Exhibit 13

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


GENERAL


Guilford Mills,  Inc. produces fabrics using a broad range of technologies for a
variety of customers  and  markets.  It is the largest warp knitter in the world
and a leader in technological  advances in textiles.  The Company has identified
four  segments in which it  operates:  Automotive,  Apparel,  Home  Fashions and
Other.

The  Apparel  segment  fabrics  are used  predominantly  in  women's  shapewear,
swimwear,  ready-to-wear  and  intimate  apparel  garments.  Other uses  include
sleepwear, team sportswear and linings.

Fabrics  produced  in the  Automotive  segment  are sold to  original  equipment
manufacturers (OEMs) and their suppliers.  These fabrics are fabricated into the
seats and headliners of passenger cars, sports utility vehicles, conversion vans
and light and heavy trucks.

The Home Fashions segment produces upholstery fabrics for office and residential
furniture, mattress ticking and for window treatment applications.  This segment
also  includes  sales  to  retailers  of knit  and/or  lace  comforters,  window
curtains, sheets, shower curtains, pillowcases and bedskirts.

The  remainder  of  Guilford's  fabrics  are  sold  for use in a broad  range of
industrial/specialty  products  and  are  included  in the  Other  segment.  The
Company's fibers operations are also included in this segment.

Goods are  manufactured  principally in the United States,  the United  Kingdom,
Mexico and Brazil.  Approximately  80% of the Company's net sales originate from
the United States.  Guilford's foreign operations are subject to fluctuations in
foreign exchange rates that affect the Company's operating results and financial
position due to  translation  gains and losses  recognized  in  converting  such
activity to local currency and to U.S. dollars.  During fiscal 1999, the British
pound  strengthened  against  the Euro and  resulted in a 10%  reduction  in the
U.K.'s  foreign  currency  denominated  sales.  Effective  January 1, 1999,  the
Mexican economy was no longer  considered  "highly  inflationary"  for financial
reporting  purposes  because  the  cumulative  Mexican  inflation  rate  for the
immediately  preceding three years fell below 100%. As a result, under Statement
of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation",
the  functional  currency for  translating  the balance sheet and the results of
operations of the Company's Mexican operation,  Grupo Ambar S.A. de C.V. ("Grupo
Ambar"),  returned  to the  Mexican  peso  from  the  U.S.  dollar.  Translation
adjustments  appear  as  part of  accumulated  other  comprehensive  loss in the
stockholders'  investment  section  on the  balance  sheets  and  are not in the
results of operations.  For the period from January 1997 to January 1999,  while
Mexico  was  considered  highly  inflationary,  the U.S.  dollar was used as the
functional currency for translating the balance sheet and results of operations.
Under this method of accounting,  foreign currency  translation gains and losses
were recognized in the results of operations.


RESULTS OF OPERATIONS


1999 COMPARED TO 1998 - Consolidated  sales for fiscal 1999 were $856.8 million,
a decrease of 4.2% from fiscal 1998's  $894.5  million.  Increased  sales in the
Automotive  segment  were more than  offset by sales  declines  in all the other
segments, particularly in the Home Fashions segment.

The Automotive  segment  accounted for 42.2% of consolidated net sales in fiscal
1999,  up from 37.8% in fiscal 1998.  Sales in this segment were $361.3  million
and increased 6.8% over fiscal 1998.  This primarily  resulted from the increase
in the U.S. car build in fiscal 1999 to 16.9 million units compared to car build
in fiscal 1998 of 15.4 million units. While Guilford  maintained its U.S. market
share of the headliner  business,  the higher car build and the Company's growth
in  value-added,  cut-to-size  parts resulted in increased  sales over the prior
year. Additionally,  penetration into the New Domestics OEMs allowed Guilford to
gain  bodycloth  market  share in the  overall  U.S.  vehicle  market.  Although
domestic  operations  were strong in fiscal  1999,  sales in the U.K. and Mexico
decreased  from prior year.  Sales by the  U.K. operations fell 14.1% due to the
loss of market share of one of the  Company's  major  customers  and lower build
levels of another major customer. Automotive fabric sales in Mexico fell by more
than 50% due to the  loss of a major  customer  program  that  was  returned  to
Guilford late in the fourth quarter of fiscal 1999. Sales in Brazil were slow to
start due to the economic  environment and therefore,  contributed  minimally in
fiscal 1999.

Apparel  segment  sales  decreased  1.1% to $336.5  million in fiscal  1999 from
$340.2 million in fiscal 1998 and accounted for 39.3% of consolidated net sales.
Increased sales in intimate apparel,  swimwear and ready-to-wear  were more than
offset by decreased sales of commodity  fabrics.  Intimate  apparel fabric sales
continued to grow in fiscal 1999 due to the Company's  strong  position with the
major branded  retailers and their success at the retail level.  Swimwear fabric
sales increased as a result of increased  retail sales due to the warmer weather
and the  recent  insolvency  and  change in  ownership  of a  competitor.  While
ready-to-wear  fabric sales  increased  modestly during fiscal 1999, this sector
has been impacted by warp knit garment imports from Asia.  Sales declines in the
Company's  commodity  fabrics  were  also  substantially  due to Asian  imports.
However,  the recent  Chapter 11 filing of a major  lining  customer  as well as
changing consumer lifestyles also contributed to the decline in commodity fabric
sales.

The Home  Fashions  segment  accounted  for 13.0% of  consolidated  net sales in
fiscal 1999 and sales  decreased  26.6% from fiscal 1998.  Sales for fiscal 1999
were $111.5  million  versus  $151.9  million in fiscal  1998.  This segment was
particularly  impacted by foreign imports,  which caused the Company to exit the
circular  knit  sheeting  business in fiscal  1999.  These  imports  also had an
adverse affect on sales of lace window curtains.  Upholstery fabric and mattress
ticking fabric sales  declined in fiscal 1999 and were only partially  offset by
an increase in domestics fabric sales.

Sales in the segment  identified as Other fell 26.0% to $47.5 million from $64.2
million in fiscal 1998. The Other segment  represented  5.5% of consolidated net
sales in fiscal 1999. The Company's decision to exit the nylon fiber business at
the end of fiscal 1998 and the decline in sales of hook and loop closure systems
contributed to the sales decline.  The Company's  sales of hook and loop closure
systems were impacted by a customer's decision to replace Guilford's fabric with
fabric from a regional European supplier.

Gross margin  decreased to $135.9 million or 15.9% of net sales from last year's
$169.4  million or 18.9% of net sales.  The single  most  significant  impact to
margin was the volume  decline in the Home  Fashions  segment.  The sheeting and
window  curtains  volume  decreases  dramatically  affected  three of Guilford's
operations as both  products were  internally  knit,  finished,  cut and sewn in
Guilford  facilities.  This vertical  integration in the Home Fashions  segment,
which  contributed so dramatically to performance in fiscal 1998,  eroded fiscal
1999  results by $19.9  million.  Additionally,  profit was  impacted  by volume
declines in  commodity  apparel,  industrial  products  and the U.K. and Mexican
automotive  businesses.  The Company  has reduced  fixed costs in several of its
facilities to partially  offset the impact of volume  declines.  Apparel segment
volume  declines were also somewhat offset by a favorable sale price and product
mix  combination  as the Company  continued  to shift  toward  more  value-added
intimate  apparel,  team sports and swimwear and away from commodity  sleepwear,
robewear and velvets.  Domestic  automotive sales prices declined by nearly $1.5
million  overall  due to  continued  OEM pricing  pressures.  This was more than
offset by  increases  in sales  prices for  value-added,  cut-to-size  headliner
parts.  Sales prices for domestic  industrial  fabrics and polyester fibers also
declined in fiscal 1999. Gross profit was also impacted by the Company's actions
to curtail  production  and dispose of certain aged  inventory in order to lower
inventory levels company-wide. Guilford disposed of approximately $20 million of
aged inventory and incurred an approximate loss of $5.0 million. Hurricane Floyd
affected five locations and resulted in several days of business  disruption and
facility shutdowns caused by loss of power and associate safety  considerations.
While the Company  acted  promptly  to resume  operations  and  despite  minimal
physical  property damage,  the most significant  impact related to shipments to
automotive  customers  which were delayed  beyond the fiscal year.  As a result,
gross profit was  negatively  impacted by $2.0 million.  Additionally  in fiscal
1999, the gross margin in the Automotive segment was negatively  impacted by the
inefficiencies  of domestic  automotive  operations due to the unexpectedly high
car-build  which caused  seven day  operations,  the  Company's  relocation  and
consolidation of two woven operations which resulted in a non-recurring  expense
of $1.8 million and the slower than expected  automotive  growth in Brazil which
resulted in a gross margin loss of $1.6 million.

Selling and administrative expenses increased 4.7% to $106.5 million or 12.4% of
sales in fiscal 1999 from the prior year's $101.7 million or 11.4% of sales. The
increase  over prior year was due to an  additional  bad debt  provision of $3.0
million  associated  with  the  financial  difficulties  of an  Apparel  segment
customer,  increased  professional  fees of $1.0  million  associated  with  the
investigation  of  accounting  irregularities  at  Hofmann  Laces and  increased
consulting fees of $1.1 million in the Home Fashions segment.  In the Automotive
segment,  payroll  and fringe  benefits  increased  $1.7  million in the U.S. as
unexpected  record car  builds  resulted  in  continuous  seven day  operations.
Offsetting  these  increases  were cost  reductions  in the  Company's  U.K. and
Mexican operations totaling $1.9 million.

During fiscal 1998 a plant restructuring charge of $6.5 million was recorded for
the termination and exit cost for two of the Company's facilities. During fiscal
1999, the Company  reversed $0.5 million of the original  charge into income due
to the actual amount of severance falling below management's original estimate.

Operating  income in fiscal 1999  decreased to $29.9 million from $61.2 million.
Operating  income  decreased in each segment from fiscal 1998. The Home Fashions
segment  experienced  the largest  decline in operating  income of $18.7 million
which  generated an operating loss of $6.4 million.  This decline was due to the
lower volume as a result of the Company's decision to exit jersey knit sheeting,
inventory  reductions and increased  selling and  administrative  expenses.  The
Apparel and Other segments' operating income fell $4.3 million and $5.8 million,
respectively,  to $3.5 million and $2.8  million,  respectively,  in fiscal 1999
from fiscal 1998. These decreases were also due to lower volumes, which resulted
from the foreign  competition.  Operating income for the Automotive segment fell
$2.5 million to $30.0 million in fiscal 1999. This decline was due to the volume
declines in the foreign  operations,  Hurricane Floyd and increased  payroll and
fringe benefits in domestic operations.

Interest  expense  increased $4.2 million to $16.6 million from $12.4 million in
the prior year as short-term borrowings increased $51.8 million,  primarily as a
result of the  repurchase of shares of the Company's  common stock.  The average
short-term interest rate was 6% in both fiscal 1999 and fiscal 1998.

Other  expense was $1.2 million in fiscal 1999  compared to other income of $0.3
million in fiscal  1998.  Fiscal 1999  included  losses of $1.6  million from an
equity  investee,  investment  write-offs of $0.7  million,  and $0.9 million of
various  other  expenses that more than offset the $2.1 million gain on the sale
of fixed assets.  Fiscal 1998 included  non-recurring  investment  gains of $1.0
million and a fire insurance recovery of $0.7 million.

The  effective  income tax rate for fiscal 1999 was 15.8%  versus  32.5% for the
prior year.  This  reduction  reflected a one-time  net benefit of $3.7  million
derived from a dividend paid by Guilford U.K.  subsidiaries  to the parent under
the Advance Corporation Tax (ACT) rules and the U.S.-U.K. Income Tax Treaty. The
effective income tax rate decrease was also due to lower pre-tax book income, an
effective  tax rate  reduction in the U.K. and a  charitable  contribution  of a
building.  The reduction of certain credits and a reduction in the foreign sales
commission due to reduced margins on export sales partially offset the decline.

An extraordinary  charge, net of tax, of $2.9 million for the prepayment of debt
was recorded in fiscal 1998.

Net income in fiscal 1999 was $10.2  million or 1.2% of net sales and  decreased
66.1% from the prior year's net income of $30.2 million or 3.4% of sales.  Basic
and  diluted  earnings  per share were $0.47 in fiscal  1999  compared  to basic
earnings  per share of $1.20 and diluted  earnings  per share of $1.19 in fiscal
1998. Average shares outstanding  decreased  substantially during fiscal 1999 as
the Company  repurchased nearly 1.0 million shares of the Company's common stock
in the open market and nearly 3.1 million  shares from a  beneficial  owner in a
private transaction.


1998 COMPARED TO 1997 - Consolidated  sales for fiscal 1998 were $894.5 million,
down slightly from fiscal 1997's record high of $894.7 million.  Increased sales
in the Automotive and Home Fashions  segments were offset by decreased  sales in
the  Apparel and Other  segments.  Sales were  negatively  impacted by the Asian
economic crisis, adverse conditions in the U.K. as a result of the strengthening
of the British pound and the devaluation of the Mexican peso.

Sales in the Automotive  segment increased 2.7% to $338.2 million in fiscal 1998
from $329.5 million in fiscal 1997.  Significant  growth in the U.S. and Mexican
markets was  tempered by the  economics  in the U.K.  Automotive  segment  sales
represented 37.8% of consolidated net sales.  North American car build in fiscal
1998 increased 1.3% to 15.4 million units.  Domestic  fabric sales  increased by
10.8%.  The  Company's  increased   penetration   resulted  from  the  continued
popularity of certain Ford models,  growth with the New Domestic  manufacturers,
and dominance of the warp knit fabric market. Additionally,  the Company sourced
the largest woven velour  program in North  America.  Fabric content per vehicle
increased due to the demand for larger sport utility  vehicles and light trucks,
but severe pricing  pressure and more efficient  utilization by the  fabricators
offset the  increase.  In  Europe,  while the  calendar  year car build was 14.4
million units,  increases were enjoyed by OEMs which dominated  certain markets,
such as luxury vehicles and France. Guilford's key customers experienced reduced
market share. Additionally,  the British pound's strength against other European
currencies  disadvantaged  U.K.  manufacturers,  which resulted in reduced sales
prices to prevent  resourcing to other parts of Europe.  Consequently,  sales of
the Company's U.K.-based  manufacturing facilities fell 8.1% in fiscal 1998. The
Mexican  automotive  market was relatively flat with local demand spurred by OEM
incentives.  The Company's Mexican sales increased 7.3% due to the popularity of
its major customer's vehicles.

