Exhibit 13


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

Burlington Industries, Inc. and Subsidiary Companies

Overview

The Company's diluted earnings per share for the 1998 fiscal year were $1.32 per
share,  a growth of 23  percent  over the $1.07 per share  recorded  in the 1997
fiscal year before  non-recurring  charges.  Sales were  approximately 4 percent
lower,  primarily  as a result of  closing  or selling  certain  businesses  for
strategic reasons.

         The Company has  continued its strategy of focusing on core apparel and
interior furnishings  businesses by moving its textured yarn business into a new
joint venture and, on November 6, 1998,  selling its spun yarn business.  During
1998,  the Company  improved the debt to total  capital  ratio to 53.8  percent,
repurchased  3.7 million  shares of common  stock,  and invested $148 million in
capital expenditures for expansion and modernization. During the year, operating
results  generated  $137 million in cash, and asset sales provided an additional
$11 million.  The Company's  sales and operating  performance in the 1998 fiscal
year were somewhat  restrained  by difficult  conditions in some of its markets,
including  a surge in Asian  textile  and  apparel  imports.  To  address  these
challenges,  the  Company  in 1998  commenced  construction  of a large yarn and
fabric complex in Mexico and launched a major effort to expand its capability to
deliver fabrics to customers in garment package form.

         PERFORMANCE  BY SEGMENT:  The Company  conducts its  operations  in two
principal  industry  segments:  products  for apparel  markets and  products for
interior furnishings markets. The following table sets forth certain information
about the segment results for the fiscal years ended October 3, 1998,  September
27, 1997 and September 28, 1996.

                                         Fiscal       Fiscal       Fiscal
(dollar amounts in millions)              1998         1997         1996   
                                       ---------    ---------    ----------
                                       (53 week
                                         year)
Net sales
  Apparel products                     $ 1,163.5    $ 1,253.2    $ 1,328.3
  Interior furnishings products            846.9        837.5        854.0
                                        --------     --------     --------
   Total                               $ 2,010.4    $ 2,090.7    $ 2,182.3
                                        ========     ========     ========


Operating income before interest and taxes
  Apparel products                     $   101.9    $   112.1    $   121.7
   As a percentage of net sales              8.8%         8.9%         9.2%
  Interior furnishings products        $    80.9    $    43.6    $    55.6
   As a percentage of net sales              9.6%         5.2%         6.5%
  Operating income before interest,
   taxes, loss on closing of division
   and provision for restructuring     $   182.8    $   155.7    $   177.3
  Loss on closing of division          $       -    $       -    $   (29.9)
  Provision for restructuring          $       -    $   (12.1)   $       -
                                        --------      --------     -------
   Total                               $   182.8    $   143.6    $   147.4
    As a percentage of net sales             9.1%         6.9%         6.8%
                                        ========      =======      =======


<PAGE>


Results of Operations

Comparison of Fiscal Years ended October 3, 1998 and September 27, 1997

         NET SALES:  Net sales for the 1998  fiscal  year (a 53-week  year) were
$2,010.4  million,  a decrease of 3.8% from the $2,090.7 million recorded in the
1997 fiscal year.  Exports totaled $237 million and $239 million in the 1998 and
1997 fiscal years, respectively.
         Products for Apparel Markets: Net sales of products for apparel markets
for the 1998 fiscal  year were  $1,163.5  million,  7.2% lower than net sales of
$1,253.2  million for the 1997 fiscal year.  This reduction was primarily due to
the transfer of the textured  yarn business to a joint venture in May, and lower
volume in the  Tailored  Fashions  (former  Menswear),  Klopman  and  Sportswear
divisions, partially offset by higher volume in the Denim division.
         Products for Interior  Furnishings  Markets:  Net sales of products for
interior  furnishings  markets for the 1998 fiscal year were $846.9 million,  an
increase of 1.1% from the $837.5  million  recorded in the 1997 fiscal year. The
change in sales of the interior  furnishings  segment was mainly attributable to
increased  volume and better mix in the  commercial  carpet  product line of the
Lees division,  which more than offset  reductions due to the closure in 1997 of
the residential  carpet product line, and higher volume in the Burlington  House
and  Bacova  divisions,  partially  offset  by lower  price mix in the Area Rugs
division.

         OPERATING  INCOME BEFORE  INTEREST AND TAXES:  Operating  income before
interest  and taxes for the 1998  fiscal  year was $182.8  million  compared  to
$143.6  million  for the  1997  fiscal  year.  Before  the  1997  provision  for
restructuring,  the 1997 charge for exiting the residential  carpet product line
and the 1997 charge for closing a yarn spinning  plant in the  Burlington  House
Area Rugs  division,  operating  income  before  interest and taxes for the 1997
fiscal year was $164.4  million.  Amortization of goodwill was $18.1 million and
$18.2 million in the 1998 and 1997 fiscal years, respectively.
         Products for Apparel  Markets:  Operating  income  before  interest and
taxes for the  apparel  products  segment  for the 1998  fiscal  year was $101.9
million  compared to $112.1  million  recorded  for the 1997 fiscal  year.  This
decrease  primarily was composed of lower  profits in the Tailored  Fashions and
Klopman divisions and the transfer of the Company's  textured yarn business to a
joint venture, partially offset by improved results in the Denim, Sportswear and
Burlington Madison Yarn (spun) divisions.
         Products for Interior  Furnishings  Markets:  Operating  income  before
interest and taxes for the interior  furnishings  products  segment for the 1998
fiscal year was $80.9  million,  compared to $52.3 million  recorded in the 1997
fiscal year before the charges for restructuring  activities.  This increase was
mainly  attributable  to higher margins  resulting from higher volume and better
product mix in the Lees division and improved  results in the  Burlington  House
division due to cost reductions.
         Selling, general and administrative expenses totaled $148.4 million, or
7.4% of net sales,  in the 1998 fiscal year,  compared with $154.6  million,  or
7.4% of net sales,  in the 1997 fiscal year.  The decrease in dollars was mainly
attributable  to  sold/closed   operations  and  benefits  resulting  from  cost
reduction actions.
         The Company recorded  provisions for doubtful  accounts of $1.7 million
and $3.5 million in the 1998 and 1997 fiscal years, respectively.
         INTEREST  EXPENSE:  Interest expense for the 1998 fiscal year was $59.5
million, or 3.0% of net sales, compared with $60.1 million, or 2.9% of net sales
in the 1997 fiscal year.
         EQUITY IN INCOME OF JOINT  VENTURES:  During the 1998  fiscal  year the
Company  recorded  equity in income of joint ventures of $3.0 million related to
its textured yarn joint venture  operations with Unifi, Inc., which commenced on
May 30,  1998,  and its denim  fabric joint  venture  with  Mafatlal  Industries
Limited in India.
         OTHER EXPENSE (INCOME):  Other income for the 1998 fiscal year was $3.8
million  consisting  principally of interest  income.  Other income for the 1997
fiscal year was $12.8 million consisting principally of $9.5 million in gains on
the disposal of certain non-core operating assets and interest income.
         INCOME TAX  EXPENSE:  Income tax expense of $49.6  million was recorded
for the 1998 fiscal year in comparison  with $37.7 million for fiscal year 1997.
Total  income tax expense is  different  from the  amounts  obtained by applying
statutory  rates to the income  before  income  taxes  primarily  as a result of
amortization  of  nondeductible  goodwill,  which  is  partially  offset  by the
favorable tax treatment of export sales through a foreign sales corporation.
         NET INCOME AND EARNINGS PER SHARE:  Net income for the 1998 fiscal year
was $80.5  million,  or $1.32 per share  (diluted),  in  comparison  with  $58.7
million, or $0.95 per share (diluted),  for the 1997 fiscal year. Net income for
the 1997 fiscal year included a net charge of $0.12 per share for one-time costs
associated  with  various  streamlining   actions,   including  reducing  staff,
consolidation  of yarn  facilities  and exiting the  residential  carpet product
line, offset by gains on sales of Sedgefield  Specialties and Advanced Textiles,
Inc.

Comparison of Fiscal Years ended September 27, 1997 and September 28, 1996

         NET SALES: Net sales for the 1997 fiscal year were $2,090.7 million,  a
decrease of 4.2% from the  $2,182.3  million  recorded in the 1996 fiscal  year.
Exports totaled $239 million and $213 million in the 1997 and 1996 fiscal years,
respectively (an increase of 12.2%).
         Products for Apparel Markets: Net sales of products for apparel markets
for the 1997 fiscal  year were  $1,253.2  million,  5.7% lower than net sales of
$1,328.3  million for the 1996 fiscal year.  This reduction was primarily due to
the  elimination  of the volume  produced  and  marketed by the Knitted  Fabrics
division, which was closed in June, 1996, and lower volume and selling prices in
the Denim division, partially offset by higher volume and improvement in selling
prices and product mix in the Klopman division.
         Products for Interior  Furnishings  Markets:  Net sales of products for
interior  furnishings  markets for the 1997 fiscal year were $837.5  million,  a
decrease of 1.9% from the $854.0  million  recorded in the 1996 fiscal year. The
change in sales of the interior  furnishings  segment was mainly attributable to
the sale of J.G.  Furniture in April 1996 and Advanced  Textiles in October 1996
and  lower  volume  and  selling  prices in the  Burlington  House and Area Rugs
divisions, partially offset by higher volume in the Lees division.

