  expenses  of  $19.6  million  associated  with  its
restructuring programs and incurred additional losses of $3.0 million associated
with the sale of yarn-dyed shirtings inventories resulting from the exit of this
business.  Excluding those restructuring charges,  related exit expenses and the
accounting  change,  the Company  had a loss of $.02 per share  after  preferred
dividends. For comparison,  in the first nine months of 1998, Cone Mills had net
income of $7.4 million, or $.20 per share after preferred dividends.


Liquidity and Capital Resources

The Company's principal long-term capital components consist of debt outstanding
under its Senior Note, its 8 1/8% Debentures and stockholders;  equity.  Primary
sources of liquidity are internally  generated  funds, an $80 million  Revolving
Credit Facility (under which $23 million was available on October 3, 1999),  and
a new $50 million Receivable  Purchase and Servicing Agreement (the "Receivables
Agreement")  entered  into on September  1, 1999 with Cone  Receivables  II LLC,
Redwood  Receivables  Corporation,  an  affiliate  of General  Electric  Capital
Corporation  ("Redwood"),  and General  Electric  Capital  Corporation.  The new
Receivables  Agreement  will  terminate  in August  2004 and  replaces a similar
facility with Delaware Funding Corporation.

Pursuant  to the  Receivables  Agreement  documents,  the  Company  will sell or
contribute to Cone  Receivables II LLC certain of their accounts  receivable and
Cone Receivables II LLC will in turn sell to Redwood an undivided 100% ownership
interest in such  receivables.  Redwood will then issue  commercial paper backed
by, among other things,  Redwood's  ownership  interest in the receivables.  The
sale price to Cone  Receivables II LLC for the receivables  will be subject to a
purchase discount equal to a percentage over Redwood's commercial paper interest
rate, which percentage may vary based upon the Company's operating  performance.
At present, the percentage over the commercial paper rate is 1.00%.



<PAGE>


The Company is currently in negotiation  with its banks to amend and restate the
current Revolving Credit Facility.  The Company expects the amended and restated
Revolving  Credit  Facility  to  be  secured  by  Company  assets.  Waivers  and
amendments for covenant compliance under certain credit agreements at October 3,
1999 are in place. The Company has received  commitments from its banks to amend
and restate the Revolving  Credit  Facility and expects to consummate the credit
facility prior to the expiration of any waivers or amendments.

During  the  first  nine  months  of  1999,  the  Company  generated  cash  from
operations, before changes in working capital, of $4.1 million, as compared with
$25.7  million for the first nine months of 1998.  In the 1999  period,  working
capital increased by $2.8 million. Uses of cash in the 1999 period included $8.0
million  for  capital  expenditures  and  $3.9  million  for the  redemption  of
preferred stock.

The  Company  believes  that  internally  generated  operating  funds  and funds
available  under its credit  facilities will be sufficient to meet its needs for
the foreseeable future. International investments,  including the proposed denim
facility discussed below, will require additional long-term financing.


In April 1999,  Guilford Mills,  Inc. and the Company entered into a 50/50 joint
venture to develop and operate a new  textile  and  apparel  industrial  park in
Altamira, near Tampico,  Tamaulipas,  Mexico. It is expected that the investment
for the infrastructures for Cone will range from $6 million to $10 million.

A textile plant planned to be built on the property by Cone will be a ring-spun,
value-added  denim plant with a capacity of 20 million  yards  expandable  to 40
million yards.  The Company  expects to invest $40 million to $75 million in the
initial denim facility depending upon whether it outsources yarn  manufacturing,
forms a yarn  alliance or produces  its own yarn.  The Company  could  invest an
additional $30 million to $45 million for the expansion to 40 million yards. The
funds required for this facility will require debt financing,  which the Company
has not arranged at this date.

On October 3, 1999,  the  Company's  long-term  capital  structure  consisted of
$176.0 million of long-term debt and $164.2 million of stockholders' equity. For
comparison,  on September 27, 1998,  the Company had $146.3 million of long-term
debt and $196.1  million of  stockholders'  equity.  Long-term  debt  (including
current  maturities  of long-term  debt) as a percentage  of long-term  debt and
stockholders'  equity  was 53% at  October  3,  1999,  as  compared  with 44% at
September 27, 1998.