Apparel  segment sales for fiscal 1998 were $340.2  million and  decreased  3.5%
from fiscal 1997 sales of $352.5  million.  Sales in the  Apparel  segment  were
38.0% of consolidated sales. Intimate apparel and shapewear compression fabrics,
which contain spandex,  grew at double-digit  rates due  substantially to strong
relationships  with key retail  customers and the  penetration  of major branded
manufacturers.  Swimwear  fabric sales were down  slightly in fiscal 1998 due to
the extremely poor weather  patterns in California and Florida  attributed to El
Nino.  Ready-to-wear sales decreased  significantly overall. The domestic demand
for higher quality  fashionable  fabrics declined in favor of garments  imported
from  Asia.  As a result of the  financial  crisis  there,  yarns,  fabrics  and
finished  garments from foreign  competitors  were sold at prices below domestic
cost.  The impact of the Asian  crisis  was  evident  in the  Company's  linings
business  as well.  Team  sports  sales  increased,  as  these  high-performance
ready-to-wear  fabrics  were not  readily  produced at low price  points.  Other
apparel  fabric sales,  such as sleepwear and robewear,  declined  slightly from
fiscal 1997 levels.

Home  Fashions'  sales  increased  19.0% in fiscal 1998 and were $151.9  million
versus $127.7 million in fiscal year 1997.  This segment  accounted for 17.0% of
consolidated  sales and was the largest growth  segment.  Direct to retail sales
increased by 38.6% with strong sales of Guilford's  jersey knit cotton  sheeting
and the introduction of top-of-bed products.  Moderate sales increases in window
curtains and fabrics were slightly offset by sales declines in shower  curtains,
mattress ticking and furniture fabrics.

Sales in the Other  segment  declined  by 24.6% to $64.2  million in fiscal year
1998 from $85.1  million in fiscal year 1997.  Sales in the Other  segment  were
7.2% of  consolidated  net sales in fiscal 1998.  Hook and loop  closure  system
fabric sales decreased by nearly 45% due to the lower demand for premium diapers
containing this fastening  system.  The European business for these products was
replaced by a local supplier.  Additionally, fiber sales were down substantially
as a result of Asian yarn competitive pricing on polyester.

The gross  profit  margin for fiscal  1998 was $169.4  million or 18.9% of sales
compared to $183.0 million or 20.4% of sales in fiscal 1997.  Volume  increases,
especially in the Home Fashions and Automotive  segments,  were more than offset
by  significant  sales price  pressure.  Automotive  OEM sales price  reductions
domestically  and in the U.K.,  where the strength of the British pound caused a
competitive  disadvantage  in Europe,  totaled nearly $9.0 million.  In the Home
Fashions  segment,  the  Company's  cotton  sheeting  sales were up nearly  200%
without  corresponding   profitability  due  to  operating   inefficiencies  and
competitive  pricing pressure with extremely  low-cost imports.  The Company was
able to maintain overall margins on apparel products,  despite a decline of $6.0
million  in sales  prices  and  lower  volumes  caused  primarily  by the  Asian
financial  crisis.  Reductions were offset by increased  volume on higher-margin
intimate  apparel and  shapewear  business  and lower  polyester  yarn  purchase
prices.  Volume  and  pricing  declines  on the hook and loop  specialty  fabric
impacted margins by more than $5.0 million.  Also, the continued  devaluation of
the  Mexican  peso and the impact of  remeasurement  under SFAS No. 52  impacted
gross margins by more than $1.0 million in fiscal year 1998.

Selling and  administrative  expenses  increased  to $101.7  million or 11.4% of
sales from fiscal  1997's  $97.6  million or 10.9% of sales.  Continued  design,
marketing and research and development  efforts,  along with expenses related to
the direct  retail  business,  caused the  increase.  Research  and  development
expenditures were $19.6 million in fiscal 1998, an increase of $4.7 million over
fiscal 1997.  Direct to retail selling  expenses were up $3.7 million  primarily
due to  volume  increases,  promotional  expenses  and shelf  space  allowances.
Salaries and fringes, which were up as the result of normal wage progression and
commissions,  declined  substantially as incentive compensation expense was down
$9.1 million.

A plant  restructuring  charge of $6.5 million was recorded for  termination and
exit costs for two of the Company's facilities. The charge included $2.9 million
of severance  pay,  $3.5 million of  equipment  write-downs  and $0.1 million of
other exit costs.  Guilford  exited the nylon fiber  business and closed a fiber
plant to more effectively  utilize  capacity.  In addition,  the Company will no
longer dedicate resources to certain high-end ready-to-wear products.  (Refer to
Note 3 of the Consolidated Financial Statements for further discussion).

Operating  income in fiscal 1998  decreased  $24.2 million to $61.2 million from
$85.4 million in fiscal 1997.  Operating income fell in all segments from fiscal
1997.  The Apparel and Other  segments'  operating  income fell $8.9 million and
$8.7 million,  respectively, to $7.8 million and $8.6 million, respectively,  in
fiscal  1998 from  fiscal  1997.  The decline in Apparel was the result of lower
selling prices and volumes caused by the Asian financial  crisis as well as from
the  restructuring  charge.  Volume and  pricing  declines  on the hook and loop
specialty fabric and the restructuring charge generated the decline in the Other
segment.  Operating  income for the Home  Fashions  segment fell $5.4 million to
$12.4  million in fiscal  1998 due to pricing  pressures  and  increased  retail
selling expenses. The Automotive segment's operating income was $32.5 million in
fiscal 1998 compared to $33.7 million in fiscal 1997.  Pricing pressures and the
strength of the British pound led to the decline.

Interest  expense  decreased to $12.4 million from fiscal 1997's $16.2  million.
The reduction in long-term debt for much of the year, due  substantially  to the
repayments and conversion of the 6% Subordinated  Convertible Debentures late in
fiscal  year 1997,  resulted  in a $4.2  million  decline in  interest  expense.
Average  short-term  borrowings  increased,  but  the  interest  rate  was  flat
resulting in additional  interest expense of $0.2 million.  Interest expense for
fiscal  1998 was not  impacted  by the  refinancing  of  long-term  debt,  which
occurred on September 25, 1998.

Other  income  was $0.3  million in fiscal  1998 as  compared  to fiscal  1997's
expense of $3.4  million.  Increased  gains on the sale of fixed  assets of $1.1
million,  a fire  insurance  recovery of $0.7  million,  and a reduction  in the
low-income housing investment of $0.4 million generated the improvement.

The  effective  income tax rate for fiscal 1998 was 32.5% versus 34.3% in fiscal
1997.  The decrease  resulted from lower pre-tax book income,  a U.K.  statutory
rate  reduction  of 200 basis  points,  additional  R&D tax  credits  and higher
Foreign Sales  Corporation  benefit.  The reduction of certain credits partially
offset the decline.

An extraordinary  charge,  net of tax, of $2.9 million for the prepayment of the
senior,  unsecured notes outstanding was recorded in fiscal 1998. In conjunction
with the  prepayment of the debt, the Company  recorded a prepayment  penalty of
$3.9 million and related amortization of loan costs of $0.4 million. The related
income tax benefit was $1.4 million.

Net income before the extraordinary charge in fiscal year 1998 was $33.1 million
or 3.7% of sales.  Earnings  per share before  extraordinary  item was $1.32 per
basic  share and $1.30 per diluted  share.  Net income  after the  extraordinary
charge was $30.2  million or 3.4% of sales  compared to $43.2 million or 4.8% of
sales in the prior year.  Earnings per share was $1.20 per basic share and $1.19
per diluted share in fiscal 1998 compared to $1.92 per basic share and $1.78 per
diluted share in fiscal 1997. Average basic shares  outstanding  increased 11.9%
due primarily to the July, 1997 conversion of debentures to equity.



LIQUIDITY AND CAPITAL REQUIREMENTS

Cash provided by  operations  increased to $92.9 million in fiscal 1999 compared
to $76.4 million in fiscal 1998. Although net income was down $20.0 million from
the prior year,  substantial reductions in working capital in fiscal 1999 versus
increases in fiscal 1998, more than offset the profitability decline.

At the end of fiscal  1999,  cash and cash  equivalents  of $22.6  million  were
available for future capital and other operational and business needs.

Working  capital was $127.7 million in fiscal 1999 compared to $211.3 million in
the prior year. A decrease in inventory of $16.2 million and accounts receivable
of $9.5 million and an increase of $51.8 million in  short-term  debt caused the
decline.  The maturing of the Company's revolving credit facility in fiscal 2000
caused the increase in short-term debt.

As part of the original  1996  purchase  agreement  between  Guilford  Mills and
Hofmann Laces, the Company agreed to pay additional consideration in fiscal year
2001 in  accordance  with a formula  based  upon the  Company's  price-earnings'
multiple and Hofmann Laces'  performance  through the end of calendar year 2000.
The purchase  agreement was amended in fiscal year 1998 to fix the amount of the
additional  payment.  A $17.0 million payment of the acquisition  price was made
during  fiscal  1998 with the final  cash  payment of $17.3  million  being made
during fiscal 1999.

Long-term debt  decreased  $31.0 million and  short-term  debt  increased  $51.8
million in fiscal  1999 from the prior year.  During  fiscal  1999,  the Company
issued $145.0 million of unsecured,  ten-year notes.  The net proceeds were used
to repay a portion of the Company's  outstanding  borrowings on its  uncommitted
lines of credit and revolving credit facility.  The net increase in debt was due
primarily to the share repurchases of $42.0 million.

In fiscal 1998,  long-term  debt  increased  $30.6 million and  short-term  debt
increased  $53.5 million from fiscal 1997. The Company  prepaid $73.6 million of
senior,  unsecured notes issued to certain institutional investors which matured
through 2003. The Company  temporarily funded the Hofmann Lace payment described
above, stock repurchases, capital expenditures in excess of depreciation expense
and increases in working capital through its revolving  credit facility and bank
lines of credit.  A portion of these  borrowings were classified as long-term as
they were  replaced  with the $145.0  million of  unsecured,  ten-year  notes in
fiscal 1999.

Capital expenditures were $48.6 million in fiscal 1999 compared to $84.0 million
in fiscal 1998. Since capital  expenditures  were unusually high in fiscal 1998,
the Company limited capital  expenditures in fiscal 1999. The Company  generally
maintains  the  average  capital  expenditures  near  the  average  depreciation
expense.  However, due primarily to the Company's expansion into Mexico, capital
expenditure  levels for the next two fiscal  years are  expected  to be slightly
above depreciation expense.

Raw material costs declined  significantly  in fiscal 1998.  Record  declines in
polyester  yarn prices were caused by the Asian  financial  crisis and continued
worldwide excess  capacity.  These decreases were passed through to customers as
the retail marketplace demanded  lower-priced  garments competitive with foreign
sources. Raw material pricing stabilized in fiscal 1999 and had an insignificant
impact on Guilford's liquidity.  At the end of fiscal 1999, yarn suppliers began
to announce  price  increases.  Thus far,  these have been denied as  Guilford's
customers have refused to allow corresponding selling price increases.

The Company  maintains  flexibility with respect to its seasonal working capital
needs as well as for future acquisitions  through a revolving credit facility of
$150.0 million.  This credit facility matures on September 26, 2000. The Company
anticipates  replacing or renewing this facility during fiscal 2000. It also has
continued access to other traditional  sources of funds,  including  uncommitted
bank  lines of credit  aggregating  $270.0  million  and the  ability  to borrow
against factored  accounts  receivables.  At October 3, 1999, $100.0 million was
available under the revolving credit facility and availability  under Guilford's
uncommitted short-term bank lines of credit was $61.6 million.

Management   believes  that  its  cash  requirements  for  operations,   capital
expenditures,  dividends,  interest, debt repayments,  and other financial needs
will continue to be met through internally  generated sources and utilization of
external borrowings.

The Company's strong balance sheet, with debt to total capital of 43.1%, affords
it many options.  Management  intends to continue to examine both short-term and
long-term  opportunities to continuously  improve its financial position and add
shareholder value. These opportunities may require debt or equity financing.


INFLATION

The Company  believes that the relatively  moderate  inflation rate of the 1990s
has not significantly impacted its operations.


CONTINGENCIES

The Company is involved in various litigation and environmental  matters arising
in the ordinary course of business. Additionally, several class action lawsuits,
which were  subsequently  consolidated by order of the Court, were filed against
the Company  alleging  violations of the Federal  securities laws arising out of
the previously  reported  accounting  irregularities at Hofmann Laces. These are
discussed in Note 12 to the  consolidated  statements which are included herein.
Although the final outcome of these legal and  environmental  matters  cannot be
determined,  based on the facts presently known, it is management's opinion that
the final resolution of these matters will not have a material adverse effect on
the Company's financial position or future results of operations.


OUTLOOK

In 1998,  it was  thought  by most  textile  industry  advisors  that the  Asian
financial  crisis and the influx of low-priced  apparel goods into the U.S. from
the Far East, was cyclical and would be short-lived.  Since then,  however,  the
textile  industry has continued to be  challenged.  Some analysts and economists
now suggest this influx to be a longer-term  adjustment as stable  inflation and
low-priced  imports  from the  currency-devalued  countries  of the Far East are
expected to keep  commodity  product prices and volume low.  Successful  textile
companies will be those with  innovative and diverse  products,  strong customer
relationships and a sound balance sheet.

The  textile  industry  has  experienced  tightening  in lending  and the credit
markets over the course of the last 12 months.  This has been principally due to
lower reported  earnings in the industry as a whole.  Due to the strength of the
Company's overall financial position,  the tighter credit market is not expected
to materially  limit the Company's  ability to replace existing credit or obtain
new credit in order to maintain financial flexibility.

Management  is  optimistic  for  Guilford's  future  as it  moves  into the next
millennium.  Management believes that the industry-forecasted continued strength
of the U.S.  automotive car build and Guilford's market  penetration in the U.K.
and Brazil will enable the Company's  Automotive  segment to continue to perform
well.

The Apparel  segment is expected to maintain sales of value-added  product lines
as a result of the Company's established  relationships with major customers and
the development of new innovative lace and fabric products.  Additionally, as a
result  of  the  foreign  competition,  the  Company  has  dedicated  human  and
production  resources  to  focus on sales of  circular  knit  fabrics.  The Home
Fashions  segment is expected to benefit by sales of new product  offerings  and
expanded marketing efforts.