         OPERATING  INCOME BEFORE  INTEREST AND TAXES:  Operating  income before
interest and taxes for the 1997 fiscal year was $143.6 million.  Before the 1997
provision for restructuring,  the 1997 charge for exiting the residential carpet
product  line,  the  1997  charge  for  closing  a yarn  spinning  plant  in the
Burlington  House Area Rugs  division  and the 1996 loss on closing  the Knitted
Fabrics division, operating income before interest and taxes for the 1997 fiscal
year was $164.4 million in comparison  with $181.0 million  recorded in the 1996
fiscal year.  Amortization  of goodwill  was $18.2  million in both the 1997 and
1996 fiscal years.
         Products for Apparel  Markets:  Operating  income  before  interest and
taxes for the  apparel  products  segment  for the 1997  fiscal  year was $112.1
million  compared to $125.4 million recorded for the 1996 fiscal year before the
charges  for  closing  the  Knitted  Fabrics  division.  The  principal  factors
affecting this change were lower profits of the Denim division  partially offset
by the absence of Knitted Fabrics division operating losses in the 1997 period.
         Products for Interior  Furnishings  Markets:  Operating  income  before
interest and taxes for the interior  furnishings  products  segment for the 1997
fiscal year was $52.3 million before the charges for  restructuring  activities,
compared to $55.6  million  recorded in the 1996 fiscal year.  This decrease was
attributable  mainly to the reduced level of operations in the Burlington  House
and Area  Rugs  divisions  partially  offset  by  improved  results  in the Lees
division.
         Selling, general and administrative expenses totaled $154.6 million, or
7.4% of net sales,  in the 1997 fiscal year,  compared with $166.3  million,  or
7.6% of net sales, in the 1996 fiscal year. The decrease was mainly attributable
to sold/closed operations and benefits resulting from cost reduction actions.
         The Company recorded  provisions for doubtful  accounts of $3.5 million
and $6.5 million in the 1997 and 1996 fiscal years, respectively.
         INTEREST  EXPENSE:  Interest expense for the 1997 fiscal year was $60.1
million, or 2.9% of net sales, compared with $65.9 million, or 3.0% of net sales
in the 1996 fiscal year.  The decrease in interest  expense was due primarily to
the lower average debt outstanding.
         OTHER EXPENSE (INCOME): Other income for the 1997 fiscal year was $12.8
million  consisting  principally  of $9.5  million in gains on the  disposal  of
certain non-core  operating  assets and interest  income.  Other expense for the
1996 fiscal year was $6.1  million  consisting  principally  of $4.0 million for
legal contingencies, $2.3 million loss on sale of a non-operating asset and $1.3
million loss on sale of J.G. Furniture partially offset by interest income.
         INCOME TAX EXPENSE AND EXTRAORDINARY  ITEM: Income tax expense of $37.7
million was recorded for the 1997 fiscal year in  comparison  with $33.7 million
for fiscal year 1996. The extraordinary loss of $0.7 million for the 1996 fiscal
year resulted from the early extinguishment of debt net of income tax benefit of
$0.5 million.
         NET INCOME AND EARNINGS PER SHARE:  Net income for the 1997 fiscal year
was $58.7  million,  or $0.95 per share  (diluted),  in  comparison  with  $40.9
million, or $0.64 per share (diluted),  for the 1996 fiscal year. Net income for
the 1997 fiscal year included a net charge of $0.12 per share for one-time costs
associated  with  various  streamlining   actions,   including  reducing  staff,
consolidation  of yarn  facilities  and exiting the  residential  carpet product
line, offset by gains on sales of Sedgefield  Specialties and Advanced Textiles,
Inc.  Net income for the 1996  fiscal year  included  $25.0  million  ($0.40 per
share) of  non-recurring  expenses,  consisting of an after-tax  charge of $20.3
million ($0.33 per share) for the closing of the Knitted Fabrics division and an
after-tax  provision of $4.7 million ($0.07 per share) for legal  contingencies,
the sale of the J.G. Furniture  division and the sale of a non-operating  asset.
In addition,  there was an extraordinary loss of $0.01 per share in 1996 for the
early extinguishment of debt.

Liquidity and Capital Resources

         Over the past several years,  the Company has taken steps to strengthen
its capital  structure and enhance the  flexibility of its financial  resources.
The Company has used $300  million of its capacity  under a $400 million  senior
debt shelf  registration  statement in two public offerings of fixed-rate senior
notes.  The proceeds of these  offerings were used to repay  variable-rate  bank
loans.  The notes received  investment  grade ratings from each of the two major
credit rating  agencies.  In December 1997, the Company  established a five-year
Trade  Receivables  Financing  Agreement  with a bank that  provides  up to $225
million in secured  financing at commercial  paper-indexed  interest rates.  The
Company also has an unsecured bank revolving  credit facility  providing  LIBOR-
based  borrowings  up to $750 million  that  enhances  the  Company's  financial
flexibility.  At October  3, 1998,  total  debt of the  Company  (consisting  of
current and  non-current  portions of long-term debt and short-term  borrowings)
was $816.2 million compared with $806.9 million at September 27, 1997. The ratio
of debt to total  capital  declined  from 56.1% at the  beginning of fiscal year
1998 to 53.8% at fiscal year end.
         The  Company's  principal  uses of funds during the next several  years
will be for  capital  investments  (including  the funding of  acquisitions  and
participations  in joint  ventures),  repayment and  servicing of  indebtedness,
working capital needs and the repurchase of shares of Company common stock.  The
Company  intends  to fund  such  needs  principally  from net cash  provided  by
operating  activities and, to the extent  necessary,  from funds provided by the
credit  facilities  described in this section.  The Company  believes that these
sources of funds will be adequate to meet the Company's foregoing needs.
         The net cash generated by the Company from operating  activities during
the 1998 fiscal year amounted to $137.4 million; additionally, $10.6 million was
provided  from  sales of assets and $24.5  million  from the  exercise  of stock
options.   Cash  generated  in  this  manner  was  used  primarily  for  capital
expenditures and investments in joint ventures totaling $147.7 million and $38.7
million for the  repurchase of Company  common stock.  Shares of Company  common
stock  purchased  during the 1998 fiscal year are expected to be used during the
next several years in part to satisfy  Company  obligations to contribute  stock
under its  employee  incentive  plans and will,  accordingly,  minimize  further
future cash outlays for these purposes.
         On November 5, 1998, the Board of Directors of the Company approved the
adoption  of the 1998  Equity  Incentive  Plan (the "1998  Plan")  and  reserved
2,700,000 shares of the Company's common stock for issuance under the 1998 Plan.
The 1998 Plan and the awards of options  and  performance  shares that have been
granted  thereunder  are subject to approval by the  Company's  shareholders.  A
committee of two or more members of the Board of  Directors is  responsible  for
administration  and  interpretation  of the 1998 Plan.  The  following  types of
awards may be made to key  executives  and  employees:  (i)  options to purchase
shares of common stock, (ii) stock appreciation  rights payable in common stock,
cash or a combination thereof,  (iii) restricted shares of common stock and (iv)
performance  shares that vest only upon  achievement  of  specified  performance
goals and are  payable  in common  stock,  cash or a  combination  thereof.  The
vesting  and  payment of awards may be  accelerated  in the event of a change of
control of the Company (as defined in the 1998 Plan).
         During the 1998 fiscal year,  investment  in capital  expenditures  and
joint  ventures  totaled $147.7  million,  compared to $99.3 million in the 1997
fiscal year. The Company anticipates that the level of capital  expenditures and
joint venture  investments for fiscal year 1999 could total  approximately  $210
million, principally for growth and modernization of U.S. and Mexican plants.
         In August 1997, the Company issued $150.0 million  principal  amount of
7.25% notes due August 1, 2027 ("Notes Due 2027").  Proceeds  from the sale were
used to prepay revolving loans under its bank credit agreement on the same date.
The Notes Due 2027 will be redeemable as a whole or in part at the option of the
Company at any time on or after August 2, 2007,  and will also be  redeemable at
the option of the holders  thereof on August 1, 2007 in amounts at 100% of their
principal amount. In September 1995, the Company issued $150.0 million principal
amount of 7.25% notes due September  15, 2005 ("Notes Due 2005").  The Notes Due
2005 are not redeemable  prior to maturity.  Proceeds from the sale of the Notes
Due 2005 were used to prepay  outstanding  term loans under the  Company's  bank
credit  facility.  The Notes Due 2027 and the Notes Due 2005 are  unsecured  and
rank equally with all other  unsecured and  unsubordinated  indebtedness  of the
Company.
     The Company has a $750.0 million  unsecured  revolving credit facility that
expires in March,  2001.  At  November 6, 1998,  the  Company had  approximately
$479.0  million  in unused  capacity  under  this  facility.  The  Company  also
maintains $42.0 million in additional  overnight  borrowing  availability  under
bank lines of credit.
         Loans  under the bank  credit  agreement  bear  interest  at either (i)
floating rates generally payable quarterly based on an adjusted  Eurodollar rate
plus 0.275% or (ii)  Eurodollar  rates or fixed  rates that may be offered  from
time to time by a Lender pursuant to a competitive bid request  submitted by the
Company,  payable  up to 360  days.  In  addition,  the  Company  pays an annual
facility fee of 0.15%.  The interest  rate and the facility fee are based on the
Company's  current implied senior  unsecured debt ratings of BBB minus and Baa3.
In the event that the  Company's  debt ratings  improve,  the interest  rate and
facility fees would be reduced. Conversely,  deterioration in the Company's debt
ratings would increase the interest rate and facility fees.
         The bank credit agreement imposes various  limitations on the liquidity
of the Company.  The agreement requires the Company to maintain minimum interest
coverage  and maximum  leverage  ratios and a specified  level of net worth.  In
addition, the Agreement limits dividend payments, stock repurchases, leases, the
incurrence of additional indebtedness by consolidated subsidiaries, the creation
of  additional  liens and the making of  investments  in non-U.S.  persons,  and
restricts the Company's  ability to enter into certain  merger,  liquidation  or
asset sale or purchase transactions.
         In December 1997, the Company  established a five-year,  $225.0 million
Trade Receivables Financing Agreement ("Receivables  Facility") with a bank. The
amount of borrowings  allowable under the Receivables  Facility at any time is a
function of the amount of then-outstanding eligible trade accounts receivable up
to $225.0  million.  Loans under the  Receivables  Facility bear interest,  with
terms up to 270 days, at the bank's commercial paper dealer rate plus 0.1875%. A
commitment  fee of 0.125% is charged on the  unused  portion of the  Receivables
Facility.  At November 6, 1998, $204.3 million in borrowings under this facility
with original  maturities  of up to 266 days was  outstanding.  The  Receivables
Facility  replaced the Company's A-1/D-1 rated commercial paper facility and the
related $225.0 million Receivables-Backed  Liquidity Facility established with a
group of banks.
         The Company has  received a  commitment  from a bank to establish a new
credit facility of  approximately  $110 million that is scheduled to close on or
about November 20, 1998. The proceeds from this facility will be used to finance
or refinance the construction and working capital needs of the Company's Mexican
subsidiaries  related to the  expansion  projects in Mexico.  The facility  will
include  terms and  covenants  similar to the  existing  bank credit  agreement,
except that the  outstanding  balance on the third  anniversary  of the facility
will  convert  to a  two-year  term loan  payable  semi-annually  in four  equal
installments.  Loans under the facility  will be made  directly to a new Mexican
financing subsidiary of the Company and will be guaranteed by the Company.