<PAGE>
Accounts and note receivable on October 3, 1999, were $48.8 million, as compared
with $57.8  million at September  27, 1998.  Receivables,  including  those sold
pursuant to the  Receivables  Purchase  Agreement,  represented 63 days of sales
outstanding  at October 3, 1999 and 53 days at September 27, 1998.  The increase
in days of sales outstanding  primarily  reflects a change in customer sales mix
with fewer customers paying in advance of due date.

Inventories on October 3, 1999,  were $118.4  million,  essentially  the same as
September  27, 1998.  The Company  continues to curtail  operating  schedules to
control  denim  inventories  and  to  liquidate   inventories   associated  with
businesses in which it has exited.

For the first nine months of 1999, capital spending was $8.0 million compared to
$21.9 million for the first nine months of 1998.  Domestic  capital  spending in
1999 is expected to be approximately  $12 million.  The reduced spending in 1999
is because  the  Company  completed  its  relooming  program of  domestic  denim
facilities in 1998. In addition to the 1999 domestic  capital  spending  budget,
the  Company  expects to spend  approximately  $6  million  for  investments  in
international initiatives.

Other Matters

YEAR 2000 ISSUES

The Company has implemented a comprehensive  plan to address possible  exposures
to Year  2000  issues.  Executive  management  has  reviewed  the  status of the
Company's  Year  2000  compliance  efforts  on  a  continuous  basis.   Critical
financial,  operational  and  manufacturing  systems have been  inventoried  and
assessed  and  system   modifications  or  replacements  have  been  essentially
completed.  As of November 1, 1999, only two systems remain non-compliant.  Both
systems will be  remediated in time so as not to cause any  disruptions  for the
century rollover.

Although the Company has received written vendor certification that all new core
business systems are Year 2000 compliant,  the Company has completed  additional
internal Y2K testing. No major problems were encountered.

The Company is  coordinating  Year 2000 readiness with other entities with which
it interacts, both domestically and globally, including suppliers, customers and
financial service organizations. Coordination efforts involve communication with
major suppliers and customers to undertake testing of electronic  interfaces and
obtaining  written   certifications   of  compliance  where   applicable.   Risk
assessments  and action  plans have been  substantially  completed.  Testing and
certification of electronic interfaces were completed in the third quarter.

The Company has made  significant  investments  to modernize  its core  business
systems  over  the  past  several  years.  With  each  system   modification  or
replacement,  Cone has  addressed  the Year 2000 issue.  Therefore,  remediation
costs to address the Company's Year 2000 issues are expected to be approximately
$1.0 million.

The  Company   currently  has  contingency  plans  that  address  core  business
system-related  interruptions  and will further  develop  such plans  related to
manufacturing,  operating  and  control  systems to protect  the  business  from
potential Year 2000 interruptions. These plans will be completed during calendar
year 1999 and will include,  for example,  as a worst case scenario,  processing
certain  significant  business  transactions  manually.  The  Company  is taking
reasonable steps to prevent major interruptions  related to the Year 2000 issue;
however,  the potential impact on the Company's financial  position,  results of
operations, or cash flows if the Company, its suppliers or its customers are not
fully Year 2000 compliant is not reasonably estimable.

Federal, state and local regulations relating to the workplace and the discharge
of materials into the environment  continue to change and,  consequently,  it is
difficult to gauge the total future impact of such  regulations  on 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.  The Company has an active environmental committee,  which fosters
protection of the environment and compliance with laws.

The Company is a party to various legal claims and actions.  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.