Through diversity, innovation and technology, the Company will continue to focus
its efforts on providing  high  quality,  innovative  products,  with  excellent
customer service at a low cost and expects to maintain its competitive  position
in its  markets.  Growth is expected to come  gradually  from  internal  product
transition efforts. Guilford is also expected to benefit by the state-of-the-art
dyeing and  finishing  facility  currently  under  construction  in  Tamaulipas,
Mexico.  Production  in this  facility is  scheduled to start in fiscal 2001 and
will allow the Company to take  advantage  of the benefits of NAFTA to remain an
effective competitor and be closer to Guilford's cut-and-sew customers.

During the first quarter of fiscal 1999, the city of Greensboro,  North Carolina
experienced a serious  water  shortage due to lack of rain.  However,  the water
shortage  situation  improved  throughout  fiscal  1999 and did not  impact  the
Company's  operations.  There are  currently  no  voluntary  or  mandated  water
restrictions  in  Greensboro.  During  fiscal  1999,  the Company  took steps to
improve water efficiency in the operations should another water shortage arise.

YEAR 2000

The Year 2000 issue affecting most entities, including the Company, results from
the  possible   inability  of  internal  and  external   computer   systems  and
applications to recognize and process data pertaining to years after 1999. Based
upon Year 2000 compliance  assessments of both internal  information  technology
and embedded systems for the Company's facilities, equipment and infrastructure,
the Company has implemented  necessary  systems and  programming  changes in its
domestic and international operations. The planning,  inventory, impact analysis
and remediation/testing  phases have been completed. An overall contingency plan
and individual  contingency  plans have been developed for execution  throughout
the  remainder  of 1999.  Suppliers  and  customers  with whom the  Company  has
material  relationships  have  been  contacted  to  determine  their  Year  2000
readiness. Contingency plans have been developed where satisfactory answers have
not been  received.  The  Company  does not  anticipate  any  material  business
interruptions.

The  Company  has  spent  $1.35  million  to  date  for  Year  2000   readiness.
Management's  current  estimate for the total cost of Year 2000 compliance tasks
is $1.40 million and includes costs to cover the execution of contingency  plans
prior to  December  31,  1999.  This amount has been  included in the  Company's
operating  budget and is not from the deferral of other  information  technology
projects.  The  estimated  amount  for  the  Year  2000  compliance  project  is
relatively low due to the Company's  commitment five years ago to reengineer the
existing business  processes and information  systems.  As a result,  some costs
that otherwise would have been  associated with Year 2000 readiness  issues were
previously expensed during the Company's reengineering period.

The Company has developed  contingency  plans for the Company as a whole and for
individual  locations in order to minimize  any  potential  Year 2000  problems,
including  internal and external risks such as failures  within the  operational
systems,   financial   systems,   embedded  or  plant  floor  control   systems,
spreadsheets,  suppliers,  customers,  financial  service  providers  and  other
miscellaneous  internal  or external  risks.  Some  contingency  plans have been
developed for execution throughout the remainder of 1999, including  determining
appropriate levels of safety stock,  contacting  customers to coordinate orders,
and printing hard copies of reports that  otherwise  would be available  only on
computer. Other contingency plans have been developed for execution as necessary
if Year 2000 problems are incurred, including the use of manual intervention and
alternate  power sources to minimize  disruptions in the operating and financial
systems should there be an interruption in utility services and the availability
of personnel in the event of a quality issue related to a Year 2000 malfunction.
The Company has developed  Contingency Assurance Plans and Contingency Assurance
Teams that will  respond and  address  unforeseen  Year 2000  issues  during the
transition  period  between  1999 and 2000.

The  reasonably  likely  worst case  scenario  that  could  arise as a result of
service  suppliers'  Year  2000  problems  would be an  interruption  of  normal
business  operations.  The worst case scenario would include an  interruption in
utility  service that would halt the  manufacturing  process.  To the  Company's
advantage,  the majority of the Company's  manufacturing  facilities normally do
not operate during the few days before and after a new year.  Accordingly,  if a
Year 2000 problem such as loss of utility  service occurs but is resolved during
the first few days of 2000, the  interruption to the production  process will be
more limited than otherwise  would be the case.  However,  if Year 2000 problems
prevent  manufacturing  for several days, a loss of revenue  might  result.  The
amount of lost revenue would depend on the duration of the problem and amount of
deliverable goods in inventory. There can be no assurance that there will not be
a delay in,  increased  costs or a material  disruption  of business  activities
associated with Year 2000 readiness.


MARKET RISK

The Company is exposed to market risk for changes in interest  rates and foreign
currency exchange rates.  Guilford has limited exposure to commodity price risk.
The  Company  does not hold or issue any  financial  instruments  for trading or
other speculative purposes.

Interest Rate Risk: The Company's  obligations  under the bank credit  agreement
and  uncommitted  lines of credit bear interest at floating rates and therefore,
the Company is sensitive to changes in prevailing interest rates.  However,  the
long-term  debt is  predominately  fixed and not subject to prevailing  interest
rates. A 10% change in market interest rates that affect the Company's financial
instruments  would impact earnings during the fiscal 2000 by approximately  $0.7
million and would change the fair value of the Company's  financial  instruments
by approximately $7.8 million.

Foreign Currency Risk: The Company is subject to foreign currency risk primarily
related to sales and expenditures and other transactions  denominated in foreign
currencies and  investments  in foreign  subsidiaries.  The Company  manages the
exposure related to capital expenditures and other firm commitments  denominated
in  foreign  currencies   primarily  through  forward  exchange  contracts  with
durations of generally  less than 12 months.  The changes in the market value of
such contracts  have a high  correlation to the price changes in the currency of
the related  hedged  transactions.  The Company  enters  into  forward  currency
exchange  contracts in the normal course of business to manage exposure  against
fluctuations in the purchase price of capital  equipment and other  transactions
having firm  commitments.  The changes in market value of such  contracts have a
high  correlation  to the price  changes in the  currency of the related  hedged
transactions.  On October 3, 1999,  the  Company had the  following  outstanding
foreign currency forward contracts:

<TABLE>
<S>                   <C>           <C>            <C>         <C>
   (1)                  (2)          (3)           (4)          (5)
Forward
Currency              Nominal       Average        Fair
Contracts             Amount         Rate          Value        Loss

(Hedge of Firm Commitments) (In thousands)
--------------------------------------------------------------------------------
Receive U.S. Dollar/Pay British Pound

                      $14,803        1.6222       $15,049        $246
--------------------------------------------------------------------------------
Receive German Deutsche Marks/Pay U.S. Dollar

                         $890        1.6645          $800         $90
<FN>

     (1) All  contracts  mature in the first  quarter of fiscal 2000
     (2) Nominal  contract  amount as reflected in the  underlying  contract
     (3) Weighted average contract rates represent the rates of exchange, stated
         in the currency  sold,  as reflected  in the  underlying  contract
     (4) Fair  value  equals  the  contract  amount  presented  in U.S.  dollar
         equivalents based  upon  the  year-end  exchange  rates  obtained  from
         brokers or referenced from publicly  available market  information
     (5) Loss  represents  the net  unrecognized  loss based  upon the  year-end
         exchange rate
</FN>
</TABLE>

Effective  in fiscal 2000,  the Company  adopted a policy to manage the exposure
related to sales  denominated in foreign  currencies  through the use of forward
exchange contracts.  These forward exchange contracts cover approximately 75% of
the Company's  anticipated  sales in the Euro,  which represents the majority of
the Company's  foreign  currency sales.  The duration of these contracts is less
than 12 months and attempt to match the anticipated receivable collections.

Commodity  Price Risk:  The Company is a purchaser of cotton and generally  buys
cotton based upon market prices that are established  with the vendor as part of
the purchase process.  Guilford does not use commodity financial  instruments to
hedge cotton prices due to the high  correlation  between the cost of cotton and
the ultimate selling price of the Company's product.


SAFE HARBOR-FORWARD-LOOKING STATEMENTS

From time to time, the Company may publish  forward-looking  statements relative
to such  matters  as  anticipated  financial  performance,  business  prospects,
technological  developments,  new products,  research and development activities
and  similar  matters.  The  Private  Securities  Litigation  Reform Act of 1995
provides a safe harbor for forward-looking statements.

All statements  other than statements of historical fact included in this Annual
Report,  including,   without  limitation  the  statements  under  "Management's
Discussion and Analysis of Financial  Condition and Results of Operations"  are,
or may be deemed to be, forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934.  Important factors that could cause actual results to differ materially
from those discussed in such forward-looking statements include:

     1. general  economic  factors  including,  but not limited to,  changes in
        interest rates, foreign currency translation rates, consumer confidence,
        housing starts, trends in disposable income, changes in consumer demand
        for goods produced, and cyclical or other downturns
     2. the  overall  level  of  automotive  production  and the  production of
        specific car models
     3. fashion trends
     4. information and technological advances including Year 2000 issues
     5. cost and  availability  of raw  materials, labor and  natural and other
        resources
     6. domestic and foreign competition
     7. domestic and foreign governmental regulations and trade policies
     8. reliance on major customers
     9. success of marketing, advertising and promotional campaigns or
    10. inability  to  achieve  cost  reductions  through  consolidations  and
        restructuring of acquired companies

<PAGE>
<TABLE>
<CAPTION>

                              Guilford Mills, Inc.
                           CONSOLIDATED BALANCE SHEETS
                     October 3, 1999 and September 27, 1998
                        (In thousands except share data)


--------------------------------------------------------------------------------
                                              1999                 1998
--------------------------------------------------------------------------------
<S>                                        <C>               <C>
ASSETS
Cash and cash equivalents                  $  22,554         $  30,447
Accounts receivable, net                     160,071           169,598
Inventories                                  136,772           153,006
Prepaid income taxes                           7,032             6,258
Other current assets                          12,312             7,643
--------------------------------------------------------------------------------
     Total current assets                    338,741           366,952
--------------------------------------------------------------------------------
Property, net                                312,415           326,941
Other assets                                 102,275           100,607
--------------------------------------------------------------------------------
     Total assets                          $ 753,431         $ 794,500
================================================================================

LIABILITIES
Short-term borrowings                      $ 112,009         $  60,171
Current maturities of
 long-term debt                                  532               811
Accounts payable                              58,355            57,453
Other current liabilities                     40,185            37,239
--------------------------------------------------------------------------------
     Total current liabilities               211,081           155,674
--------------------------------------------------------------------------------
Long-term debt                               146,137           176,872
Deferred income taxes                         26,776            31,075
Other liabilities                             28,492            45,702
--------------------------------------------------------------------------------
     Total long-term liabilities             201,405           253,649
--------------------------------------------------------------------------------

COMMITMENTS AND CONTINGENCIES (NOTES 12 & 13)

STOCKHOLDERS' INVESTMENT
Preferred stock, $1 par; 1,000,000 shares
 authorized, none issued                         --                 --
Common stock, $.02 par; 65,000,000 shares
 authorized, 32,750,222 shares issued,
 19,199,770 shares outstanding at
 October 3, 1999 and 23,226,322 shares
 outstanding at September 27, 1998               655               655
Capital in excess of par                     120,532           119,648
Retained earnings                            363,812           363,606
Accumulated other comprehensive loss         (12,279)           (7,577)
Unamortized stock compensation                (3,310)           (4,759)
Treasury stock, at cost (13,550,452
 shares at October 3, 1999 and
 9,523,900 shares at September 27,
 1998)                                      (128,465)          (86,396)
--------------------------------------------------------------------------------
Total stockholders' investment               340,945           385,177
--------------------------------------------------------------------------------
Total liabilities and stockholders'
 investment                                $ 753,431         $ 794,500
================================================================================

The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>

                              Guilford Mills, Inc.
                        CONSOLIDATED STATEMENTS OF INCOME
 For the Years Ended October 3, 1999, September 27, 1998 and September 28, 1997
                      (In thousands except per share data)

--------------------------------------------------------------------------------
                                      1999            1998           1997
                                   (53 Weeks)      (52 Weeks)     (52 Weeks)
<S>                                <C>            <C>             <C>
--------------------------------------------------------------------------------
NET SALES                          $  856,838     $  894,534      $  894,709
--------------------------------------------------------------------------------

COSTS AND EXPENSES:
    Cost of goods sold                720,913        725,104         711,745
    Selling and administrative        106,487        101,724          97,597
    Plant restructuring costs            (470)         6,470             -
--------------------------------------------------------------------------------
                                      826,930        833,298         809,342
--------------------------------------------------------------------------------

OPERATING INCOME                       29,908         61,236          85,367
--------------------------------------------------------------------------------

OTHER EXPENSE
    Interest expense                   16,598         12,414          16,190
    Other expense/(income), net         1,155           (284)          3,367
--------------------------------------------------------------------------------
                                       17,753         12,130          19,557
--------------------------------------------------------------------------------

INCOME BEFORE INCOME TAX PROVISION
 AND EXTRAORDINARY ITEM                12,155         49,106          65,810
INCOME TAX PROVISION                    1,925         15,960          22,572
--------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM       10,230         33,146          43,238
EXTRAORDINARY ITEM, NET OF INCOME
 TAX (NOTE 8)                             -           (2,940)            -
--------------------------------------------------------------------------------
NET INCOME                         $   10,230     $   30,206      $   43,238
================================================================================

INCOME PER SHARE BEFORE EXTRAORDINARY ITEM:
      Basic                        $      0.47    $     1.32      $     1.92
      Diluted                             0.47          1.30            1.78
================================================================================

NET INCOME PER SHARE:
      Basic                        $      0.47    $     1.20      $     1.92
      Diluted                             0.47          1.19            1.78
================================================================================

The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                              Guilford Mills, Inc.
              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
 For the Years Ended October 3, 1999, September 27, 1998 and September 28, 1997

                        (In thousands except share data)
--------------------------------------------------------------------------------
                              Current Year              Capital in
                              Comprehensive    Common    Excess of    Retained
                                  Income        Stock       Par       Earnings
--------------------------------------------------------------------------------
<S>                            <C>             <C>       <C>           <C>
BALANCE, SEPTEMBER 29, 1996                    $  393    $ 41,089      $311,217
 Comprehensive income:
   Net income                   $  43,238          --         --         43,238
   Other comprehensive
     income, net of tax:
      Foreign currency
       translation gain             2,384          --         --            --
                                ----------
        Total comprehensive
           income               $  45,622
                                ----------