Risk Management

Interest Rate Risk

         Because the Company's  obligations  under the bank credit agreement and
the  receivables-backed  financing programs bear interest at floating rates, the
Company is sensitive to changes in prevailing  interest rates.  The Company uses
derivative  instruments  to manage its long-term  debt  interest rate  exposure,
rather than for trading purposes.  Interest rate movements also affect the value
and returns on the Company's investment  securities.  A 10% increase or decrease
in market interest rates that effect the Company's  financial  instruments would
not have a material  impact on earnings  during the next fiscal year,  and would
not materially affect the fair value of the company's financial instruments.

Foreign Currency Risk

         In  order  to  reduce  the  risk  of  foreign  currency  exchange  rate
fluctuations,  the  Company  follows  a  policy  of  hedging  substantially  all
transactions  denominated  in a currency  other than the  functional  currencies
applicable to each of its various entities. The instruments used for hedging are
readily marketable  exchange traded forward contracts with banks. The changes in
market value of such contracts  have a high  correlation to the price changes in
the  currency  of the  related  hedged  transactions.  The  potential  impact on
earnings  or fair  value for such net  currency  position  resulting  from a 10%
increase or  decrease  in foreign  currency  exchange  rates on each  individual
currency would not be material.

Commodity Price Risk

         The Company uses many types of fiber, both natural and man-made, in the
manufacture  of its textile  products.  The Company  believes  that future price
levels for all fibers will depend  primarily upon supply and demand  conditions,
weather  conditions,   general  inflation,  domestic  and  foreign  governmental
regulations and  agricultural  programs,  and prices of underlying raw materials
such as  petroleum.  The Company  manages its  exposure to changes in  commodity
prices primarily through its procurement  practices  (foreign exchange contracts
are utilized to offset the impact of currency fluctuations on wool purchases).

         The Company enters into contracts to purchase cotton under the Southern
Mill Rules ratified and adopted by the American Textile Manufacturers Institute,
Inc. and American Cotton Shippers Association.  Under these contracts and rules,
nonperformance by either the buyer or seller may result in a net cash settlement
of the  difference  between the current  market price of cotton and the contract
price.  If the Company  decided to refuse  delivery of its open firm  commitment
cotton  contracts at October 3, 1998,  and market prices of cotton  decreased by
10%,  the  Company  would  be  required  to pay a net  settlement  provision  of
approximately  $9.5  million.  However,  the Company has not  utilized  this net
settlement  provision  in the  past,  and  does not  anticipate  using it in the
future.  Further, if this provision was utilized, the settlement amount could be
substantially  offset by making  open  market  purchases  of cotton at the lower
market prices.

Legal and Environmental Contingencies

         The Company and its subsidiaries  have sundry claims and other lawsuits
pending  against  them and also have  certain  guarantees  that were made in the
ordinary  course of business.  The Company has made  provisions in its financial
statements  for  litigation  based on the  Company's  assessment of the possible
outcome of such litigation, including the possibility of settlement, and related
legal fees and costs.
         The Company and certain of its current and former  direct and  indirect
corporate  predecessors,  subsidiaries and divisions have been identified by the
United States Environmental  Protection Agency, by the environmental agencies in
several states and by private  parties as potentially  responsible  parties at a
number of hazardous waste disposal sites under the  Comprehensive  Environmental
Response  Compensation  and Liability Act of 1980  ("Superfund")  and comparable
state  laws  and,  as such,  may be  liable  for the cost of  cleanup  and other
remedial activities at these sites. The Company may also have liability for such
matters  pursuant to contractual  obligations  relating to divested  property or
with  respect to sites that may be  identified  in the future.  With  respect to
certain of these sites,  other persons have also been  identified as potentially
responsible  parties,  and in such  circumstances the responsibility for cleanup
and other remedial activities is typically shared among such parties based on an
allocation  formula.  The Company is also  involved in  remedial  responses  and
voluntary  environmental  cleanups  at other  sites that are not  currently  the
subject of proceedings of any kind under Superfund or comparable state laws. The
Company  has  established   reserves  in  its  financial   statements  for  such
environmental  liabilities,  including  related legal fees and other transaction
costs, in the aggregate amount of approximately $4.7 million.  The provision for
environmental  liabilities is based on the Company's  estimate of allocations of
liability  among  potentially   responsible   parties  (and  the  likelihood  of
contribution   by  such   parties),   information   concerning   the   scope  of
contamination,  estimated  remediation  costs,  estimated  transaction costs and
other factors.  No provision has been made for liabilities  that may be incurred
with respect to sites that may be identified in the future because  insufficient
basis exists for making informed estimates in such cases.
         It is not possible with  certainty to determine the ultimate  liability
of  the  Company  with  respect  to  the  matters  described  in  the  preceding
paragraphs,  but in the  opinion of  management  their  outcome  should  have no
material  adverse effect on the financial  condition or results of operations of
the Company.

Year 2000

         As we approach the turn of the century,  much  attention has been given
to a serious  problem that exists in many computers and programs in use today, a
problem  that arose from the earliest  days of  computing  when systems had very
limited memory storage  capacities.  To save space and data entry time, only the
last two  digits  of a year were used when  performing  date  calculations  and,
consequently,  these  systems  may  not be  able  to  properly  recognize  dates
beginning  with the year  2000.  Many of these  programs  are still in use today
throughout the world.
         Like most  owners of  computer  software,  the  Company is  modifying a
significant  portion of its computer  software to handle the Year 2000  problem.
Any  date-reliant  system  is at  risk.  This  includes  information  technology
applications  and embedded  systems such as heating and  ventilation,  security,
voice  and  data   communications,   ordering  and  supply,   manufacturing  and
distribution,  labeling,  bar coding,  billing and paying. For several years the
Company has conducted a company-wide  effort to prepare its computer systems and
applications  to  recognize  dates  later  than  December  31,  1999 in order to
continue to function  properly.  The Company expects to complete this portion of
its project in early 1999, and as of October 3, 1998, the Company  believes that
the project is more than 90% complete.
         The  Company  also is  dependent  upon the  successful  efforts  of its
customers  and suppliers of goods,  services and  essential  utilities to modify
their  software  and could be  affected  by the  failure of one or more of these
efforts.  The  Company has  communicated  with most of its major  suppliers  and
customers and is following up with others.  Efforts  include the  collection and
evaluation  of  voluntary  representations  made or  provided  by those  parties
together with independent  research.  The goal of all these efforts is to reduce
business  risk and avoid  interruption  of service.  Although  the Company  will
continue to take reasonable care to gather  information  about external parties,
such information is not always provided voluntarily, is not otherwise available,
or may not be reliable.
         Contingency  plans and recovery  procedures for Year 2000 problems have
been initiated  dealing with potential  problems ranging from systems failure to
failure of a utility or a  supplier.  The  Company  expects  to  finalize  these
contingency plans and procedures by March 1999. Although the Company expects its
critical  systems to be compliant in early 1999, there can be no assurances that
the  Company  identifies  all  susceptible  systems  and will  not be  adversely
affected by the failure of an external party to adequately address the Year 2000
problem.  A  possible  worst  case  scenario  might  include  one or more of the
Company's  significant  manufacturing  or information  technology  systems being
interrupted causing a delay or curtailment in the production and/or distribution
of goods, a delay or  curtailment in the billing and collection of revenues,  an
inability  to maintain  accounting  records  accurately,  and/or an inability to
manage its financial  resources,  potentially  causing a material  impact on the
Company's results of operations and financial position.
         The  Company  recognizes  the  widespread  impact  of Year  2000 in its
systems and  manufacturing  facilities and is working  toward  compliance of all
software  and  office  and  manufacturing   equipment,   environmental  systems,
telecommunications,  utilities,  safety and  monitoring  equipment  and systems.
Total costs for addressing the Year 2000 issue are currently  estimated to reach
approximately $14.0 million.  These costs are expensed as incurred and are being
funded with cash from  operations.  As of October 3, 1998, the Company had spent
$11.1 million on the project since its inception. The Company views Year 2000 as
a company-wide business issue of the highest priority. The Company is engaged in
extensive  efforts  to  provide a  continuous,  uninterrupted  flow of goods and
services to customers.