"Safe  Harbor"  Statement  under Section 27A of the  Securities  Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
<PAGE>
         Except for the historical information presented,  the matters disclosed
         in the foregoing discussion and analysis and other parts of this report
         include  forward-looking  statements.  These  statements  represent the
         Company's  current  judgment on the future and are subject to risks and
         uncertainties  that could cause  actual  results to differ  materially.
         Such factors include,  without  limitation:  (i) the demand for textile
         products, including the Company's products, will vary with the U.S. and
         world  business   cycles,   imbalances   between  consumer  demand  and
         inventories  of  retailers  and  manufacturers  and  changes in fashion
         trends,  (ii) the highly competitive nature of the textile industry and
         the  possible  effects  of reduced  import  protection  and  free-trade
         initiatives, (iii) the unpredictability of the cost and availability of
         cotton,  the  Company's  principal  raw  material,  (iv) the  Company's
         relationships  with Levi  Strauss  as its major  customer,  and (v) the
         risks  associated with unforeseen  technological  difficulties  arising
         under the Company's Year 2000 compliance  efforts and the potential for
         increased  costs  associated  therewith.  For a further  description of
         these  risks  see the  Company's  1998  Form  10-K,  "Item 1.  Business
         -Competition,   -Raw  Materials  and  -Customers"   and   "Management's
         Discussion   and  Analysis  of  Results  of  Operations  and  Financial
         Condition  --  Overview"  of  the  Company's   1998  Annual  Report  to
         Shareholders  incorporated  by reference into Item 7. of the Form 10-K.
         Other risks and uncertainties may be described from time to time in the
         Company's  other reports and filings with the  Securities  and Exchange
         Commission.


Item 3.  Quantitative and Qualitative Disclosures about Market Risk

The  Company is exposed to market  risks  relating to  fluctuations  in interest
rates,  currency exchange rates and commodity prices. There has been no material
change in the  Company's  market  risks  that  would  significantly  affect  the
disclosures made in the Form 10-K for the year ended January 3, 1999.


                               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>


The  District  Court held a hearing on July 24,  1995 to decide on the merits of
the  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.
Oral argument on Plaintiffs'  appeal was held in the Court of Appeals on October
31,  1996.  On August 20,  1999,  the  dismissal  in the  District  Court of the
Plaintiffs' cause of action was upheld in a per curiam decision. The Plaintiffs'
petition for  rehearing  and rehearing en banc was denied on September 14, 1999.
The Plaintiffs have 90 days from that date to petition the United States Supreme
Court  for  discretionary  review.  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 the  probability  is remote that this
lawsuit,  when finally  concluded,  will have a material  adverse  effect on the
Company's financial condition or results of operations.

The Company and its  subsidiaries  are involved in legal  proceedings and claims
arising in the ordinary  course of business.  Although there can be no assurance
as to the ultimate  disposition of these matters,  management  believes that the
probable  resolution  of such  contingencies  will not have a  material  adverse
effect on the financial condition of the Company.

Item 5.  Other Information

Notice of a matter to be presented by a  shareholder  for  consideration  at the
2000 annual meeting other than pursuant to Rule 14a-8 of the Securities Exchange
Act of 1934 must be received by the Company prior to February 16, 2000.  Failure
to give timely notice will result in the proxy statement relating to the meeting
not  including  information  on the matter or the  manner in which  management's
proxies will vote on the matter and the proxies received by management will have
discretionary authority to vote on such matter.


Item 6.  Exhibits and Reports on Form 8-K

         (a)     The  exhibits to this Form 10-Q are listed in the  accompanying
                 Index to Exhibits.
         (b)     Reports on Form 8-K.
                 None



<PAGE>

<TABLE>
<S>             <C>                                               <C>
Exhibit                                                           Sequential
  No.            Description                                       Page No.

*2.1(a)          Purchase  Agreement between Registrant
                 and Cone Receivables LLC dated  as of
                 March  25,  1997,  filed  as  Exhibit
                 2.1(l)  to Registrant's report on Form
                 10-Q for the  quarter  ended March
                 30, 1997.

*2.1(b)          Receivables Purchase Agreement dated
                 as of March 25, 1997, among Cone
                 Receivables LLC, as Seller, the
                 Registrant, as Servicer, and
                 Delaware Funding Corporation, as
                 Buyer, filed as Exhibit 2.1(m) to
                 Registrant=s report on Form 10-Q
                 for the quarter ended March 30, 1997.

*2.1(c)          Amendment to Receivables Purchase
                 Agreement dated March 24, 1998,
                 between the Registrant and Delaware
                 Funding Corporation, filed as Exhibit
                 2.1(c) to Registrant=s report on
                 Form 10-Q for the quarter ending
                 March 29, 1998.