 Three-for-two stock split
   effected as a stock dividend                   196         --           (196)
 Conversion of 3,306,423 shares
   of common stock for subordinated
   convertible debentures                          66      66,431            --
 Grant of 322,750 shares under
   the restricted stock plan                       --       4,816            --
 Return of 38,270 shares to treasury
   stock to satisfy recipients'
   individual tax obligations
   under the restricted stock plan                 --          --            --
 Compensation under restricted stock plan          --          --            --
 Issuance of 129,761 shares of treasury
   stock under the employee stock
   ownership plan                                  --        (710)           --
 Shares to be issued in fiscal 1998
   under the employee stock ownership plan         --       2,032            --
 Issuance of 367,577 shares of treasury
   stock for options exercised for cash            --       3,292            --
 Other transactions of 14,903 shares
   less return of 11,723 shares
   to treasury stock received as payment
   for options exercised                           --         160            --
 Cash dividends ($.42 per share)                   --          --        (9,603)
--------------------------------------------------------------------------------
BALANCE, SEPTEMBER 28, 1997                       655     117,110       344,656
 Comprehensive income:
   Net income                   $  30,206          --          --        30,206
   Other comprehensive
    income, net of tax:
      Foreign currency
        translation gain            2,027          --          --            --
                                 ---------
          Total comprehensive
            income              $  32,233
                                ----------
 Grant of 58,000 shares under the
  restricted stock plan                            --         765            --
 Vesting of 29,000 shares under the
  restricted stock plan, less return
  of 11,253 shares to treasury stock
  to satisfy recipients' individual
  tax obligations                                  --          --            --
 Compensation under restricted stock plan          --          --            --
 Issuance of 105,422 shares of treasury
  stock under the employee stock ownership
  plan                                             --          64            --
 Issuance of 113,257 shares of treasury
  stock for options exercised for cash             --         947            --
 Other transactions of 5,625 shares
  less return of 4,809 shares to
  treasury stock received as payment for
  options exercised                                --        (238)           --
 Purchases of 2,796,825 shares of treasury stock   --          --            --
 U.S. tax benefit from stock options and
  restricted stock                                 --       1,000            --
 Cash dividends ($.44 per share)                   --          --       (11,256)
--------------------------------------------------------------------------------
BALANCE, SEPTEMBER 27, 1998                       655     119,648       363,606
 Comprehensive income:
     Net income                 $  10,230          --          --        10,230
     Other comprehensive
      income, net of tax:
       Foreign currency
        translation loss           (4,036)         --          --            --
       Pension equity adjustment     (666)         --          --            --
                                 ----------
         Total comprehensive
          income                $   5,528
                                -----------
 Vesting of 19,333 shares under the
  restricted stock plan, less return
  of 6,333 shares to treasury stock
  to satisfy recipient's individual
  tax obligations                                  --          --            --
 Compensation under restricted stock plan          --          --            --
 Issuance of 12,750 shares of treasury
  stock for options exercised for cash             --          53            --
 Other transactions of 11,250 shares
  less return of 10,914 shares to
  treasury stock received as payment
  for options exercised                            --          61            --
 Purchases of 4,033,305 shares of
  treasury stock                                   --          --            --
 U.S. tax benefit from stock options and
  restricted stock                                 --         770            --
 Cash dividends ($.44 per share)                   --          --       (10,024)
--------------------------------------------------------------------------------
BALANCE, OCTOBER 3, 1999                       $  655    $120,532      $363,812
================================================================================

The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                              Guilford Mills, Inc.
              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
 For the Years Ended October 3, 1999, September 27, 1998 and September 28, 1997

                        (In thousands except share data)
--------------------------------------------------------------------------------
                                     Accumulated
                                        Other          Unamortized
                                     Comprehensive        Stock       Treasury
                                         Loss         Compensation      Stock
--------------------------------------------------------------------------------
<S>                                  <C>               <C>            <C>
BALANCE, SEPTEMBER 29, 1996          $ (11,988)        $ (287)       $ (42,365)
 Comprehensive income:
   Net income                              --             --               --
   Other comprehensive
     income, net of tax:
      Foreign currency
       translation gain                  2,384            --               --
        Total comprehensive
           income
 Three-for-two stock split
   effected as a stock dividend             --            --               --
 Conversion of 3,306,423 shares
   of common stock for subordinated
   convertible debentures                   --            --               --
 Grant of 322,750 shares under
   the restricted stock plan                --         (6,587)           1,771
 Return of 38,270 shares to treasury
   stock to satisfy recipients'
   individual tax obligations
   under the restricted stock plan          --            --              (707)
 Compensation under restricted stock plan   --          1,783               --
 Issuance of 129,761 shares of treasury
   stock under the employee stock
   ownership plan                           --            --               710
 Shares to be issued in fiscal 1998
   under the employee stock ownership plan  --            --                --
 Issuance of 367,577 shares of treasury
   stock for options exercised for cash     --            --             2,028
 Other transactions of 14,903 shares
   less return of 11,723 shares
   to treasury stock received as payment
   for options exercised                    --            --              (267)
 Cash dividends ($.42 per share)            --            --                --
--------------------------------------------------------------------------------
BALANCE, SEPTEMBER 28, 1997             (9,604)        (5,091)         (38,830)
 Comprehensive income:
   Net income                               --            --                --
   Other comprehensive
    income, net of tax:
      Foreign currency
        translation gain                 2,027            --                --
          Total comprehensive
            income
 Grant of 58,000 shares under the
  restricted stock plan                     --         (1,136)             371
 Vesting of 29,000 shares under the
  restricted stock plan, less return
  of 11,253 shares to treasury stock
  to satisfy recipients' individual
  tax obligations                           --            --              (256)
 Compensation under restricted stock plan   --          1,468               --
 Issuance of 105,422 shares of treasury
  stock under the employee stock ownership
  plan                                      --            --               619
 Issuance of 113,257 shares of treasury
  stock for options exercised for cash      --            --               684
 Other transactions of 5,625 shares
  less return of 4,809 shares to
  treasury stock received as payment for
  options exercised                         --            --               206
 Purchases of 2,796,825 shares of treasury
  stock                                     --            --           (49,190)
 U.S. tax benefit from stock options and
  restricted stock                          --            --                --
 Cash dividends ($.44 per share)            --            --                --
--------------------------------------------------------------------------------
BALANCE, SEPTEMBER 27, 1998              (7,577)       (4,759)         (86,396)
 Comprehensive income:
     Net income                             --            --                --
     Other comprehensive
      income, net of tax:
       Foreign currency
        translation loss                 (4,036)          --                --
       Pension equity adjustment           (666)          --                --
         Total comprehensive
          income
 Vesting of 19,333 shares under the
  restricted stock plan, less return
  of 6,333 shares to treasury stock
  to satisfy recipient's individual
  tax obligations                          --              --              (94)
 Compensation under restricted stock plan  --            1,449              --
 Issuance of 12,750 shares of treasury
  stock for options exercised for cash     --              --              121
 Other transactions of 11,250 shares
  less return of 10,914 shares to
  treasury stock received as payment
  for options exercised                    --              --              (52)
 Purchases of 4,033,305 shares of
  treasury stock                           --              --           (42,044)
 U.S. tax benefit from stock options and
  restricted stock                         --              --               --
 Cash dividends ($.44 per share)           --              --               --
--------------------------------------------------------------------------------
BALANCE, OCTOBER 3, 1999             $ (12,279)        $(3,310)      $(128,465)
================================================================================

The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<PAGE>


<TABLE>
<CAPTION>
                              Guilford Mills, Inc.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Years Ended October 3, 1999, September 27, 1998 and September 28, 1997
                                 (In thousands)

--------------------------------------------------------------------------------
                                          1999           1998           1997
                                       (53 Weeks)     (52 Weeks)     (52 Weeks)
--------------------------------------------------------------------------------
<S>                                     <C>            <C>            <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                            $  10,230      $  30,206      $  43,238
  Non-cash items included in net income:
     Depreciation and amortization         64,633         63,951         59,561
     Unexpended restructuring costs          (470)         6,184            -
     Extraordinary loss on debt
       extinguishment                          -           4,356            -
     Gain on disposition of property       (2,239)        (2,382)        (1,079)
     Loss on equity method investment       1,835            371            -
     Provision for bad debts                4,748            834            333
     Minority interest in net income           92             97            467
     Deferred income taxes                    (20)         9,032         (1,728)
     Increase in cash surrender value
       of life ins., net of policy loans   (3,186)        (2,630)        (1,718)
     Compensation earned under restricted
       stock plan                           1,449          1,468          1,783
     Shares to be issued under employee
       stock ownership plan                   -              -            2,032
 Changes in assets and liabilities:
         Receivables                        4,817         (2,462)         5,215
         Inventories                       16,302        (10,708)        (3,444)
         Other current assets              (5,468)           278            211
         Accounts payable                     902         (1,345)        (5,283)
         Accrued liabilities                2,675        (21,744)        12,138
 Other                                     (3,441)           898          2,244
--------------------------------------------------------------------------------
         Net cash provided by operating
           activities                      92,859         76,404        113,970
--------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property                   (48,609)       (84,015)       (57,629)
  Proceeds from dispositions of property    2,260          4,331          2,603
  Proceeds from sale of other assets        1,491         12,763          2,060
  (Increase) decrease  in other assets     (1,207)        (4,009)             5
  Purchase of business, net of cash
    acquired                                   -         (34,778)        (6,991)
  Investment in equity investee              (995)        (3,500)           -
--------------------------------------------------------------------------------
Net cash used in investing activities     (47,060)      (109,208)       (59,952)
--------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Short-term borrowings (repayments), net 51,802         53,847        (41,244)
   Payments of long-term debt            (176,353)       (88,010)       (16,108)
   Proceeds from issuance of long-term
     debt, net of deferred financing
     costs paid                           140,233        135,235            -
   Payments arising from early
     extinguishment of debt                  -            (3,896)           -
   Payment of purchase agreement          (17,000)            -             -
   Cash dividends                         (10,024)       (11,256)        (9,603)
   Proceeds from exercise of common
     stock options                            174          1,631          5,320
   Purchase of treasury stock             (42,044)       (49,190)           -
--------------------------------------------------------------------------------
Net cash (used in) provided by financing
   activities                             (53,212)        38,361        (61,635)
--------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash
   and Cash Equivalents                      (480)           541            518
--------------------------------------------------------------------------------
Net (Decrease) Increase In Cash and
   Cash Equivalents                        (7,893)         6,098         (7,099)
--------------------------------------------------------------------------------
Beginning Cash and Cash Equivalents        30,447         24,349         31,448
Ending Cash and Cash Equivalents        $  22,554      $  30,447      $  24,349
--------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
   Cash paid for interest               $  12,971      $  13,862      $  14,945
   Cash paid for income taxes              13,851         16,406         13,112

Noncash investing and financing activities:
   Conversion of 6% Subordinated Convertible
      Debentures to equity (including
      accrued interest)                 $     -        $     -        $  66,497
Issuance of common stock under restricted
      stock plan                        $     -        $   1,136      $   6,587
================================================================================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>

<PAGE>

Notes to Consolidated Financial Statements
(In thousands except share data)


1.  DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

DESCRIPTION  OF BUSINESS - Guilford  Mills,  Inc.  (the  "Company")  is a fabric
producer,  which  processes and sells warp knit,  circular knit and woven velour
fabric as well as lace. The Company sells its finished  fabrics to customers who
manufacture  a broad range of apparel,  automotive,  home fashions and specialty
products.  The  Company  also  cuts and sews lace  fabrics  into  finished  home
fashions products which are sold directly to retailers.


PRINCIPLES OF CONSOLIDATION - The consolidated  financial statements include the
accounts  of  Guilford  Mills,  Inc.  and  its   majority-owned  and  controlled
subsidiaries.  All significant  intercompany accounts and transactions have been
eliminated  in  consolidation.   The  Company's  investments  in  non-controlled
entities are  accounted  for using the equity method and as such are reported in
other assets in the accompanying consolidated balance sheets.


FISCAL  YEAR END - The  Company's  fiscal  year ends on the  Sunday  nearest  to
September  30.  Fiscal year 1999 ended  October 3, 1999,  fiscal year 1998 ended
September  27, 1998 and fiscal year 1997 ended  September  28, 1997.  Such years
include the results of operations for 53, 52 and 52 weeks, respectively.


USE OF ESTIMATES - The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
the reported  amounts of revenues and expenses.  Actual  results may differ from
those estimates.


RECLASSIFICATIONS  - For comparative  purposes,  certain amounts in the 1998 and
1997  financial  statements  have been  reclassified  to  conform  with the 1999
presentation.


CASH EQUIVALENTS - All highly liquid  investments  with an original  maturity of
three months or less are considered to be cash equivalents.


ACCOUNTS  RECEIVABLE AND  CONCENTRATION  OF CREDIT RISK - The Company  maintains
credit  insurance  and uses  factors as a means to reduce  credit  risk.  Credit
insurance  is  maintained  covering  $24,000  of  certain  outstanding  accounts
receivable.  The Company  factors a portion of its trade accounts  receivable to
several different factors,  who provide credit approval on a non-recourse basis.
As of  October  3,  1999 and  September  27,  1998,  approximately  17% and 11%,
respectively,  of the Company's  trade accounts  receivable  were factored.  The
factoring  agreements  allow the Company to formally borrow against the factored
receivables  using  negotiated  interest rates prior to the maturity dates.  The
Company has not  borrowed  against the  factored  receivables  in the last three
fiscal  years.  The  Company  performs   on-going  credit   evaluations  of  its
non-factored  customers'  financial  condition  and  generally  does not require
collateral from those customers. The Company's fabrics are used primarily in the
apparel,  automotive, and home fashions markets with a multitude of customers in
numerous   geographical   locations   throughout   the   world.   There   is  no
disproportionate concentration of credit risk.

Allowances for doubtful  accounts were $17,393 and $9,450 at October 3, 1999 and
September  27,  1998,   respectively.   The  Company  maintains  fully  reserved
receivables for accounts which are either in bankruptcy or have been turned over
to a collection  agency and also reserves for sales returns and  allowances  and
customer chargebacks.


MINORITY  INTEREST - Minority  interest  represents  the minority  stockholders'
proportionate  share of the equity of Grupo  Ambar,  S.A.  de C.V. At October 3,
1999,  the Company owned 95% of the capital  stock of Grupo Ambar,  S.A. de C.V.
Minority interest is included in other long-term liabilities in the accompanying
consolidated balance sheets.