Conversion to the Euro Currency

         Various  member  countries of the  European  Union in which the Company
conducts its business will adopt the Euro as their single currency on January 1,
1999.  National  currencies  will  continue  to exist as  legal  tender  and may
continue to be used in commercial transactions through January 1, 2002, at which
time Euro notes and coins will be issued. By July 2002, the respective  national
currencies will be withdrawn.  During this transition period, permanent rates of
exchange between the members' national currency and the Euro will be established
and banking,  finance and foreign exchange markets will convert to the Euro. The
Company has not completed its evaluation of the impact of the Euro conversion on
its business and its operating and information technology systems, but it is not
expected to have a material adverse effect on its financial condition or results
of operations.

Forward-Looking Statements

     With the exception of historical  information,  the statements contained in
Management's  Discussion  and Analysis of Results of  Operations  and  Financial
Condition and in other parts of this report include  forward-looking  statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These statements
represent  management's current expectations or beliefs as to the future and are
subject to risks and uncertainties that could affect the Company's actual future
results  and that  could  cause  those  results  to differ  materially  from the
expectations or beliefs expressed in the forward-looking  statements. Such risks
and  uncertainties  include,  but are not  limited  to: the  outlook  for global
economic activity and its impact upon the Company's  businesses;  the demand for
textile  products;   the  possible   imbalances   between  consumer  demand  and
inventories of the Company's customers; the success of the Company's value-added
product strategy;  the Company's  relationships with its principal customers and
suppliers,  including its and their success in addressing the Year 2000 computer
problem;  cost and  availability of raw materials and labor;  the success of the
Company's strategic plans to expand in the United States,  India and Mexico; the
Company's ability to finance its capital  expansion and modernization  programs,
and the level of the  Company's  indebtedness  and the exposure to interest rate
fluctuations; governmental legislation and regulatory changes that impose higher
costs, or greater  restrictions,  on the Company's operations and that alter the
existing  regulation of international  trade; and the long-term  implications of
the  current  development  of  regional  trade  blocs  and  the  effect  of  the
anticipated  elimination  of quotas and lowering of tariffs under the GATT trade
regime by 2005. Other risks and uncertainties may also be described from time to
time in the Company's other reports and filings with the Securities and Exchange
Commission.

<PAGE>



CONSOLIDATED STATEMENTS OF OPERATIONS
BURLINGTON INDUSTRIES,  INC. AND SUBSIDIARY COMPANIES


For the 53 weeks ended October 3, 1998 and the 52 weeks ended
 September 27, 1997 and September 28, 1996

(Amounts in thousands, except for per share amounts)

                                        1998         1997          1996
                                   ------------ ------------- ------------
Net sales                          $  2,010,414 $   2,090,683 $  2,182,347
Cost of sales                         1,659,485     1,758,698    1,814,160
                                   ------------ ------------- ------------
Gross profit                            350,929       331,985      368,187
Selling, general and
  administrative expenses               148,383       154,648      166,283
Provision for doubtful accounts           1,677         3,478        6,457
Amortization of goodwill                 18,100        18,158       18,201
Loss on closing of division                   0             0       29,856
Provision for restructuring                   0        12,058            0
                                   ------------ ------------- ------------
Operating income before
  interest and taxes                    182,769       143,643      147,390
Interest expense                         59,544        60,062       65,936
Equity in income of joint ventures       (2,980)            0            0
Other expense (income) - net             (3,807)      (12,790)       6,104
                                   ------------ ------------- ------------
Income before income taxes              130,012        96,371       75,350
Income tax expense:
  Current                               (38,681)      (33,048)     (36,822)
  Deferred                              (10,879)       (4,625)       3,075
                                   ------------ ------------- ------------
    Total income tax expense            (49,560)      (37,673)     (33,747)
                                   ------------ ------------- ------------
Income before extraordinary item         80,452        58,698       41,603
Extraordinary item:
Loss from early extinguishment of
  debt, net of income tax benefit
  of $454 in 1996                             0             0         (697)
                                   ------------ ------------- ------------
Net income                         $     80,452 $      58,698 $     40,906
                                   ============ ============= ============

Average common shares outstanding        60,428        61,289       63,231

EARNINGS PER COMMON SHARE:
Income before extraordinary item   $       1.33 $        0.96 $       0.66
Extraordinary item                         0.00          0.00        (0.01)
                                     -----------  ------------  ----------
Net income per common share        $       1.33 $        0.96 $       0.65
                                     ===========  ============  ==========

EARNINGS PER COMMON SHARE - 
 ASSUMING DILUTION:
Income before extraordinary item   $       1.32 $        0.95 $       0.65
Extraordinary item                         0.00          0.00        (0.01)
                                     -----------  ------------  ----------
Net income per common share -
  assuming dilution                $       1.32 $        0.95 $       0.64
                                     ===========  ============  ==========


See notes to consolidated financial statements.
<PAGE>

CONSOLIDATED BALANCE SHEETS
BURLINGTON INDUSTRIES,  INC. AND SUBSIDIARY COMPANIES

As of October 3, 1998 and September 27, 1997


(Amounts in thousands)                                 1998            1997
                                                ---------------  ---------------
ASSETS
Current assets:
Cash and cash equivalents                       $        18,163  $       17,863
Short-term investments                                   27,253          23,832
Customer accounts receivable after deductions
  of $20,864 and $20,688 for the
  respective dates for doubtful accounts,
  discounts, returns and allowances                     288,806         331,457
Sundry notes and accounts receivable                     15,810           6,762
Inventories                                             322,548         314,994
Prepaid expenses                                          3,198           2,719
                                                ---------------  --------------
    Total current assets                                675,778         697,627
Fixed assets, at cost:
Land and land improvements                               39,374          36,677
Buildings                                               442,828         400,212
Machinery, fixtures and equipment                       636,439         607,502
                                                ---------------  --------------
                                                      1,118,641       1,044,391
Less accumulated depreciation and amortization          475,885         459,744
                                                ---------------  --------------
    Fixed assets - net                                  642,756         584,647
Other assets:
Investments and receivables                              44,990          22,670
Intangibles and deferred charges                         35,211          29,781
Excess of purchase cost over net assets acquired        514,152         538,967
                                                ---------------  --------------
    Total other assets                                  594,353         591,418
                                                ---------------  --------------
                                                $     1,912,887  $    1,873,692
                                                ===============  ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings                           $        14,200  $            0
Long-term debt due currently                                470             470
Accounts payable - trade                                 87,999         102,898
Sundry payables and accrued expenses                     73,995         100,039
Income taxes payable                                      6,440          16,406
Deferred income taxes                                    44,576          43,782
                                                ---------------  --------------
      Total current liabilities                         227,680         263,595
Long-term liabilities:
Long-term debt                                          801,486         806,413
Other                                                    59,052          58,595
                                                ---------------  --------------
     Total long-term liabilities                        860,538         865,008
Deferred income taxes                                   124,448         114,363
Shareholders' equity:
Common stock issued (Note G)                                684             684
Capital in excess of par value                          884,685         882,837
Accumulated deficit                                     (53,849)       (134,301)
Currency translation adjustments                        (17,357)        (10,211)
                                                ---------------  --------------
                                                        814,163         739,009
Less cost of common stock held in treasury             (113,942)       (108,283)
                                                ---------------  --------------
     Total shareholders' equity                         700,221         630,726
                                                ---------------  --------------
                                                  $   1,912,887  $    1,873,692
                                                ===============  ==============

See notes to consolidated financial statements.
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
BURLINGTON INDUSTRIES,  INC. AND SUBSIDIARY COMPANIES


For the 53 weeks ended October 3, 1998 and the 52 weeks ended
 September 27, 1997 and September 28, 1996

(Amounts in thousands)
                                                   1998       1997       1996
                                                ---------  ---------  ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                      $  80,452  $  58,698  $  40,906
Adjustments to reconcile net income to
 net cash provided by operating activities:
   Depreciation and amortization of fixed assets   68,375     66,742     66,942
   Provision for doubtful accounts                  1,677      3,478      6,457
   Amortization of intangibles and
    deferred debt expense                          18,455     18,600     22,053
   Deferred income taxes                           10,879      4,625     (3,075)
   (Gain) loss on disposal of assets
    and other expense                                (512)   (11,821)     7,641
   Loss from early extinguishment of debt               0          0      1,151
   Restructuring/loss on closing of division            0     12,058     29,856
   Changes in assets and liabilities:
      Customer accounts receivable - net           40,974      6,400    (16,165)
      Sundry notes and accounts receivable         (7,114)      (154)    10,203
      Inventories                                 (14,877)    11,478      9,561
      Prepaid expenses                               (479)       120       (627)
      Accounts payable and accrued expenses       (39,577)    (3,404)     7,342
   Change in income taxes payable                  (5,903)     1,821     11,273
   Other                                          (14,969)    (2,361)      (393)
                                                ---------  ---------  ---------
        Total adjustments                          56,929    107,582    152,219
                                                ---------  ---------  ---------
Net cash provided by operating activities         137,381    166,280    193,125
                                                ---------  ---------  ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                           (140,333)   (96,500)   (79,174)
  Proceeds from sales of assets                    10,559     20,672      8,785
  Investment in joint ventures                     (7,375)    (2,750)    (2,200)
  Change in investments                             1,708     (2,817)      (957)
                                                ---------  ---------  ---------
Net cash used by investing activities            (135,441)   (81,395)   (73,546)
                                                ---------  ---------  ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net change in short-term borrowings              14,200          0       (274)
  Repayments of long-term debt                   (217,606)  (200,472)  (600,708)
  Proceeds from issuance of long-term debt        216,021    167,768    527,478
  Proceeds from exercise of stock options          24,492      3,709      3,848
  Purchase of treasury stock                      (38,747)   (53,419)   (45,038)
                                                ---------  ---------  ---------
Net cash used by financing activities              (1,640)   (82,414)  (114,694)
                                                ---------  ---------  ---------
Net change in cash and cash equivalents               300      2,471      4,885
Cash and cash equivalents at beginning of period   17,863     15,392     10,507
                                                ---------  ---------  ---------
Cash and cash equivalents at end of period      $  18,163  $  17,863  $  15,392
                                                =========  =========  =========