*2.1(d)          Second Amendment to Receivables
                 Purchase Agreement dated as of
                 July 16, 1998, between the Registrant
                 and Delaware Funding Corporation, filed
                 as Exhibit 2.1(d) to Registrant=s report on
                 Form 10-Q for the quarter ending
                 September 27, 1998.

*2.1(e)          Third Amendment to Receivables  Purchase
                 Agreement dated as of December 23, 1998,
                 between the Registrant and Delaware Funding
                 Corporation,  filed as Exhibit 2.1(e) to
                 Registrant's report on Form 10-K for the
                 year ending January 3, 1999.

*2.1(f)          Fourth Amendment to Receivables  Purchase
                 Agreement dated as of March 23, 1999,
                 between the Registrant and Delaware
                 Funding Corporation, filed as Exhibit 2.1(f)
                 to Registrant's report on Form 10-Q for
                 the quarter ending April 4, 1999.

 2.1(g)          Receivables Purchase Termination and
                 Reassignment Agreement dated as of
                 September 1, 1999, among Cone Receivables
<PAGE>
Exhibit                                                              Sequential
  No.            Description                                           Page No.

                 LLC, as Seller, the Registrant in its
                 individual capacity and as Servicer, and
                 Delaware Funding Corporation, as Buyer.                 34

 2.1(h)          Receivables Purchase and Servicing
                 Agreement dated as of September 1, 1999,
                 by and among Cone Receivables II LLC, as
                 Seller, Redwood Receivables Corporation,
                 as Purchaser, the Registrant, as Servicer,
                 and General Electric Capital Corporation,
                 as Operating Agent and Collateral Agent.                41

 2.1(i)          Receivables Transfer Agreement dated as
                 of September 1, 1999, by and among the
                 Registrant, any other Originator Party
                 Hereto, and Cone Receivables II LLC.                   115

*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, filed as Exhibit 2.2(a)
                 to Registrant's  report on Form 10-Q
                 for the quarter ended July 4, 1993,
                 with exhibits herein  numbered 2.2(b),
                 (c),  (d), (f), (g), and (j) attached.

*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.

Exhibit                                                             Sequential
  No.            Description                                          Page No.


*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.

*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.


Exhibit                                                                          Sequential
  No.            Description                                                      Page No.


*2.2(k)          Call Option dated  September 25, 1995,  between  Registrant and
                 SMM  Trust,  1995 - M, a  Delaware  business  trust,  filed  as
                 Exhibit 2.2(k) to the Registrant's  report on Form 10-Q for the
                 quarter ended October 1, 1995.

*2.2(l)          Put Option dated September 25, 1995, between Registrant and SMM
                 Trust,  1995 - M, a Delaware  business trust,  filed as Exhibit
                 2.2(l) to the Registrant's  report on Form 10-Q for the quarter
                 ended October 1, 1995.

*2.2(m)          Letter Agreement dated January 11, 1996
                 among Registrant, Rodolfo Garcia Muriel,
                 and Compania Industrial de Parras,
                 S.A. de C.V., filed as Exhibit 2.2(m) to


<PAGE>


                 the Registrant's report on Form 10-K
                 for the year ended December 31, 1995.

*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.

 4.1(a)          Articles of Amendment of the Articles of
                 Incorporation of the Registrant effective
                 October 22, 1999, to fix the designation,
                 preferences, limitations, and relative
                 rights of a series of its Class B
                 Preferred Stock.                                                         155

*4.1(b)          Rights Agreement dated as of October 14,
                 1999, between the Registrant and First
                 Union National Bank, as Rights Agent,
                 with Form of Articles of Amendment with
                 respect to the Class B Preferred Stock
                 (Series A), the Form of Rights Certificate,
                 and Summary of Rights attached, filed as
                 Exhibit 1 to the Registrant's report on
                 Form 8-A dated October 29, 1999.

*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).
Exhibit                                                                          Sequential
  No.            Description                                                      Page No.


*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.

*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.



Exhibit                                                                          Sequential
  No.            Description                                                      Page No.

*4.3(f)          Letter Agreement dated as of June 30,
                 1995, between the Registrant and
                 The Prudential Insurance Company
                 of America superseding Letter Agreement
                 filed as Exhibit 4.3(e) to the
                 Registrant's report on Form 10-Q
                 for the quarter ended July 2, 1995.