INVENTORIES  - Inventories  are carried at the lower of cost or market.  Cost is
determined  using the link chain dollar value last-in,  first-out  (LIFO) method
for  approximately  54%  and  53%  of  inventories  in  fiscal  1999  and  1998,
respectively.  Cost for all other inventories has been determined principally by
the first-in, first-out (FIFO) method.


PROPERTY  - Property  is  carried at cost,  and  depreciation  is  provided  for
financial reporting primarily on the straight-line  method.  Accelerated methods
are used for income tax  reporting  purposes.  Depreciation  rates are  reviewed
annually and revised, if necessary,  to reflect estimated remaining useful lives
which range from three to  thirty-five  years.  Labor and interest costs for the
purchase and  construction of qualifying  fixed assets,  are capitalized and are
amortized over the related assets' estimated useful lives.

GOODWILL AND INTANGIBLE  ASSETS - Goodwill is amortized using the  straight-line
method over periods  ranging from twenty to forty years.  Goodwill  amortization
was  $2,115,  $1,876 and  $1,242 in fiscal  1999,  1998 and 1997,  respectively.
Accumulated  amortization  at October 3, 1999 and September 27, 1998 was $12,477
and $10,362, respectively.


LONG-TERM  ASSETS - The Company  reviews the carrying value of long-term  assets
for impairment  whenever  events or changes in  circumstances  indicate that the
carrying  value may not be  recoverable.  Measurement  of any  impairment  would
include a comparison of estimated future operating cash flows  anticipated to be
generated during the remaining life to the net carrying value of the asset.


INCOME TAXES - Deferred or prepaid income taxes are provided for  differences in
timing of  expense  and income  recognition  between  income  tax and  financial
reporting in accordance with Statement of Financial  Accounting Standards (SFAS)
No. 109,  "Accounting  for Income  Taxes".  United  States  income taxes are not
provided  on the  earnings  of foreign  operations  as those are  intended to be
permanently reinvested. In the event earnings are repatriated,  credits received
in the United States for foreign income taxes  previously paid will be available
to  substantially  reduce the United States tax liability.  In fiscal years 1999
and 1997, the Company  repatriated  $20,000 and $19,000,  respectively,  to take
advantage  of the  expiring  Advanced  Corporation  Tax rules and the  U.S.-U.K.
Income Tax Treaty.  These  one-time  dividends  resulted in a current income tax
benefit.  Undistributed earnings of foreign operations were $8,673 at October 3,
1999 and $30,574 at September 27, 1998.


FOREIGN CURRENCY TRANSLATION/REMEASUREMENT - The financial statements of certain
majority-owned  foreign subsidiaries are translated into dollars at the year-end
rate of  exchange  for asset and  liability  accounts  and the  average  rate of
exchange for income statement  accounts.  Resulting  translation gains or losses
are  reflected in  accumulated  other  comprehensive  loss in the  stockholders'
investment  section  of the  accompanying  balance  sheets and do not affect the
results of  operations.  Financial  results of  certain  majority-owned  foreign
subsidiaries in highly inflationary economies are remeasured using a combination
of current and historical exchange rates. Remeasurement adjustments are included
in the results of  operations  along with  transaction  gains and losses for the
period.

The Company has a  majority-owned  foreign  subsidiary  that operates in Mexico.
Mexico  became  highly  inflationary  January 1, 1997 and  subsequent  financial
results for the Company's Mexican subsidiary were remeasured.  Effective January
1, 1999,  Mexico's  economy was no longer  considered  highly  inflationary  for
financial  reporting  purposes because the cumulative Mexican inflation rate for
the immediately  preceding three years fell below 100%. As a result,  subsequent
to January 1, 1999, the financial  results for the Mexican  subsidiary have been
translated using year-end and average exchange rates as described above.


REVENUE  RECOGNITION  - The Company  recognizes a sale when goods are shipped or
when ownership is assumed by the customer. At the request of some customers, the
Company  invoices  goods on a bill and hold  basis  when the  title  and risk of
ownership pass to the customer.  At October 3, 1999 and September 27, 1998, bill
and hold receivables were $3,113 and $4,796, respectively. The Company estimates
and records  provisions  for sales returns and allowances in the period the sale
is reported based on its historical experience or contractual agreements.


RESEARCH AND DEVELOPMENT - The Company expenses  research and development  costs
as incurred.  Such costs were $17,181,  $19,588 and $14,940 in fiscal 1999, 1998
and 1997, respectively.


PER SHARE INFORMATION - The Company adopted SFAS No. 128,  "Earnings Per Share",
in fiscal 1998 and has restated prior earnings per share data to conform to this
Statement.  Basic income per share  information  has been determined by dividing
the respective  net income  amounts by the weighted  average number of shares of
common  stock  outstanding   during  the  periods.   Diluted  income  per  share
information  also considers as applicable (i) the dilutive  effect assuming that
the Company's  convertible  debentures were converted at the beginning of fiscal
1997, with earnings being increased by the interest expense,  net of taxes, that
would not have been incurred had conversion taken place at that time and (ii) an
additional  dilutive  effect  for stock  options  and  shares  issued  under the
restricted stock plan.


FINANCIAL INSTRUMENTS AND DERIVATIVES - The Company periodically uses derivative
financial  instruments for purposes other than trading and does so to reduce its
exposure to fluctuations in interest rates and foreign currency  exchange rates.
Gains and losses on hedges of existing  assets and  liabilities  are included in
the  carrying  amounts  of  those  assets  or  liabilities  and  are  ultimately
recognized  in income.  Gains and losses  related to  qualifying  hedges of firm
commitments  or  anticipated  transactions  are deferred and are  recognized  in
income or as adjustments to carrying amounts when the hedged transaction occurs.
The Company  does not  currently  hold or issue any  financial  instruments  for
trading or other  speculative  purposes.  Effective in fiscal 2000,  the Company
adopted a policy to manage the exposure related to anticipated sales denominated
in foreign currencies through the use of forward exchange contracts.

STOCK-BASED  COMPENSATION  - In  accordance  with  SFAS  No.  123,  "Stock-Based
Compensation," the Company has continued to measure compensation expense for its
stock-based  employee  compensation  plans  using  the  intrinsic  value  method
prescribed by Accounting  Principles  Board ("APB") Opinion No. 25,  "Accounting
for Stock Issued to Employees". Pro forma disclosures of net income and earnings
per share are presented as if the fair value-based method prescribed by SFAS No.
123 had been applied in measuring  compensation expense for the periods required
by the Statement.


RECENT  ACCOUNTING  PRONOUNCEMENTS  - In June  1999,  the  Financial  Accounting
Standards Board issued SFAS No. 137, "Accounting for Derivative  Instruments and
Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133 - an
Amendment of FASB Statement No. 133".  This Statement  delays the effective date
of SFAS No.  133 one year  from June 15,  1999 to June 15,  2000.  SFAS No.  133
establishes  accounting  and  reporting  standards for  derivative  instruments,
including   certain   derivative   instruments   embedded  in  other   contracts
(collectively  referred  to as  derivatives),  and for  hedging  activities.  It
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair value.  The Company plans to adopt the  provisions of this  Statement in
the fourth quarter of fiscal 2000.  Management is currently analyzing the impact
of adopting SFAS No. 133.


2.  ACQUISITIONS:

GRUPO AMBAR - Effective  June 27, 1997,  the Company  acquired an additional 20%
ownership   interest  in  Grupo  Ambar,   S.A.  de  C.V.   ("Grupo  Ambar")  for
approximately $7,100. The acquisition increased the Company's ownership interest
in Grupo Ambar from 75% to 95%.  The  purchase  price was  allocated to the fair
market value of assets and  liabilities  acquired and excess purchase price over
fair market value of underlying assets was allocated to goodwill. Grupo Ambar is
a leading manufacturer of knit textile fabrics in Mexico.

HOFMANN LACES,  LTD. - In fiscal 1998, the Company  entered into an amendment to
the stock purchase  agreement  related to the acquisition of Hofmann Laces, Ltd.
This  amendment  provided  for the  Company  to pay a fixed  amount in lieu of a
formula-based  amount given the Company's  price-earnings'  multiple and Hofmann
Laces'  performance  through the end of  calendar  year 2000.  As a result,  the
Company paid $17,000 in February 1998 and $17,283 in October  1998.  The $17,283
was included in long-term  liabilities in the accompanying  consolidated balance
sheets at the end of fiscal 1998 as it was subsequently funded through long-term
debt.

3.  RESTRUCTURING CHARGES:

During fiscal 1998, the Company commenced restructuring of two of its operations
and  recorded   restructuring   and  impaired  asset  charges  of  $6,470.   The
restructuring  plan provided for the closing of a yarn  manufacturing  facility,
the  downsizing of a product  line-focused  operation  within the apparel market
sector  and the  severance  of  approximately  300  associates.  A  reserve  for
severance costs of $2,849 and lease exit costs and other obligations of $113 was
recorded  as an accrued  liability  in fiscal  1998.  Additionally,  a charge of
$3,508 was taken to reduce  property to net  realizable  value at September  27,
1998. The impaired assets consisted  primarily of a building and fiber spinning,
warping,  dyeing and finishing equipment.  The equipment and fiber building were
written down to the lower of carrying value or fair market value.  Determination
of fair  market  value was  based  upon:  (1)  in-house  engineering  appraisals
utilizing  prices  for  currently  available  new and used  equipment,  (2) real
property tax values and (3) zero where intent was to scrap. Equipment was either
idled or disposed through external sales to third parties.

The following summarizes the restructuring charge:
<TABLE>

---------------------------------------------------
Severance and Other
---------------------------------------------------
<S>                                         <C>
Fiscal 1998 restructuring charge            $2,962
Fiscal 1998 costs against the reserve         (286)
Balance at September 27, 1998                2,676
---------------------------------------------------
Fiscal 1999 costs against the reserve       (2,206)
Fiscal 1999 reversal of excess                (470)
Balance at October 3, 1999                  $   --
===================================================
</TABLE>

In  September  1999,  the Company  sold the fiber  facility  and  completed  all
restructuring  activities  by fiscal  year  end.  In  fiscal  1999,  $470 of the
original  charge was reversed  into income due to the actual amount of severance
falling below the original estimate.


4.  INVENTORIES:

Inventories  at  October  3,  1999  and  September  27,  1998  consisted  of the
following:
<TABLE>
<CAPTION>

--------------------------------------------------------------------
                                            1999             1998
--------------------------------------------------------------------
<S>                                     <C>               <C>
Finished goods                          $  45,143         $  48,776
Raw materials and work in process          96,527           112,275
Manufacturing supplies                      8,056             8,811
--------------------------------------------------------------------
Total  inventories  valued at the lower
  of FIFO cost or market value            149,726           169,862
Adjustments to reduce FIFO cost
  to LIFO cost, net                        12,954            16,856
--------------------------------------------------------------------
     Total inventories                  $ 136,772         $ 153,006
====================================================================
</TABLE>


5.  PROPERTY:

Property at October 3, 1999 and September 27, 1998 consisted of the following:
<TABLE>
<CAPTION>

--------------------------------------------------------
                                   1999          1998
--------------------------------------------------------
<S>                             <C>           <C>
Land                            $  13,294     $  12,804
Buildings                         120,137       115,144
Machinery and equipment           654,472       625,493
Construction in progress           22,383        19,112
--------------------------------------------------------
                                  810,286       772,553
Less - Accumulated
   depreciation                   497,871       445,612
--------------------------------------------------------
Property, net                   $ 312,415     $ 326,941
========================================================
</TABLE>

Depreciation  expense  recorded  during fiscal 1999,  1998 and 1997 was $61,869,
$59,627 and $57,424, respectively.


6.  OTHER ASSETS:

Other  assets at  October  3,  1999 and  September  27,  1998  consisted  of the
following:
<TABLE>
<CAPTION>

--------------------------------------------------------
                                 1999            1998
--------------------------------------------------------
<S>                           <C>             <C>
Goodwill                      $ 50,333        $ 52,448
Cash surrender value of
  life insurance                36,479          34,549
Other                           15,463          13,610
--------------------------------------------------------
Total other assets            $102,275        $100,607
========================================================
</TABLE>

7.  ACCRUED LIABILITIES:

Accrued  liabilities  at October 3, 1999 and September 27, 1998 consisted of the
following:
<TABLE>
<CAPTION>

------------------------------------------------------------
                                     1999            1998
------------------------------------------------------------
<S>                                 <C>            <C>
Payroll and related benefits        $18,046        $18,404
Accrued interest                      3,128            --
Property taxes                        3,162          2,985
Plant restructuring                     --           2,676
Other                                15,849         13,174
-------------------------------------------------------------
Total accrued liabilities           $40,185        $37,239
=============================================================
</TABLE>


8.  SHORT-TERM BORROWINGS AND LONG-TERM DEBT:

The Company uses  short-term bank borrowings with terms of six months or less to
meet seasonal working capital needs. The maximum  short-term  borrowings  during
fiscal 1999, 1998 and 1997 were $112,009, $82,918 and $49,904, respectively; the
average  borrowings  were $68,246,  $30,230 and $37,363,  respectively;  and the
weighted  average  interest  rates  were 6%,  7% and 7% (6%,  6% and 6% for U.S.
borrowings),  respectively.  Interest cost was $17,798, $13,814 and $17,430, for
fiscal years 1999, 1998 and 1997, respectively. Interest costs of $1,200, $1,400
and $1,240,  for fiscal 1999, 1998 and 1997,  respectively,  were capitalized to
property, plant and equipment.

As of October 3, 1999, the Company had availability under uncommitted bank lines
of credit of $61,616 and had additional availability under its revolving line of
credit of $100,000.

The  total  borrowings  on the  uncommitted  lines of credit  outstanding  as of
September  27,  1998  of  $125,000  was  classified  as  long-term  debt  in the
accompanying consolidated balance sheet as management had the intent and ability
to refinance the borrowings through available long-term debt sources.