See notes to consolidated financial statements.
<PAGE>



Notes to Consolidated Financial Statements

Burlington Industries, Inc. and Subsidiary Companies


Note A - Summary of Significant Accounting Policies

Consolidation: The consolidated financial statements include the accounts of the
Company and all its subsidiaries. The accounts of foreign subsidiaries have been
included on the basis of fiscal periods ended no more than three months prior to
the dates of the consolidated balance sheets. Investments in affiliates in which
the Company owns 50 percent or less of the voting stock are  accounted for using
the equity method. All significant  intercompany  accounts and transactions have
been eliminated.

Cash  equivalents:  Cash and cash  equivalents  include time  deposits and other
short-term investments with an original maturity of three months or less.

Inventories:  Inventories  are  valued at the lower of cost or  market.  Cost of
substantially  all  components  of textile  inventories  in the United States is
determined using the dollar value Last-in,  First-out  (LIFO) method.  All other
inventories are valued principally at average cost.

Fixed assets:  Depreciation  and amortization of fixed assets is calculated over
the  estimated  useful  lives  of  the  related  assets  principally  using  the
straight-line method.

Excess of purchase  cost over net assets  acquired:  The excess of purchase cost
over net assets acquired is amortized as goodwill using the straight-line method
over not more  than 40 years.  The  accumulated  amortization  of  goodwill  was
$199,844,000  and  $181,744,000  at  October  3, 1998 and  September  27,  1997,
respectively.  In connection with the formation of a joint venture and resulting
transfer of assets, excess of purchase cost over net assets acquired was reduced
by $6.7 million (see Note J).

Impairment  of  long-lived  assets:  When  circumstances  indicate,  the Company
evaluates the  recoverability  of its long-lived  assets by comparing  estimated
future  undiscounted cash flows with the asset's carrying amount to determine if
a write-down to market value or discounted cash flow is required.

Deferred debt expense:  Deferred debt expense is amortized over the lives of the
related debt as an adjustment to interest expense.

Revenue  recognition:  In general,  the Company recognizes revenues from product
sales when units are shipped.

Research expenditures: Expenditures for research and development are expensed as
incurred.   Total   expenditures   for  research  and   development   aggregated
$14,934,000,  $11,841,000  and  $13,482,000  in the 1998,  1997 and 1996  fiscal
years, 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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Reclassification: Certain prior period amounts have been reclassified to conform
to current presentations.

Fiscal year:  The Company uses a 52 - 53 week fiscal year. The fiscal year ended
October 3, 1998 represents a 53-week period.

Other: In 1997, the Financial Accounting Standards Board (FASB) issued Statement
of  Financial  Accounting  Standards  (SFAS) No. 130,  "Reporting  Comprehensive
Income" and No. 131,  "Disclosures  About  Segments of an Enterprise and Related
Information",  both of which the Company will adopt in its 1999 fiscal year. The
Company will be required to report  comprehensive  income, which is the total of
net income and certain other nonowner changes in shareholders'  equity.  Foreign
currency  translation  adjustments  currently  represent the primary  difference
between comprehensive income and net income for the Company. SFAS No. 131, among
other things,  establishes  standards for reporting financial  information about
operating segments,  defined as components of an enterprise about which separate
financial  information  is available to the chief  operating  decision maker for
purposes of assessing performance and allocating  resources.  The effect of SFAS
No.  131 on the  Company's  financial  statement  disclosures  has not yet  been
determined.  Adoption  of SFAS  No.  130 and SFAS No.  131 will not  affect  the
accounting  for the Company's  consolidated  results of operations and financial
position.

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities",  which is required to be adopted in fiscal
years beginning after June 15, 1999. The statement  permits early adoption as of
the beginning of any fiscal quarter after its issuance.  The Company  expects to
adopt the new statement  effective  October 3, 1999.  Under the  statement,  all
derivatives  will be required  to be  recognized  on the  balance  sheet at fair
value.  Derivatives  that are not hedges must be adjusted to fair value  through
income.  If the  derivative  is a hedge,  depending  on the nature of the hedge,
changes in the fair  value of  derivatives  will  either be offset  against  the
change in fair  value of the hedged  assets,  liabilities,  or firm  commitments
through  earnings or recognized in other  comprehensive  income until the hedged
item is recognized in earnings.  Under the statement, any ineffective portion of
a derivative's change in fair value must be immediately  recognized in earnings.
The  Company has not yet  determined  what the effect of SFAS No. 133 will be on
the earnings and financial position of the Company.

Note B - Restructuring Activities

During the June 1997  quarter,  the  Company  recorded a $12.1  million  pre-tax
provision for  restructuring  associated with reducing staff,  consolidation  of
certain yarn  facilities  and exiting the  residential  carpet product line. The
staff  reduction  included  severance  costs  of  $5.2  million  related  to 215
employees.  The  components  of  the  yarn  manufacturing  restructuring  charge
included  costs of $1.3 million for  severance  related to 286  employees,  $2.2
million for  divestitures  of  machinery  and  equipment,  and $1.4  million for
divestitures  of real estate.  Costs related to exiting the  residential  carpet
product  line  included  primarily  $1.2  million  for  severance  related to 70
employees. In addition,  exiting the residential carpet product line resulted in
an inventory  write-down  and other  claims of $4.9 million  included in cost of
sales. Combining these charges, the restructuring  activities resulted in a 1997
pre-tax charge of $17.0 million,  $10.3 million after income taxes, or $0.17 per
share. Costs of these restructuring  activities paid or incurred through October
3, 1998 were $14.1 million. The Company has completed substantially all of these
restructuring  efforts  with  the  exception  of  the  divestitures  of  certain
machinery and equipment and real estate.

In June  1996,  the  Company  announced  its plan to close the  Knitted  Fabrics
division,  which  resulted in a $29.9 million  pre-tax charge in the 1996 fiscal
year.  In  addition,  the closing  resulted in an inventory  write-down  of $3.7
million included in cost of sales.  Combining these charges,  the closing of the
division  resulted in a pre-tax  charge of $33.6  million,  $20.3  million after
income taxes, or $0.33 per share. Production of the Knitted Fabrics division was
phased out during September and October, 1996. The components of the 1996 charge
include  costs of $12.7  million for  severance  and other  benefits  related to
approximately  1,150  employees,  $8.3 million for divestitures of machinery and
equipment,  $8.0 million for  divestitures of real estate,  and $0.8 million for
cancellation of leases. Costs of these restructuring activities paid or incurred
through  October  3,  1998  were  $28.0  million.   The  Company  has  completed
substantially  all of these  restructuring  efforts  with the  exception  of the
divestitures  of certain  machinery and equipment and real estate.  Net sales of
the Knitted  Fabrics  division were $108.2  million during the 1996 fiscal year,
and net operating  loss before  interest,  taxes and  restructuring  charges was
$17.2 million during the same period.

Note C - Inventories

Inventories are summarized as follows (in thousands):
                                                            1998        1997   
                                                          ---------  ---------
    Inventories at average cost:
        Raw materials................................     $  40,594  $  46,722
        Stock in process.............................        98,922     97,973
        Produced goods...............................       204,169    190,326
        Dyes, chemicals and supplies.................        22,358     21,859
                                                          ---------  ---------
                                                            366,043    356,880
        Less excess of average cost over LIFO........        43,495     41,886
                                                          ---------  ---------
            Total....................................     $ 322,548  $ 314,994
                                                          =========  =========

Inventories  valued  using  the  LIFO  method  comprised  approximately  91%  of
consolidated inventories at October 3, 1998 and September 27, 1997.