*4.3(g)          Letter  Agreement  dated  as of March  30,  1996,  between  the
                 Registrant  and The  Prudential  Insurance  Company  of America
                 filed as Exhibit 4.3(g) to the Registrant's report on Form 10-Q
                 for the quarter ended March 31, 1996.

*4.3(h)          Letter Agreement dated as of January
                 31, 1997, between the Registrant and
                 The Prudential Insurance Company of
                 America filed as Exhibit 4.3(h) to
                 the Registrant's report on Form 10-K
                 Company of America, filed as Exhibit 4.3(j)
                 to Registrant's report on Form 10-Q
                 for the quarter ending March 29, 1998.

 4.3(i)          Letter Agreement dated September 1, 1999,
                 amending the Note Agreement dated August
                 13, 1992, between the Registrant and The
                 Prudential Insurance Company of America.                                 163

 4.3(j)          Letter Agreement dated November 12, 1999,
                 between the Registrant and The Prudential
                 Insurance Company of America.                                            165

 4.3(k)          Letter Agreement dated November 12, 1999,
                 between the Registrant and The Prudential
                 Insurance Company of America superseding
                 Letter Agreement filed as Exhibit 4.3(j)
                 herein.                                                                  166

*4.4             Credit  Agreement  dated August 7, 1997,  among the Registrant,
                 various banks and Morgan  Guaranty Trust Company of New York as
                 agent, filed as Exhibit 4.4 to the Registrant's  report on Form
                 10-Q for the quarter ended September 28, 1997.



                                                                                      Sequential
  No.            Description                                                           Page No.


 4.4(a)          Amendment No. 1 and Waiver to Credit
                 Agreement dated as of October 3, 1999,
                 among the Registrant, various banks, and
                 Morgan Guaranty Trust Company of New York,
                 as Agent.                                                                167

 4.4(b)          Waiver to Credit Agreement dated as of
                 November 12, 1999, to the Credit Agreement
                 dated August 7, 1997, and amended as of
                 October 3, 1999, among the Registrant,
                 various banks, and Morgan Guaranty Trust
                 Company of New York, as Agent.                                           171

*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).


<PAGE>



*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).

*4.7             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.

*4.7(a)          First Amendment to the Cone Mills  Corporation  1983 ESOP dated
                 May 9, 1995, filed as Exhibit 4.9(a) to the Registrant's report
                 on Form 10-K for year ended December 31, 1995.

*4.7(b)          Second Amendment to the Cone Mills  Corporation 1983 ESOP dated
                 December 5, 1995,  filed as Exhibit 4.9(b) to the  Registrant's
                 report on Form 10-K for year ended December 31, 1995.

*4.7(c)          Third Amendment to the Cone Mills  Corporation  1983 ESOP dated
                 August 7,  1997,  filed as Exhibit  4.8(c) to the  Registrant's
                 report on Form 10-Q for the quarter ended September 28, 1997.
<PAGE>
Exhibit                                                                          Sequential
  No.            Description                                                      Page No.


*4.7(d)          Fourth Amendment to the Cone Mills  Corporation 1983 ESOP dated
                 December 4, 1997,  filed as Exhibit 4.8(d) to the  Registrant's
                 report on Form 10-K for the year ended December 28, 1997.

*4.8             Indenture dated as of February 14,
                 1995, between Cone Mills Corporation
                 and Wachovia Bank of North Carolina,
                 N.A. as Trustee (Bank of New York is
                 successor Trustee), filed as Exhibit 4.1
                 to Registrant=s Registration Statement
                 on Form S-3 (File No. 33-57713).

27 Financial Data Schedule                                                                174

</TABLE>
* Incorporated by reference to the statement or report indicated.

     The Registrant  will provide any  Shareholder or participant in the Company
Stock Fund in the 401(k) Programs  copies of any of the foregoing  exhibits upon
written request addressed to Corporate Secretary,  Cone Mills Corporation,  3101
North Elm Street, Greensboro, NC 27408.


<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 17, 1999                 /s/ Gary L. Smith
                                            Gary L. Smith
                                            Executive Vice President and
                                            Chief Financial Officer


<PAGE>