Long-term  debt at October  3, 1999 and  September  27,  1998  consisted  of the
following:

<TABLE>
<CAPTION>

-------------------------------------------------------------------
                                             1999            1998
-------------------------------------------------------------------
<S>                                        <C>            <C>
Senior,  unsecured notes, due in 2008,
  interest at 7.06%                        $145,000           --
Uncommitted  lines of credit, various
  maturities and interest rates                 --         $125,000
Revolving line of credit, due in 2000,
  interest at 5.83%                             --           50,000
Term loan with a Mexican bank at various
  due dates and a variable  interest rate
  (25.0% at October 3, 1999)                  1,340           1,482
Other                                           329           1,201
---------------------------------------------------------------------
                                            146,669         177,683
Less -  Current maturities                      532             811
---------------------------------------------------------------------
Total long-term debt                       $146,137        $176,872
=====================================================================
</TABLE>

In the first quarter of fiscal 1999, the Company  issued  $145,000 of unsecured,
ten-year notes with a fixed coupon rate of 7.06%.  The net proceeds were used to
repay a portion of the Company's outstanding borrowings on its uncommitted lines
of credit and revolving  credit  facility.  During the fourth  quarter of fiscal
1998, the Company  entered into two treasury lock  agreements with two financial
institutions to provide interest rate protection  related to these notes.  These
treasury lock  agreements  effectively  fixed the U.S.  Treasury  portion of the
interest  rate at 5.437% on a  notional  amount  of  $57,500  and at 5.435% on a
notional  amount of  $30,000.  During  the first  quarter  of fiscal  1999,  the
treasury lock agreements were terminated and a payment of $4,366 was made and is
being  amortized as additional  interest  expense over the period of the related
debt.

During  fiscal  1998,  the  Company  repaid  all of the senior  unsecured  notes
outstanding  due through  2003 with  $50,000 of  borrowings  under its  $150,000
revolving line of credit facility and additional  borrowings  under  uncommitted
lines of credit.  In connection with the repayment,  the Company recorded $3,994
of pretax prepayment  penalties and $362 of pretax  accelerated  amortization of
loan costs as an  extraordinary  item.  The  income tax effect  related to those
charges was $1,416.

Annual  maturities of long-term  debt for the next five years are, $532 in 2000,
$532 in 2001, $276 in 2002, $0 in 2003 and $0 in 2004.

Under the terms of the  Company's  debt  agreements,  certain  requirements  and
restrictions  apply  to  future  indebtedness,   stockholders'  investment,  and
tangible net worth.  The Company is in compliance  with all covenants  under its
debt agreements.


9.  FINANCIAL INSTRUMENTS:

The Company's financial instruments include cash, accounts receivable,  accounts
payable,  short-term  borrowings,  long-term debt and foreign currency  exchange
contracts.  Because  of their  short  maturity,  the  carrying  amount  of cash,
accounts receivable and accounts payable  approximates fair value. Fair value of
short-term  borrowings  and long-term  debt is estimated  based on current rates
offered for similar debt. At October 3, 1999, the carrying  amount of short-term
borrowings and long-term debt, including the current portion,  approximates fair
value. The fair value of foreign currency forward  agreements is based on quoted
market prices as if the agreements were entered into on the measurement date. At
October 3, 1999, the fair value of the foreign currency  exchange  contracts was
$(336).


10.  INCOME TAXES:

The net deferred  income tax liability at October 3, 1999 and September 27, 1998
was comprised of the following:

<TABLE>
<CAPTION>

----------------------------------------------
                      1999          1998
----------------------------------------------
<S>                 <C>           <C>
Assets              $ 33,576      $ 25,286
Liabilities          (53,320)      (50,103)
----------------------------------------------
Total               $(19,744)     $(24,817)
==============================================
</TABLE>

Temporary  differences and carryforwards which gave rise to significant deferred
income tax assets  (liabilities)  as of October 3, 1999 and  September  27, 1998
were as follows:
<TABLE>
<CAPTION>

---------------------------------------------------------
                                      1999         1998
---------------------------------------------------------
<S>                              <C>            <C>
Current  prepaid (deferred)
 income taxes:
Income tax credit carryforwards
 (expire 2004)                    $    245      $  3,222
Inventory valuation differences     (4,061)       (3,302)
Allowances for doubtful accounts     5,184         2,056
Accrued expenses and reserves not
 currently deductible for tax        4,114         2,795
Restructuring accruals                 --          1,058
Accrued environmental expenses         392           396
Other, net                           1,158            33
---------------------------------------------------------
Total current prepaid
 income taxes                     $  7,032      $  6,258
=========================================================
Long-term prepaid (deferred)
 income taxes:
Property                          $(41,507)     $(39,175)
Income tax credit carryforwards
 (expire 2004-2012)                 11,372           --
Accrued pension and other
 employee benefits                   8,089         7,619
Alternative minimum and other
 tax credit carryforwards
 (no expiration)                     3,124         3,843
Accrued environmental expenses         788         1,460
Investments in limited partnerships (2,827)       (2,644)
Goodwill amortization               (3,076)       (2,284)
Financing costs                     (1,554)          --
Other, net                             --            106
---------------------------------------------------------
Total long-term deferred
 income taxes                     $(25,591)     $(31,075)
Valuation allowance                 (1,185)          --
---------------------------------------------------------
Total long-term deferred
  income taxes                    $(26,776)     $(31,075)
==========================================================
</TABLE>

The  domestic  and foreign  components  of income  before  income  taxes were as
follows:

<TABLE>
<CAPTION>

------------------------------------------------------------
                            1999        1998         1997
------------------------------------------------------------
<S>                       <C>         <C>          <C>
Domestic                  $11,377     $34,562      $49,138
Foreign                       778      14,544       16,672
------------------------------------------------------------
Total                     $12,155     $49,106      $65,810
============================================================
</TABLE>

The income tax provision consisted of the following elements:

<TABLE>
<CAPTION>

-----------------------------------------------------------
                            1999        1998         1997
-----------------------------------------------------------
<S>                        <C>         <C>         <C>
Currently payable:
   U.S. Federal            $2,238      $4,499      $15,803
   State                      320         823        2,338
   Foreign                   (613)      1,606        6,159
Deferred payable (benefit):
   U.S. Federal            (1,575)      6,115       (1,826)
   State                     (175)        795          434
   Foreign                  1,730       2,122         (336)
------------------------------------------------------------
Total                      $1,925     $15,960       $22,572
============================================================
</TABLE>

The income tax  provision as a  percentage  of pre-tax  income  differs from the
statutory U.S. Federal rate for the following reasons:

<TABLE>
<CAPTION>

----------------------------------------------------------------------
                                     1999          1998         1997
----------------------------------------------------------------------
<S>                                 <C>            <C>          <C>
Statutory U.S. Federal Income
 tax rate                            35.0%         35.0%        35.0%
State income taxes, net of
 Federal Income tax reduction         4.8           2.1          2.9
Foreign taxes                         9.9          (1.6)        (0.2)
Tax credits                         (33.3)         (3.0)        (2.9)
Nondeductible goodwill                2.7           0.8           --
Charitable contribution              (1.9)           --           --
Other                                (1.4)         (0.8)        (0.5)
------------------------------------------------------------------------
Effective income tax rate            15.8%         32.5%        34.3%
========================================================================
</TABLE>

During  fiscal 1999 and 1997,  the Company  generated a one-time net tax benefit
from a dividend from the Company's United Kingdom  subsidiary under the Advanced
Corporation  Tax rules and the  U.S.-U.K.  Income Tax Treaty.  As a result,  the
Company  generated  $4,836 of foreign tax credits  which are  available for U.S.
federal income tax purposes.  Due to the uncertainty of realization of a portion
of these credits because of the annual  limitations  and the expiration  period,
the Company  established a related  valuation  allowance of $1,185 during fiscal
1999.


11.  BENEFIT PLANS:

During fiscal 1999, the Company  adopted SFAS No. 132,  "Employers'  Disclosures
about Pensions and Other Postretirement Benefits". SFAS No. 132 standardizes the
disclosure requirements for pensions and other postretirement benefits.

Guilford  Mills,  Inc.  has a  non-contributory  defined  benefit  plan  for the
majority of its hourly  employees  (the  Guilford  Plan).  Gold Mills,  Inc.,  a
wholly-owned subsidiary,  also has a non-contributory defined benefit plan and a
multi-employer  pension plan  covering the majority of its  employees.  Guilford
Europe Limited,  a wholly-owned  subsidiary,  has a defined benefit pension plan
covering the majority of its  employees.  The funded  status of defined  benefit
plans at the  measurement  dates of September  30, 1999 and  September 30, 1998,
respectively, were:

<TABLE>
<CAPTION>

----------------------------------------------------------------------
                                              1999            1998
----------------------------------------------------------------------
<S>                                         <C>              <C>
Projected benefit obligation:
Beginning of year                           $47,287          $44,941
         Service cost                         2,080            2,080
         Interest cost                        3,109            3,339
         Plan participants contributions        248              238
         Actuarial loss/(gain)                  948           (2,158)
         Benefit payments                    (2,878)          (2,087)
         Foreign currency adjustment           (441)             934
-----------------------------------------------------------------------
End of year                                 $50,353          $47,287
-----------------------------------------------------------------------
Fair value of plan assets:
Beginning of year                           $45,450          $41,876
         Actual return on plan assets         4,667            1,335
         Employer contributions               1,999            3,136
         Plan participant contributions         248              238
         Benefit payments                    (2,878)          (2,087)
         Foreign currency adjustment           (453)             952
-----------------------------------------------------------------------
End of year                                 $49,033          $45,450
-----------------------------------------------------------------------
Reconciliation of funded status to net
 amount recognized:
Funded status                               $(1,320)         $(1,837)
         Unrecognized transition asset      $(1,810)         $(1,997)
         Unrecognized prior service cost        (56)             (62)
         Unrecognized loss                    3,624            3,733
------------------------------------------------------------------------
Net amount recognized                       $   438          $  (163)
------------------------------------------------------------------------
Amounts recognized in the Consolidated
 Balance Sheets:
         Other current assets               $   909          $   700
         Other current liabilities           (1,589)          (1,003)
         Other assets                           452              140
         Accumulated other comprehensive
          income                                666               --
------------------------------------------------------------------------
Net amount recognized                       $   438          $  (163)
========================================================================
</TABLE>

Funded status is determined  using  assumptions  as of the end of each year. The
Guilford  Plan was under funded as of September 30, 1999 and September 30, 1998.
The projected benefit obligation,  accumulated benefit obligation and fair value
of  net  assets  of  the  Guilford  Plan  were  $25,910,  $25,215  and  $23,627,
respectively,  as of  September  30, 1999.  The  projected  benefit  obligation,
accumulated benefit obligation and fair value of net assets of the Guilford Plan
were $23,922, $23,040, and $22,038,  respectively, as of September 30, 1998. Net
pension  expense is  determined  using  assumptions  as of the beginning of each
year. The weighted average assumptions at the respective measurement dates were:

<TABLE>
<CAPTION>

------------------------------------------------------------------
                                             1999          1998
------------------------------------------------------------------
<S>                                          <C>           <C>
Discount rate                                6.58%         6.80%
Long-term rate of return on plan assets      8.39%         8.80%
Long-term rate of salary progression         3.18%         3.59%
==================================================================
</TABLE>

The components of the defined benefit plan expenses were:
<TABLE>
<CAPTION>

----------------------------------------------------------------------
                                    1999          1998         1997
----------------------------------------------------------------------
<S>                                <C>           <C>          <C>
Defined  benefit plans:
         Service cost              $2,080        $2,080       $1,766
         Interest cost              3,109         3,339        3,068
         Expected return on
            plan assets            (3,731)       (3,726)      (3,235)
         Amortization of:
            Transition asset         (187)         (187)        (187)
            Prior service cost         (5)           (5)          (5)
            Loss                      132            89          248
----------------------------------------------------------------------
Net periodic pension cost           1,398         1,590        1,655
Domestic multi-
  employer plan                       265           270          264
----------------------------------------------------------------------
            Total                  $1,663        $1,860       $1,919
======================================================================
</TABLE>

The  Company  maintains  defined  contribution  plans for certain  officers  and
salaried employees.  Contributions under these plans are determined by the Board
of  Directors.  During  fiscal 1999,  1998 and 1997,  the  provisions  under the
defined contribution plans were $3,323, $3,444, and $2,905, respectively.

The Company also maintains deferred  compensation plans for certain officers and
salaried  employees  which  provide  post-retirement  cash  payments for various
specified  periods and amounts.  These plans are being  provided for  currently.
During fiscal 1999, 1998 and 1997, the provisions under these plans were $2,173,
$2,310, and $2,167,  respectively.  The liability for deferred  compensation was
$18,252 at October 3, 1999 and $17,899 at September 27, 1998 and was included in
other long-term liabilities in the accompanying balance sheets.

Life insurance  policies are maintained to fund the deferred  compensation plans
and other  benefits  to senior  management  such as life  insurance  and defined
benefit plans, and for keyman coverage.  These insurance policies are payable to
the  Company  and use of the  proceeds  are  restricted  to the  extent of trust
requirements. There are no loans outstanding against these policies.


12.  COMMITMENTS AND CONTINGENCIES:

The  Company  leases  certain of its  manufacturing  and office  facilities  and
equipment under non-cancelable operating leases with remaining terms of up to 26
years.  Rent expense under these leases was $6,673 in 1999,  $6,337 in 1998, and
$5,055 in 1997. At October 3, 1999, future minimum rental payments applicable to
these leases are $5,140 in 2000, $4,078 in 2001, $3,093 in 2002, $1,690 in 2003,
$1,540 in 2004, and $18,523 thereafter.

Several  purported class action lawsuits have been filed on behalf of purchasers
of the  Company's  common stock  against the Company and certain of its officers
and directors. These lawsuits were consolidated by order of the Court on January
8, 1999. A Consolidated  and Amended Class Action  Complaint (the  "Consolidated
Complaint") was filed on February 8, 1999. The Consolidated  Complaint  purports
to allege claims under Sections  10(b) and 20(a) of the Securities  Exchange Act
of 1934 and Rule 10b-5 promulgated thereunder,  in connection with the Company's
public  disclosure  of  accounting  irregularities  at the Hofmann Laces unit in
fiscal year 1998. Specifically,  the Consolidated Complaint alleges that, during
the alleged class period (January 20, 1998 through October 26, 1998), defendants
materially  misrepresented the Company's  financial condition and overstated the
Company's  reported  earnings.  No  specific  amount of damages is sought in the
Consolidated Complaint.

On  April 9,  1999,  defendants  filed a  motion  to  dismiss  the  Consolidated
Complaint.  On July 21, 1999,  the Court entered an order  dismissing all claims
against  one of the  Company's  officers  but denied the  Company and one of its
director's motion to dismiss.

Plaintiffs  filed  their  Second  Amended  Complaint  on  September  7, 1999 and
defendants answered the Second Amended Complaint on September 24, 1999.