<PAGE>



Note D - Sundry Payables and Accrued Expenses

Sundry payables and accrued expenses consisted of the following (in thousands):

                                                              1998       1997   
                                                          ---------   ---------
     Sundry accounts payable.........................     $   3,346   $   1,386
     Accrued expenses:
         Payroll and employee benefits...............        44,264      57,558
         Taxes, other than income taxes..............         8,648       9,960
         Interest....................................         6,078       9,156
         Other.......................................        11,659      21,979
                                                          ---------   ---------
             Total...................................     $  73,995   $ 100,039
                                                          =========   =========

Note E - Long-term Debt

Long-term debt consisted of the following (in thousands):
                                                             1998        1997   
                                                          ----------  ----------
  Bank Credit Agreement................................   $  294,000  $  335,000
  Receivables Facility.................................      204,058           -
  Commercial Paper.....................................            -     163,592
  Senior Debentures due 2005...........................      149,921     149,911
  Senior Debentures due 2027...........................      149,208     149,117
  Other indebtedness with various rates and maturities.        4,769       9,263
                                                          ----------  ----------
                                                             801,956     806,883
  Less long-term debt due currently....................          470         470
                                                          ----------  ----------
    Total..............................................   $  801,486  $  806,413
                                                          ==========  ==========

Bank  Financing:  The Company has an unsecured  credit  agreement  ("Bank Credit
Agreement"),  consisting of a $750.0 million  Revolving  Credit  Facility with a
final  maturity on March 31, 2001.  The  Agreement  provides for the issuance of
letters of credit by the fronting bank in an  outstanding  aggregate face amount
not to exceed  $75.0  million,  provided  that at no time  shall  the  aggregate
principal amount of Revolving Loans,  together with the aggregate face amount of
such letters of credit issued,  exceed $750.0 million. At October 3, 1998, there
were no letters  of credit  outstanding  issued by the  fronting  bank,  and the
unused  portion  of  the  revolving  facility  commitment  was  $456.0  million.
Additional  overnight  borrowings up to $42.0 million are also  available  under
bank lines of credit.

Loans under the Bank Credit Agreement bear interest at either (i) floating rates
generally payable quarterly based on the Adjusted Eurodollar Rate plus 0.275% or
(ii) Eurodollar  rates or fixed rates that may be offered from time to time by a
Lender pursuant to a competitive bid request  submitted by the Company,  payable
up to 360 days. In addition,  the Company pays an annual  facility fee of 0.15%.
The interest rate and the facility fee are based on the Company's current senior
unsecured  debt ratings of BBB minus and Baa3.  In the event that the  Company's
debt  ratings  improve,  the interest  rate and facility  fees would be reduced.
Conversely,  a  deterioration  in the Company's  debt ratings would increase the
interest rate and facility  fees. At October 3, 1998, the average bank financing
interest rate was 5.86%.  See Note P for  information  on financial  instruments
utilized to manage interest rate exposure.

The Bank Credit  Agreement  imposes various  limitations on the liquidity of the
Company.  The  Agreement  requires  the  Company to  maintain  minimum  interest
coverage  and maximum  leverage  ratios and a specified  level of net worth.  In
addition, the Agreement limits dividend payments and stock repurchases (equal to
50% of the previous fiscal year's domestic net income less any after-tax gain or
loss on asset sales  outside  the  ordinary  course of  business),  leases,  the
incurrence of additional indebtedness by domestic subsidiaries,  the creation of
additional liens and the making of investments in foreign entities and restricts
the Company's ability to enter into certain merger, liquidation or asset sale or
purchase transactions.

Receivables-Backed  Financing:  In  December  1997,  the Company  established  a
five-year,  $225.0 million Trade Receivables  Financing Agreement  ("Receivables
Facility") with a bank. The amount of borrowings allowable under the Receivables
Facility  at any time is a function of the amount of then  outstanding  eligible
trade  accounts  receivable up to $225.0  million.  Loans under the  Receivables
Facility  bear  interest,  with terms up to 270 days,  at the bank's  commercial
paper dealer rate plus  0.1875%.  A  commitment  fee of 0.125% is charged on the
unused portion of the Receivables  Facility.  The Receivables  Facility replaced
the Company's  A-1/D-1 rated  commercial  paper  facility and the related $225.0
million Receivables-Backed Liquidity Facility established with a group of banks.
The  Company  has the intent  and  ability to  maintain  the  receivables-backed
borrowings on a long-term basis. Accordingly, receivables-backed borrowings have
been classified as long-term debt.

Senior  Debentures:  In  August  1997,  the  Company  issued,  through  a public
offering,  $150.0 million  principal amount of 7.25% unsecured senior debentures
due August 1, 2027 ("Senior  Debentures Due 2027").  The securities  were issued
under an indenture (the "Indenture") dated as of September 1, 1995 pursuant to a
shelf  registration  filed with the  Securities and Exchange  Commission,  under
which  $100.0  million of debt  securities  may still be issued.  The  Indenture
contains covenants  limiting certain liens and sale and leaseback  transactions.
The Senior Debentures Due 2027 were issued at a discount to yield 7.335% and the
net  proceeds  from the sale were the  principal  source of funds used to prepay
$150.0  million of Revolving  Loans under the Bank Credit  Agreement on the same
date.  Interest on the Senior  Debentures  Due 2027 is payable  semiannually  on
February 1 and August 1. The Senior  Debentures Due 2027 will be redeemable as a
whole or in part at the option of the Company at any time on or after  August 2,
2007 at a price equal to the greater of 100% of the principal amount redeemed or
the sum of the present values of the remaining  scheduled  payments of principal
and interest thereon.  The Senior Debentures Due 2027 will also be redeemable at
the option of the holders  thereof on August 1, 2007 in amounts at 100% of their
principal amount.

The  Company  also has  outstanding  $150.0  million  principal  amount of 7.25%
unsecured  senior  debentures  due September 15, 2005  ("Senior  Debentures  Due
2005")  under the  Indenture.  The Senior  Debentures  Due 2005 were issued at a
discount to yield 7.26%.  Interest on the Senior  Debentures Due 2005 is payable
semiannually on March 15 and September 15, and the debentures are not redeemable
prior to maturity and are not entitled to any sinking fund.

Maturities: As of October 3, 1998, aggregate annual maturities of long-term debt
for the next five years are $0.5 million in 1999,  $0.5 million in 2000,  $294.5
million in 2001, $204.1 million in 2002 and $0.0 million in 2003.

Note F - Leases

Minimum  commitments  for rental  expenditures  under  noncancellable  operating
leases are as follows (in thousands):

          1999.............................................    $ 15,678
          2000.............................................      12,106
          2001.............................................       8,201
          2002.............................................       5,833
          2003.............................................       4,295
          Later years......................................      12,337
                                                               ---------
                Total minimum lease payments...............    $ 58,450 
                                                               =========

Approximately 32% of the operating leases pertain to real estate.  The remainder
covers  a  variety  of  machinery  and  equipment.   Certain  operating  leases,
principally for office  facilities,  contain escalation clauses for increases in
operating  costs,  property  taxes and  insurance.  For the 1998,  1997 and 1996
fiscal  years,   rental  expense  for  all  operating  leases  was  $20,384,000,
$19,751,000 and $20,023,000,  respectively.  Sublease income was not material in
any of these years.

Note G - Shareholders' Equity

Shares of the Company's  voting and nonvoting  common stock,  par value $.01 per
share,  authorized,  issued and outstanding at October 3, 1998 and September 27,
1997, respectively, were as follows:

                                       Shares          Shares           Shares
   October 3, 1998                   Authorized        Issued        Outstanding
   ---------------                  -----------      ----------      -----------
   Common Stock..................   200,000,000      67,689,148       57,687,155
   Nonvoting Common Stock........    15,000,000         704,301          704,301
                                    -----------      ----------      -----------
                                    215,000,000      68,393,449       58,391,456
                                    ===========      ==========      ===========

                                       Shares          Shares           Shares
   September 27, 1997                Authorized        Issued        Outstanding
   ------------------               -----------      ----------      -----------
   Common Stock..................   200,000,000      65,344,561       56,356,728
   Nonvoting Common Stock........    15,000,000       3,048,888        3,048,888
                                    -----------      ----------       ----------
                                    215,000,000      68,393,449       59,405,616
                                    ===========      ==========       ==========

All shares have similar rights and privileges except for voting rights.  Holders
of  Nonvoting  Common Stock are  entitled,  subject to certain  limitations,  to
exchange such shares for Common Stock.

On October 3, 1998 and September 27, 1997, the Company had 30,000,000  shares of
preferred stock authorized,  par value $.01 per share, none of which were issued
and  outstanding.  On December 3, 1997,  the Board of  Directors  of the Company
approved the adoption of a Stockholder Rights Plan. Under the Stockholder Rights
Plan, Preferred Stock Purchase Rights were distributed as a dividend at the rate
of one Right for each share of Common  Stock held as of the close of business on
December 15, 1997. Each Right will entitle a stockholder to a Unit consisting of
a portion of a newly issued share of Junior Participating Preferred Stock of the
Company,  at an exercise  price of $50.00 per Unit,  subject to adjustment  from
time to time to prevent dilution.  The Rights will not initially be exercisable.
The Rights will become  exercisable  only if another person acquires  beneficial
ownership  of 15  percent  or more  of the  Company's  voting  Common  Stock  or
commences a tender offer that would result in such person beneficially owning 15
percent or more of the Company's  voting Common Stock. If any person becomes the
beneficial  owner of 15 percent or more of the Company's voting Common Stock, or
if a holder of 15 percent or more of the  Company's  voting Common Stock engages
in certain other  acquisition  transactions,  then each outstanding Right (other
than Rights  owned by such 15 percent  stockholder)  will  entitle its holder to
purchase,  at the Right's  then-current  exercise price,  units of the Company's
Junior  Participating  Preferred  Stock having a market value equal to twice the
then-current  exercise  price.  The Rights  expire on December  4, 2007,  unless
earlier redeemed.  The Company may generally redeem the Rights at $.01 per right
at any time until the tenth day following public  announcement that a person has
acquired 15% or more of the Company's voting Common Stock.