On November 1, 1999,  plaintiffs  filed a motion  seeking to certify a plaintiff
class  consisting  of all persons or entities who purchased the common shares of
Guilford  Mills,  Inc. from January 20, 1998 through October 26, 1998 inclusive.
Guilford has until December 15, 1999, to oppose plaintiffs' class  certification
motion. The Company intends to vigorously defend the lawsuits.

The Securities and Exchange  Commission (the  "Commission")  has issued a formal
Order Directing Private Investigation and Designating Officers To Take Testimony
(the "Formal  Order") with respect to accounting  irregularities  at the Hofmann
Laces Unit which the  Company  had  previously  disclosed  in press  releases in
October  and  November  1998.  Prior to the  issuance of the Formal  Order,  the
Company  had  voluntarily   provided  certain   information  to  the  Commission
concerning the accounting  irregularities at the Hofmann Laces Unit. The Company
has delivered documents to, and intends to continue  cooperating fully with, the
Commission.

Since January 1992, the Company has been involved in discussions with the United
States Environmental Protection Agency ("EPA") regarding remedial actions at its
Gold  Mills,  Inc.  ("Gold")  facility  in Pine  Grove,  Pennsylvania  which was
acquired in October  1986.  Between  1988 and 1990,  the Company  implemented  a
number  of  corrective   measures  at  the  facility  in  conjunction  with  the
Pennsylvania  Department of Environmental  Resources and incurred  approximately
$3,500 in costs.  Subsequently,  through negotiations with the EPA, Gold entered
into a Final  Administrative  Consent Order with the EPA,  effective October 14,
1992.  Pursuant to such order,  Gold has performed (i) certain measures designed
to prevent any potential  threats to the environment at the facility and (ii) an
investigation  to  fully  determine  the  nature  of any  release  of  hazardous
substances at the facility.  In addition,  Gold will conduct a study to evaluate
alternatives  for any corrective  action which may be necessary at the facility.
The failure of Gold to comply with the terms of the Consent  Order may result in
the  imposition of monetary  penalties  against  Gold. In the fourth  quarter of
fiscal 1992, a pre-tax  charge of $8,000 was provided for the  estimated  future
cost of the  additional  remediation.

During  the  fourth  quarter  of 1992,  the  Company  also  received a Notice of
Violation  from  the  North  Carolina   Division  of  Environmental   Management
concerning  ground  water  contamination  on or near one of its  North  Carolina
facilities.  The  Company  voluntarily  agreed  to  allow  the  installation  of
monitoring wells at the site, but denies that such contaminants  originated from
the Company's operations or property. An additional pre-tax charge of $1,250 was
provided in the fourth  quarter of fiscal 1992 to reflect the  estimated  future
costs of this monitoring and other  environmental  matters including the removal
of  underground  storage  tanks at the  Company's  facilities.  The  Company has
removed all  underground  storage tanks at its  facilities.  At October 3, 1999,
environmental accruals amounted to $4,247 of which $3,247 is non-current and was
included in other deferred liabilities in the accompanying balance sheet.

The  Company is also  involved  in various  litigation,  including  the  matters
described  above,  arising out of the ordinary course of business.  Although the
final outcome of these legal and  environmental  matters  cannot be  determined,
based on the facts presently  known,  it is management's  opinion that the final
resolution  of these  matters  will not have a  material  adverse  effect on the
Company's financial position or future results of operations.


13.  CAPITAL STOCK AND STOCK COMPENSATION:

On February 4, 1999, the  stockholders  of the Company  approved an amendment to
the Company's  Certificate of Incorporation  increasing the number of authorized
shares of Common Stock from 40,000,000 to 65,000,000.

On  April   21,   1997,   the   Company's   Board  of   Directors   approved   a
three-for-two-stock  split of the Company's common stock. The split was effected
in the form of a stock dividend paid on May 6, 1997 to stockholders of record on
May 1, 1997. The stock dividend  increased the Company's  issued common stock by
approximately  9.8  million  shares.  All  share  and per  share  data have been
restated  for all periods  presented  to reflect  the stock split  effected as a
stock dividend.

The Company has a stock option plan for key employees and directors. On June 23,
1999, the Compensation  Committee of the Company's Board of Directors  increased
the number of shares  authorized  under the stock option plan from  2,500,000 to
2,750,000.   Options   granted  may  be  either   incentive   stock  options  or
non-qualified  options with only non-qualified options granted to the directors.
Under the terms of the  plan,  the  purchase  price of  shares  subject  to each
incentive option granted will not be less than the fair market value at the date
of grant. The purchase price of shares subject to each  non-qualified  option is
determined by the Company's Board of Directors,  the Executive  Committee or the
Option  Committee.  Options  granted to directors  vest one-third on the date of
grant  and  one-third  each  year for the next two  years.  Options  granted  to
employees (pursuant to an agreement with each employee) vest one-third two years
from the date of grant  and  one-third  each  year for the next two  years.  The
options  have a life of either  five or ten years  from the  grant  date.  As of
October  3,  1999  and   September  27,  1998,   287,428  and  393,807   shares,
respectively, were available for grant.

Option activity under the plan was as follows:

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------
                                Number of                     Weighted Average
                                  Shares      Exercise Price   Exercise Price
                               Under Option     Per Share         Per Share
--------------------------------------------------------------------------------
<S>                             <C>          <C>                    <C>
Balance, September 29, 1996      872,376     $12.44  to $16.33      $14.76
Granted                          909,350      17.21  to  23.70       20.22
Exercised                       (367,577)     12.44  to  16.33       14.74
Forfeited                        (39,246)     13.87  to  15.50       14.55
--------------------------------------------------------------------------------
Balance, September 28, 1997    1,374,903      12.44  to  23.70       18.11
Granted                          372,625      19.53  to  27.59       20.84
Exercised                       (118,882)     13.46  to  18.37       14.24
Forfeited                        (62,155)     13.87  to  19.75       16.88
--------------------------------------------------------------------------------
Balance, September 27, 1998    1,566,491      13.46  to  27.59       19.00
Granted                          434,000       8.63  to  14.72       10.00
Exercised                        (24,000)     13.46  to  13.87       13.49
Forfeited                        (77,622)      9.22  to  19.75       16.94
--------------------------------------------------------------------------------
Balance, October 3, 1999       1,898,869     $ 8.63  to $27.59      $17.15
================================================================================
</TABLE>

These options expire at various dates through fiscal 2009. The weighted  average
remaining  contractual life of the options  outstanding at October 3, 1999 was 7
years.  Options exercisable at October 3, 1999, September 27, 1998 and September
28, 1997 were 656,159, 291,795 and 239,927,  respectively.  The weighted average
exercise  price on the options  exercisable  was $17.60,  $15.41,  and $14.48 on
October 3, 1999,  September 27, 1998 and September 28, 1997,  respectively.  The
weighted  average fair market value of the Company's common stock at the date of
grant was  $10.00,  $20.84 and $20.22 for grants made in fiscal  1999,  1998 and
1997, respectively.

The Company has elected to continue to account for stock option grants under APB
Opinion  No. 25 and is required  to provide  pro forma  disclosures  of what net
income and earnings per share  ("EPS")  would have been had the Company  adopted
the fair value method for recognition purposes under SFAS No. 123. The following
information is presented as if the Company had adopted SFAS No. 123 and restated
its results:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
                                       1999        1998        1997
----------------------------------------------------------------------
<S>                                  <C>          <C>         <C>
Income Before Extraordinary Item:
         As reported                 $10,230      $33,146     $43,238
         Pro forma                   $ 9,182      $32,272     $42,902
----------------------------------------------------------------------
Net Income:
         As reported                 $10,230      $30,206     $43,238
         Pro forma                   $ 9,182      $29,332     $42,902
----------------------------------------------------------------------
Basic EPS Before Extraordinary Item:
         As reported                 $  0.47      $  1.32     $  1.92
         Pro forma                   $  0.42      $  1.28     $  1.91
-----------------------------------------------------------------------
Diluted EPS Before Extraordinary Item:
         As reported                 $  0.47      $  1.30     $  1.78
         Pro forma                   $  0.42      $  1.27     $  1.77
-----------------------------------------------------------------------
Basic EPS:
         As reported                 $  0.47      $  1.20     $  1.92
         Pro forma                   $  0.42      $  1.17     $  1.91
-----------------------------------------------------------------------
Diluted EPS:
         As reported                 $  0.47      $  1.19     $  1.78
         Pro forma                   $  0.42      $  1.15     $  1.77
=======================================================================
</TABLE>

For the above information,  the fair value of each option grant was estimated on
the  date of  grant  using  the  Black-Scholes  option  pricing  model  with the
following  assumptions  used for  grants in  fiscal  1999,  1998 and  1997:  (i)
expected  volatility ranging from 20% to 29%, (ii) expected lives ranging from 4
to 7 years, (iii) risk free interest rates ranging from 4.3% to 6.7% and (iv) an
expected  dividend yield of 1.8% to 3.7%. The weighted average  calculated value
in excess of the grant value of an option granted during fiscal 1999,  1998, and
1997 under the Black-Scholes  model was $2.44,  $6.36, and $5.00,  respectively.
Because  SFAS No.  123  method of  accounting  has not been  applied  to options
granted  prior to  October  2,  1995,  the above pro  forma  amounts  may not be
representative  of the  estimated  compensation  costs to be  expected in future
years.

The Company authorized  2,250,000 shares of common stock for the 1989 Restricted
Stock Plan, which covered certain key salaried  employees.  This plan expired in
June 1999,  but allows the vesting of the 295,533  shares that were  outstanding
(held in trust) under the plan at October 3, 1999. These shares carry voting and
dividend rights;  however, sale of the shares is restricted prior to vesting. Of
the  58,000  shares  granted in fiscal  year 1998,  40,000  vest  evenly  over a
three-year  period  commencing  September 30, 1998 and 18,000 vest evenly over a
four-year  period  commencing  May 27,  2001,  subject  generally  to  continued
employment. Of the 322,750 shares granted in fiscal year 1997, 20% vested on the
date of  grant,  May 27,  1997.  The  remaining  80% of the grant  vests  over a
four-year  period (20%  annually)  commencing on the fourth  anniversary  of the
grant date, subject to continued employment. Shares granted prior to fiscal 1997
vest evenly over three years, subject to continued employment. Dividend payments
are made to an escrow  account.  The accrual for shares issued under the plan is
recorded at fair market value on the date of grant with a  corresponding  charge
to stockholders'  investment representing the unearned portion of the award. The
unearned  portion is being amortized as compensation  expense on a straight-line
basis over the related vesting period. Compensation expense in fiscal 1999, 1998
and 1997 was $1,449, $1,468 and $1,783, respectively.

The Company has an employee  stock  ownership  plan which covers the majority of
U.S. full-time  employees who have completed one year of service.  Annual awards
are based upon the approval of the Board of  Directors  and are tied to targeted
earnings levels achieved during the year.  Employees  immediately vest in 50% of
the annual award and can elect to receive the 50% vested portion in cash or as a
common stock contribution to the plan. The remaining 50% of the award is made to
the plan in the form of the  Company's  common stock or in cash which is used to
purchase the  Company's  common  stock.  Employee  rights to this portion of the
award vest over a seven-year  period.  Vested shares are payable at  retirement,
death or disability, or termination of employment. Shares of common stock in the
plan carry normal voting and dividend rights.  Compensation expense for the plan
for fiscal 1999,  1998 and 1997 was $0, $0, and $4,063,  respectively,  based on
the Company's  attainment of certain performance targets. As of October 3, 1999,
the plan held 901,039  shares of the Company's  common  stock.  These shares are
considered  outstanding and included in the basic and diluted earnings per share
calculations.

In June and September  1998,  the Company's  Board of Directors  authorized  the
repurchase  of up to an aggregate of 3,500,000  shares of the  Company's  common
stock. As of October 3, 1999, the Company  repurchased  3,496,793  shares on the
open market at an average price of $15.57.  In August 1999, the Company's  Board
of Directors  authorized  the  repurchase  of 3,071,712  shares of the Company's
stock from a beneficial  owner at $9.50 per share,  the fair market value at the
date of the  transaction.  The Company's  repurchases of shares were recorded as
treasury stock and resulted in a reduction of stockholders'  equity. The Company
had an agreement with three of its directors  whereby the Company may exercise a
first  right  of  refusal  on the  disposition  of  shares.  Pursuant  to  these
agreements,  the Company repurchased an additional 261,625 shares in fiscal 1998
at an  average  price  of  $29.06,  the  fair  market  value  at the date of the
transactions. The Company maintains this agreement with two of its directors.

On June 25, 1997,  the Company issued a call for the redemption of the Company's
outstanding 6.0% Convertible Subordinated  Debentures.  Holders had the right to
convert  debentures  into shares of common stock through July 29, 1997 at $19.67
per  share.  Of the  $66,180  debentures  outstanding,  $65,039  or  98.3%  were
converted to common stock. This conversion resulted in the issuance of 3,306,423
shares of common stock that had been previously reserved for such issuance.

The Company has an agreement with one of its directors whereby the Company will,
in the event of his death prior to June 22, 2001,  purchase  common stock of the
Company  owned by the  director  in the amount of  $5,000.  The number of shares
purchased  will be based on the average  market  value of the stock for a 20-day
period preceding the date of death.

In 1990,  the Board of  Directors  declared a dividend  of one  preferred  stock
purchase right on each  outstanding  share of the Company's common stock. If the
rights become exercisable,  separate certificates  evidencing the rights will be
distributed  and each right will entitle the holder to purchase from the Company
a new series of preferred stock at a pre-defined  price. The rights also contain
an option to purchase  shares in a change of control  situation.  The  preferred
stock, in addition to a preferred  dividend and liquidation  right, will entitle
the holder to vote on a pro rata  basis with the  Company's  common  stock.  The
rights are not  exercisable  until  either  certain  changes in ownership of the
Company  occur or an  announcement  of a tender  offer  for at least  30% of the
Company's  common stock is made.  The rights are  redeemable by the Company at a
fixed  price  until 10 days,  or longer as  determined  by the Board,  after the
occurrence of certain  defined  events or at any time prior to the expiration of
the rights on August  23,  2000 if such  events do not  occur.  As of October 3,
1999, the Company had reserved 300,000  preferred shares as issuable pursuant to
these  rights.  At the present time,  the rights have no dilutive  effect on the
earnings per share calculation.


14. COMPREHENSIVE INCOME:

The Company adopted SFAS No. 130,  "Comprehensive  Income",  during fiscal 1999.
Provisions  of SFAS  No.  130  require  companies  to  display  with  prominence
comprehensive  income  and  its  components  in a full  set  of  general-purpose
financial  statements.  Comprehensive  income is the total of net income and all
other non-owner  changes in equity.  The  accumulated  balances and activity for
each component of Accumulated Other Comprehensive Loss are as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                 Foreign                      Accumulated
                                 Currency        Pension        Other
                                Translation      Equity        Comprehensive
                                 Adjustment      Adjustment      Loss
--------------------------------------------------------------------------------
<S>                               <C>            <C>            <C>
Balance at September 29, 1996     $(11,988)         --          $(11,988)
   Change in balance                 2,384          --             2,384
--------------------------------------------------------------------------------
Balance at September 28, 1997       (9,604)         --            (9,604)
   Change in balance                 2,027          --             2,027
--------------------------------------------------------------------------------
Balance at September 27, 1998       (7,577)         --            (7,577)
   Change in balance                (4,036)        (666)          (4,702)
--------------------------------------------------------------------------------
Balance at October 3, 1999        $(11,613)       $(666)        $(12,279)
================================================================================

The income tax  benefit  for the pension  equity  adjustment  in fiscal 1999 was
$436.  No income taxes have been provided for the foreign  currency  translation
adjustments.
</TABLE>


15. EARNINGS PER SHARE:

The following table reconciles basic and diluted earnings per share:
<TABLE>
<CAPTION>

--------------------------------------------------------------------------------
                               Income Before   EPS Before
                               Extraordinary   Extraordinary   Net     Earnings
                     Shares        Item          Item         Income   Per Share
--------------------------------------------------------------------------------
<S>               <C>             <C>           <C>           <C>       <C>
1999:
Basic EPS         21,952,000      $10,230       $0.47         $10,230   $0.47
                                                ------                  ------
Add effect of
  dilutive securities:
Options and
  restricted stock    10,000          --                          --
                  -----------------------                     --------
Diluted EPS       21,962,000      $10,230        $0.47        $10,230   $0.47
================================================================================
1998:
Basic EPS         25,134,000      $33,146        $1.32        $30,206   $1.20
                                                 -----                  -----
Add effect of
  dilutive securities:
Options and
  restricted stock   343,000          --                           --
                  ------------------------                    --------
Diluted EPS       25,477,000      $33,146        $1.30        $30,206   $1.19
================================================================================
1997:
Basic EPS         22,470,000      $43,238        $1.92        $43,238   $1.92
                                                 -----                  -----
Add effect of
  dilutive securities:
Options and
  restricted stock   176,000           --                          --
6% Convertible
  debt             2,801,000        2,170                       2,170
                  -------------------------                   -------
Diluted EPS       25,447,000      $45,408        $1.78        $45,408   $1.78
================================================================================
</TABLE>

The  number  of  outstanding  stock  options  and  shares  of  restricted  stock
considered  antidilutive  for  either  part or all of the  fiscal  year  and not
included in the calculation of diluted net income per share for the fiscal years
ended 1999, 1998, and 1997 were 1,898,869, 1,534,650, and 990,300, respectively.
These  antidilutive  stock options and restricted  stock were outstanding at the
end of each fiscal year.


16.  SEGMENT INFORMATION:

The Company adopted SFAS No. 131,  "Disclosures  About Segments of an Enterprise
and Related  Information"  in fiscal 1999.  SFAS No. 131  requires  companies to
report  information  on  segments  using the  management  approach.  The Company
operates as a matrix-form  organization  comprised of business  units and market
sectors.  Based on SFAS No.  131,  the  operating  segments  would be based upon
markets and the Company has identified four  reportable  segments based on these
markets: Apparel, Automotive, Home Fashions and Other.


Apparel:  The Company  manufactures fabrics in the U.S. and Mexico for a variety
of apparel  applications.  Guilford Mills, Inc. is one of the major producers of
synthetic fabrics. Fabric uses range from basic intimate apparel to high fashion
swimwear, shapewear and ready-to-wear predominately used in women's garments.

Automotive: The Company supplies a broad range of fabrics to automotive original
equipment  manufacturers,  "Tier 1", "Tier 2", and "Tier 3" suppliers worldwide.
These fabrics are further  fabricated into the seats and headliners of passenger
cars,  sport utility  vehicles,  conversion  vans and light trucks.  The Company
manufactures automotive fabric in the U.S., United Kingdom, Mexico and Brazil.

Home Fashions:  The Company produces and distributes  directly to retail a broad
line of products for the home including  window  curtains,  sheets,  comforters,
pillowcases,  bedskirts and shower  curtains.  The Company also produces fabrics
used in  mattress  ticking,  residential  and  office  furniture  and for window
treatment applications.

Other : The Company  also  produces  specialty  fabrics that are used in diverse
consumer and industrial  applications.  Many of these fabrics are proprietary or
patented.  These specialty fabrics as well as the Company's fibers operation are
combined into this segment.

The  accounting  policies  of the  reportable  segments  are the  same as  those
described in Note 1 of Notes to Consolidated  Financial Statements.  The Company
neither allocates to the segments nor bases segment decisions on the following:
                  --Interest revenue
                  --Interest expense
                  --Unusual items
                  --Investment income
                  --Income tax expense or benefit
                  --Extraordinary items
                  --Noncash items other than depreciation or
                    amortization expense

Many of the Company's assets are used by multiple segments. While certain assets
are identifiable by segment,  an allocation of the substantial  remaining assets
is not meaningful.
<TABLE>
<CAPTION>

---------------------------------------------------------------------------
                                                Home
                      Apparel     Automotive   Fashions    Other     Total
---------------------------------------------------------------------------
<S>                   <C>          <C>         <C>       <C>       <C>
1999
External sales        $336,511     $361,269    $111,530  $ 47,528  $856,838
Intersegment sales                                        127,873   127,873
Operating profit         3,534       29,982      (6,361)    2,753    29,908
Interest expense                                                     16,598
Other expense, net                                                    1,155
Income before income taxes                                           12,155
Depreciation expense  $ 19,855     $ 18,591    $ 10,641  $ 12,782  $ 61,869
---------------------------------------------------------------------------
1998
External sales        $340,224     $338,221    $151,889  $ 64,200  $894,534
Intersegment sales                                        141,905   141,905
Operating profit         7,811       32,484      12,378     8,563    61,236
Interest expense                                                     12,414
Other expense, net                                                     (284)
Income before income taxes
 and extraordinary item                                              49,106
Extraordinary item                                                   (2,940)
Depreciation expense  $ 17,567     $ 19,062    $  9,516   $ 13,482 $ 59,627
----------------------------------------------------------------------------
1997
External sales        $352,475     $329,472    $127,659   $ 85,103 $894,709
Intersegment sales                                          69,634   69,634
Operating profit        16,677       33,664      17,799     17,227   85,367
Interest expense                                                     16,190
Other expense, net                                                    3,367
Income before income taxes                                           65,810
Depreciation expense  $ 16,066     $ 18,091    $  8,003   $ 15,264 $ 57,424
============================================================================
</TABLE>

17.  GEOGRAPHIC INFORMATION:

The accompanying  financial  statements include the following amounts related to
the operations of the Company's  subsidiaries in the United Kingdom,  Mexico and
Brazil:

<TABLE>
<CAPTION>

-------------------------------------------------------------------
                                    1999        1998        1997
-------------------------------------------------------------------
<S>                              <C>          <C>          <C>
Net sales to unaffiliated
 customers:
    United States                $705,628     $716,687     $707,991
    United Kingdom                108,394      126,067      136,962
    Mexico                         40,637       51,780       49,756
    Brazil                          2,179           --           --
-------------------------------------------------------------------
      Total net sales            $856,838     $894,534     $894,709
===================================================================

Long-lived assets:
    United States                $272,209     $283,912
    United Kingdom                 30,195       34,769
    Mexico                         21,629       16,360
    Brazil                          3,845        5,510
--------------------------------------------------------
      Total long-lived assets    $327,878     $340,551
========================================================
</TABLE>

During fiscal 1999, 1998 and 1997, no single customer  accounted for 10% or more
of net sales. The Company's net sales reflected  substantial direct and indirect
sales to certain large automotive original equipment manufacturers.


18.  SUMMARY OF QUARTERLY EARNINGS (UNAUDITED):

<TABLE>
<CAPTION>
----------------------------------------------------------------------
1999 Quarter:           First        Second        Third       Fourth
----------------------------------------------------------------------
<S>                   <C>           <C>           <C>         <C>
Net sales             $214,913      $218,270      $217,923    $205,732
Gross profit            36,153        38,006        31,659      30,107
Net income               2,363         4,755           931       2,181
----------------------------------------------------------------------
Net income per share:
    Basic                  .10           .21           .04         .11
    Diluted                .10           .21           .04         .11
======================================================================
</TABLE>

<TABLE>
----------------------------------------------------------------------
1998 Quarter:
----------------------------------------------------------------------
<S>                   <C>           <C>           <C>         <C>
Net sales             $213,377      $228,448      $232,768    $219,941
Gross profit            38,533        42,189        46,978      41,730
Income before
   extraordinary item    6,491         9,253        12,846       4,556
Net income               6,491         9,253        12,846       1,616
----------------------------------------------------------------------
Income per share
  before extraordinary
  item:
    Basic                  .26           .36           .50         .19
    Diluted                .25           .36           .49         .19
----------------------------------------------------------------------
Net income per share:
    Basic                  .26           .36           .50         .07
    Diluted                .25           .36           .49         .07
=======================================================================
</TABLE>
<PAGE>

Report of Independent Public Accountants

To the Stockholders and Board of Directors of Guilford Mills, Inc.:


We have audited the accompanying  consolidated balance sheets of Guilford Mills,
Inc.  (a  Delaware  corporation)  and  subsidiaries  as of  October  3, 1999 and
September  27,  1998,  and  the  related  consolidated   statements  of  income,
stockholders'  investment  and cash  flows  for each of the  three  years in the
period ended October 3, 1999. 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 audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  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 audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position of Guilford  Mills,  Inc. and
subsidiaries  as of October 3, 1999 and  September  27,  1998 and the results of
their  operations and their cash flows for each of the three years in the period
ended  October  3,  1999,  in  conformity  with  generally  accepted  accounting
principles.

                                                 /s/Arthur Andersen LLP
                                                 -----------------------
                                                    Arthur Andersen LLP
                                                    Greensboro, North Carolina,
                                                    November 11, 1999.

<PAGE>
STATEMENT OF MANAGEMENT'S RESPONSIBILITY


The  management  of  Guilford  Mills,  Inc.  has  the   responsibility  for  the
preparation and integrity of all information contained in the Annual Report. The
financial statements, including footnotes, have been prepared in accordance with
generally accepted  accounting  principles and include amounts that are based on
management's best estimates and judgments.

The Company maintains an internal  accounting control system designed to provide
reasonable  assurance of the safeguarding and  accountability of Company assets,
and to  ensure  that its  financial  records  provide a  reliable  basis for the
preparation  of  financial  statements  and other data.  The system  includes an
appropriate division of responsibility and is documented by written policies and
procedures  that are  communicated  to employees with  significant  roles in the
financial  reporting  process  and  updated  as  necessary.   In  addition,  the
achievement of effective operations is promoted by this system. There are limits
inherent in all systems of internal  control based on the  recognition  that the
cost of such systems  should not exceed the benefits  derived and the likelihood
of  achievement  of  objectives  can be affected by human  judgment,  failure or
circumvention.  Management  believes the Company's  system of internal  controls
provides an appropriate balance.

The  control  environment  is  complemented  by an  internal  auditing  program,
comprised of internal and external business  advisors who  independently  assess
the  effectiveness  of the internal  controls and report  findings to management
throughout  the year. The group  delivers  increased  value by aligning with the
business  objectives to reduce risk and create cost efficiencies.  The Company's
financial  statements  have been audited by independent  public  accountants who
have expressed their opinion with respect to the fairness of the presentation of
these statements in conformity with generally  accepted  accounting  principles.
They  objectively  and  independently  review the  performance  of management in
carrying out its  responsibility  for reporting  operating results and financial
condition.  Their  opinion  is based on  procedures  which  they  believe  to be
sufficient to provide reasonable assurances that the financial statement contain
no material  errors.  Management  has made available to the  independent  public
accountants all of the Company's  financial records and related data, as well as
the minutes of stockholders' and directors'  meetings.  Recommendations  by both
internal and external  auditors  concerning  internal  control  deficiencies are
considered and are implemented with an appropriate urgency by management.

The Audit Committee of the Board of Directors,  which is formally chartered,  is
comprised  solely  of  non-employee  directors  who meet  periodically  with the
independent  auditors,  management and the Company's internal auditors to review
the work of each and to evaluate the accounting, auditing, internal controls and
financial reporting matters. The independent auditors and the Company's internal
auditors  have free  access to the Audit  Committee,  without  the  presence  of
management.

/s/ Terrence E. Geremski
------------------------
Terrence E. Geremski
Executive Vice President/Chief Financial Officer

<PAGE>


COMMON STOCK MARKET PRICES AND DIVIDENDS
<TABLE>
<CAPTION>

    Fiscal 1999
    ------------------------------------------------------------------------
    Quarter                    High                Low           Dividends
    ------------------------------------------------------------------------
    <S>                     <C>                  <C>                   <C>
    First                    $17                 $11 1/2               $.11
    Second                    18                   8 3/4                .11
    Third                     11                   8 1/8                .11
    Fourth                    10 5/8               8 1/2                .11

    Year                     $18                 $ 8 1/8               $.44

</TABLE>
<TABLE>
<CAPTION>

    Fiscal 1998
    --------------------------------------------------------------------------
    Quarter                   High                Low           Dividends
    --------------------------------------------------------------------------
    <S>                      <C>                 <C>                 <C>
    First                    $28  1/4            $23 1/8             $.11
    Second                    29  1/8             25                  .11
    Third                     29  5/8             18 1/2              .11
    Fourth                    21 1/16             13 3/4              .11

    Year                     $29  5/8            $13 3/4             $.44
</TABLE>



The high and low stock  market  prices
are  as  reported   under  the  ticker
symbol  "GFD"  on the New  York  Stock
Exchange   which   is  the   principal
market   for  the   Company's   common
stock.  On  November  15,  1999  there
were 448 stockholders of record.

Based on  continued  favorable  future
operations  and the  present  level of
available      retained      earnings,
management    anticipates   continuing
its current dividend policies.