During the 1998 fiscal year, the Company exchanged 2,344,587 shares of Nonvoting
Common Stock for voting Common Stock.  During the 1998 fiscal year,  outstanding
shares also changed due to (i) the purchase of  3,733,800  additional  shares of
treasury  stock;  (ii) the issuance of 407,000 shares of treasury stock upon the
conversion of the remaining balance of a convertible note; (iii) the issuance of
186,444 shares of treasury stock to settle Performance Unit awards (see Note Q);
(iv) the  issuance of 2,136,203  shares of treasury  stock for exercise of stock
options  (see  Note  Q);  and  (v) the  purchase  of  10,007  shares  for  other
transactions.


<PAGE>


Changes in  shareholders'  equity of the Company for fiscal 1996,  1997 and 1998
were (dollar amounts in thousands):
<TABLE>
<CAPTION>

                                           Capital
                                              in                    Currency   Treasury
                                   Common  excess of  Accumulated  translation  shares,
                                   Stock   par value    deficit    adjustment   at cost      Total 
                                   -------  --------  ----------    --------   ---------   --------
<S>                                <C>      <C>        <C>           <C>       <C>         <C>
Balance September 30, 1995........ $  684   $890,947   $(233,905)    $(5,822)  $ (36,464)  $615,440
Purchase of treasury stock........                                               (45,038)   (45,038)
Issuance of treasury stock........           (10,978)                              9,730     (1,248)
Awards issued under
 Equity Incentive Plans...........             3,205                                          3,205
Amortization of unearned
 compensation.....................             2,248                                          2,248
Exercise of stock options.........              (297)                              4,145      3,848
Forfeiture of restricted shares...                60                                 (60)       -
Net income for the period.........                        40,906                             40,906
Translation adjustment............                                    (3,441)                (3,441)
                                   -------  --------  ----------    --------   ---------   --------
Balance September 28, 1996........     684   885,185    (192,999)     (9,263)    (67,687)   615,920
Purchase of treasury stock........                                               (53,419)   (53,419)
Issuance of treasury stock........            (4,613)                              8,890      4,277
Awards issued under
 Equity Incentive Plans...........             2,082                                          2,082
Amortization of unearned
 compensation.....................               176                                            176
Exercise of stock options.........              (224)                              3,933      3,709
Tax benefit on stock options......               231                                            231
Net income for the period.........                         58,698                            58,698
Translation adjustment............                                      (948)                  (948)
                                   ------- ---------  -----------   --------   ---------   --------
Balance September 27, 1997........     684   882,837     (134,301)   (10,211)   (108,283)   630,726
Purchase of treasury stock........                                               (38,747)   (38,747)
Issuance of treasury stock........            (2,285)                              2,436        151
Amortization of unearned
 compensation.....................               125                                            125
Exercise of stock options.........            (1,254)                             25,746     24,492
Tax benefit on stock options......             4,063                                          4,063
Conversion of note................             1,199                               4,906      6,105
Net income for the period.........                         80,452                            80,452
Translation adjustment............                                    (7,146)                (7,146)
                                   ------- ---------  -----------   --------   ---------   --------
Balance October 3, 1998........... $   684 $ 884,685  $   (53,849)  $(17,357)  $(113,942)  $700,221
                                   ======= =========  ===========   ========   =========   ========
</TABLE>



Note H - Other Expense (Income) - Net

Other expense (income) - net consisted of the following (in thousands):

                                              1998         1997         1996  
                                            --------     --------     --------
    Loss (gain) on sale of assets - net..   $   (512)    $ (9,487)    $  3,651
    Provision for legal contingencies....          -            -        3,990
    Interest income......................     (3,408)      (2,991)      (2,583)
    Other................................        113         (312)       1,046
                                            ---------    --------     --------
         Total...........................   $ (3,807)    $(12,790)    $  6,104
                                            ========     ========     ========

During the 1997 fiscal year, the Company sold Advanced  Textiles,  Inc. (a small
fiberglass business) for $4.6 million in cash and $4.1 million in securities and
recognized a pre-tax  gain of $4.8  million from the sale.  Also during the 1997
fiscal year,  the Company  sold its  Sedgefield  chemical  business for cash and
recognized a pre-tax gain of $4.3 million from the sale.  These  businesses  had
combined sales of $5.3 million and $16.9 million during the 1997 and 1996 fiscal
years,  respectively.  In April  1996,  the  Company  sold  its  J.G.  Furniture
operation for $1.1 million in cash and $3.6 million in securities. Additionally,
the Company  recorded a charge of $2.3  million in 1996 related to the sale of a
non-operating asset.


<PAGE>



Note I - Income Taxes

The sources of income before income taxes were as follows (in thousands):

                                                    1998       1997       1996  
                                                  --------   --------   --------

  United States...............................    $124,761   $ 89,233  $ 70,598
  Foreign.....................................       5,251      7,138     4,752
                                                  --------   --------  --------
       Total                                      $130,012   $ 96,371  $ 75,350
                                                  ========   ========  ========

Income tax expense consisted of (in thousands):
                                                    1998       1997       1996  
                                                  --------   --------   --------
  Current:
       United States..........................    $ 39,228   $ 32,799  $ 36,375
       Foreign................................        (547)       249       447
                                                  --------   --------  --------
            Total current                           38,681     33,048    36,822
  Deferred:
       United States..........................      10,174      4,048    (3,716)
       Foreign................................         705        577       641
                                                  --------   --------  --------
            Total deferred....................      10,879      4,625    (3,075)
                                                  --------   --------  --------
                                                  $ 49,560   $ 37,673  $ 33,747
                                                  ========   ========  ========

Income tax expense is  different  from the amount  computed by applying the U.S.
federal  income tax rate of 35% to income  before  income  taxes as follows  (in
thousands):
                                                   1998       1997       1996   
                                                 --------   --------   ---------
  U.S. tax at statutory rate..................   $ 45,504   $ 33,730   $ 26,373
  Goodwill amortization with no tax benefit...      6,119      6,140      6,212
  State income taxes, net of federal benefit..      1,888      1,712      1,465
  Foreign Sales Corporation...................     (3,581)    (2,865)      (913)
  Other.......................................       (370)    (1,044)       610
                                                 --------   --------   --------
                                                 $ 49,560   $ 37,673   $ 33,747
                                                 ========   ========   ========

At October 3, 1998,  the  Company had $37.1  million of deferred  tax assets and
$206.1  million  of  deferred  tax   liabilities   that  have  been  netted  for
presentation  purposes.  At September 27, 1997, the Company had $44.3 million of
deferred  tax assets and $202.4  million of deferred tax  liabilities  that have
been  netted  for   presentation   purposes.   Operating  loss  and  tax  credit
carryforwards  with  related tax  benefits of $1.3  million (net of $2.9 million
valuation  allowance) at October 3, 1998,  and $2.1 million (net of $2.9 million
valuation  allowance)  at  September  27,  1997,  expire from 2003 to 2013.  Net
deferred tax  liabilities at October 3, 1998 and September 27, 1997 consisted of
the following (in thousands):

                                       1998                      1997         
                               --------------------     -------------------- 
                                Current  Noncurrent      Current   Noncurrent
   Fixed assets..............  $      -  $ 110,439      $      -   $ 105,178
   Inventory valuation.......    60,142          -        60,142           -
   Accruals, allowances
     and other...............   (15,020)    14,782       (15,794)     10,763
   Operating loss and tax
     credit carryforwards....      (546)      (773)         (566)     (1,578)
                               --------  ---------      --------   ---------
        Total................  $ 44,576  $ 124,448      $ 43,782   $ 114,363
                               ========  =========      ========   =========


Note J - Supplemental Disclosures of Cash Flow Information

     (in thousands)                            1998         1997         1996   
                                             --------     --------     --------

     Interest paid - net...................  $ 56,118     $ 56,565     $ 56,244
                                             ========     ========     ========

     Income taxes paid - net...............  $ 45,131     $ 37,086     $ 25,089
                                             ========     ========     ========

On May 30,  1998,  the  Company  formed a joint  venture  with  Unifi,  Inc.  of
Greensboro,  North Carolina, to manufacture and market textured polyester yarns.
Each of the partners  transferred its textured yarn manufacturing  assets into a
newly-formed  limited  liability  company.  Under the  agreement,  Unifi  owns a
majority ownership  interest and manages the business,  while the Company owns a
minority interest.  The noncash transfer of assets from the Company's Burlington
Madison Yarn division  included  $24.6  million of  inventory,  fixed assets and
excess of purchase cost over net assets  acquired for an equity  investment.  On
September  30,  1998,  the Company  announced  its intent to sell the  remaining
assets  of  the  Burlington  Madison  Yarn  division,   including  manufacturing
facilities  located in Ranlo and St. Pauls,  North Carolina,  to Carolina Mills,
Inc. The sale is expected to be completed during November, 1998.

Note K - Retirement Benefits

The Company's U.S. defined benefit pension plan provides benefits to most of its
U.S.  employees  and  certain  employees  in foreign  countries,  based on their
compensation over their working careers.  The funding policy for this plan is to
contribute annually an amount based on the recommendation of the plan's actuary.
Employees  also  contribute a  percentage  of their  compensation.  Participants
become fully vested at the end of five years of service.

The following sets forth the funded status of the plan (in thousands):

                                                             1998        1997 
                                                           ---------  ---------
  Actuarial present value of benefit obligations:
  Accumulated benefit obligation, including
   vested benefits of $(295,031) in 1998 and
   $(281,212) in 1997...................................   $(313,401) $(299,800)
                                                           ---------  ---------
  Projected benefit obligation for service rendered
   to date..............................................    (354,986)  (337,730)
  Less plan assets at fair value, primarily listed
   stocks and bonds, short-term investment funds
   and insurance company contracts......................     327,754    349,069
                                                           ---------  ---------
  Plan assets in excess of (less than) projected
   benefit obligation...................................     (27,232)    11,339
  Unrecognized prior service cost.......................         313        469
  Unrecognized net loss.................................      59,678     15,280
                                                           ---------  ---------
  Pension asset recognized in the balance sheet.........   $  32,759  $  27,088
                                                           =========  =========

Net pension cost included the following  components for the 1998,  1997 and 1996
fiscal years (in thousands):

                                                     1998      1997      1996 
                                                   --------  --------  --------
    Service cost - benefits earned during the
     period......................................  $  7,520  $  7,354  $  7,991
    Interest cost on projected benefit
     obligation..................................    24,722    25,128    24,093
    Return on assets, net of deferred gain (loss)     
     of $(30,960) in 1998, $37,690 in 1997,
     and $19,579 in 1996.........................   (28,069)  (24,077)  (22,686)
    Amortization:
     Unrecognized prior service cost.............       156       156       163
     Unrecognized losses.........................         -     1,982     2,928
                                                   --------  --------  --------
    Net pension cost.............................  $  4,329  $ 10,543  $ 12,489
                                                   ========  ========  ========

The following assumptions were used at each measurement date:
                                                     1998      1997      1996  
                                                   --------  --------  --------
  Discount rate..................................    6.75%     7.75%     8.0%
  Long-term rate of return on plan assets........    8.5%      8.5%      8.5%
  Long-term rate of increase in compensation.....    3.75%     3.75%     3.75%

Pension  cost for all  plans,  including  those  of  foreign  subsidiaries,  was
$5,019,000,  $10,842,000  and  $12,940,000  for the 1998,  1997 and 1996  fiscal
years, respectively.

Note L - Other Postretirement Benefit Plans

In addition to the Company's  pension plan, the Company has two defined  benefit
postretirement  medical plans available to most of its U.S.  employees who elect
participation  and  one  life  insurance  defined  benefit  postretirement  plan
covering only certain employees. The medical plans include a healthcare plan for
employees electing early retirement between the ages of 55 and 65 and a Medicare
supplement  plan for retired  employees age 65 and older.  The medical plans are
contributory,  with retiree contributions  adjusted annually,  and contain other
cost-sharing  features such as deductibles and  coinsurance.  The life insurance
plan is  non-contributory  and was closed to new members in 1973.  The Company's
policy is to fund the cost of the medical plans and the life  insurance  plan as
expenses are  incurred.  The Company  accounts for the plans under SFAS NO. 106,
"Employers' Accounting for Postretirement  Benefits Other Than Pensions",  which
requires that the cost of such benefits be accrued over the  employees'  service
lives. The Company's annual postretirement benefit costs are not significant.

The following  table shows the three plans'  combined  funded status  reconciled
with the amounts  recognized  in the Company's  balance  sheets as of October 3,
1998 and September 27, 1997 (in thousands) and assumptions:

                                                1998                1997        
                                         ------------------  ------------------
                                                    Life                Life
                                          Medical Insurance   Medical Insurance
                                           Plans     Plan      Plans     Plan   
                                         -------- ---------  -------- ---------
  Accumulated postretirement benefit
  obligation:
   Retirees.............................  $(1,756) $(4,332)  $(1,764) $(4,858)
   Fully eligible active plan
    participants........................   (3,499)       -    (3,098)       -
   Other active plan participants.......   (4,736)       -    (3,521)       -
                                          -------  -------   -------  -------
                                           (9,991)  (4,332)   (8,383)  (4,858)
  Plan assets at fair value, primarily
   bonds................................      650    2,193        86    2,279
                                          -------  -------   -------  -------
  Accumulated postretirement benefit
   obligation in excess of plan assets..   (9,341)  (2,139)   (8,297)  (2,579)
  Unrecognized net (gain) loss..........    7,807     (766)    5,947     (531)
                                          -------  -------   -------  -------
  Accrued postretirement benefit cost...  $(1,534) $(2,905)  $(2,350) $(3,110)
                                          =======  =======   =======  =======

  Discount rate.........................    6.75%    6.75%     7.75%    7.75%
  Long-term rate of return on plan
   assets...............................     8.5%     8.5%      8.5%     8.5%

The annual rate of increase in healthcare expenses was 6% and 7% in the 1998 and
1997  fiscal  years,  respectively.  This rate was assumed to remain at 6% after
fiscal year 1998.

Note M - Defined Contribution Plans

The Company's  Employee Stock Ownership Plan ("ESOP") is an individual  account,
defined contribution plan designed to be qualified under the relevant provisions
of the Internal  Revenue  Code of 1986,  as amended  (the  "Code").  The ESOP is
designed to invest  primarily in the Company's stock. The ESOP Plan provides for
100% vesting after one year of  participating  service and for  distributions of
shares  allocated  to  participant  accounts  at  the  time  of  termination  of
employment with the Company.  Pursuant to a Board-established  formula linked to
the Company's  annual  operating  results,  a contribution  of 488,280 shares of
Common Stock valued at $5.2 million was made to the ESOP for fiscal year 1996, a
cash contribution of $3.1 million was made to the ESOP for fiscal year 1997, and
a cash  contribution  of $5.3  million  will be made to the ESOP for fiscal year
1998.  Such amounts have been charged to operations  in the 1996,  1997 and 1998
fiscal years, respectively.

In 1998,  the Company  approved a new 401(k)  Savings Plan  scheduled to go into
effect on January  1, 1999 for all U.S.  employees  (and  certain  employees  in
foreign  countries)  with  one or  more  years  of  service.  The  Company  will
discontinue making  contributions to the ESOP Plan after the 1998 plan year, and
the ESOP  Plan will be merged  into the new  401(k)  Savings  Plan.  The  401(k)
Savings Plan provides for Company contributions of cash and/or Common Stock on a
sliding scale based on the level of the employee's contribution.

Note N - Contingencies

The Company and certain of its current and former direct and indirect  corporate
predecessors,  subsidiaries  and  divisions  have been  identified by the United
States Environmental Protection Agency, by the environmental agencies in several
states and by private parties as potentially  responsible parties at a number of
hazardous waste disposal sites under the  Comprehensive  Environmental  Response
Compensation and Liability Act of 1980  ("Superfund")  and comparable state laws
and,  as  such,  may be  liable  for the  cost of  cleanup  and  other  remedial
activities at these sites.  The Company may also have liability for such matters
pursuant  to  contractual  obligations  relating  to  divested  property or with
respect to sites that may be identified  in the future.  With respect to certain
of  these  sites,  other  persons  have  also  been  identified  as  potentially
responsible  parties,  and in such  circumstances the responsibility for cleanup
and other remedial activities is typically shared among such parties based on an
allocation  formula.  The Company is also  involved in  remedial  responses  and
voluntary  environmental  cleanups  at other  sites that are not  currently  the
subject of proceedings of any kind under Superfund or comparable state laws. The
Company  has  established   reserves  in  its  financial   statements  for  such
environmental  liabilities,  including  related legal fees and other transaction
costs, in the aggregate amount of $4.7 million.  The provision for environmental
liabilities is based on the Company's estimate of allocations of liability among
potentially  responsible  parties (and the  likelihood of  contribution  by such
parties),   information   concerning  the  scope  of  contamination,   estimated
remediation costs,  estimated  transaction costs and other factors.  The Company
and its subsidiaries  also have sundry claims and other lawsuits pending against
them and also have certain  guarantees  that were made in the ordinary course of
business.

It is not possible to determine  with  certainty  the ultimate  liability of the
Company  in these  matters,  if any,  but in the  opinion of  management,  their
outcome should have no material  adverse effect upon the financial  condition or
results of operations of the Company.

Note O - Segment and Other Information

The Company is one of the largest and most diversified  manufacturers of textile
products in the world. It is a leading  developer,  marketer and manufacturer of
fabrics and other  textile  products  utilized in a wide  variety of apparel and
interior  furnishings end uses. The Company operates in two areas:  products for
apparel markets and products for interior furnishings markets.  Sales, operating
income,   identifiable   assets,   depreciation  and  amortization  and  capital
expenditures for these segments were as follows (dollars in millions):


<PAGE>



                                                  1998        1997       1996  
                                                --------    --------   --------
    Net sales
      Apparel................................   $1,163.5    $1,253.2   $1,328.3
      Interior furnishings...................      846.9       837.5      854.0
                                                --------    --------   --------
             Total...........................   $2,010.4    $2,090.7   $2,182.3
                                                ========    ========   ========

    Operating income
      Apparel................................   $  101.9    $  112.1   $  121.7
      Interior furnishings...................       80.9        43.6       55.6
      Loss on closing of division............          -           -      (29.9)
      Provision for restructuring............          -       (12.1)         -
                                                --------    --------   --------
             Total...........................      182.8       143.6      147.4

    Interest expense.........................       59.6        60.0       65.9
    Equity in income of joint ventures.......       (3.0)          -          -
    Other expense (income) - net.............       (3.8)      (12.8)       6.1
                                                --------    --------   --------
    Income before income taxes...............   $  130.0    $   96.4   $   75.4
                                                ========    ========   ========

    Operating margin
      Apparel................................        8.8%        8.9%       9.2%
      Interior furnishings...................        9.6         5.2        6.5
                                                    ----        ----       ----
             Total...........................        9.1%        6.9%       6.8%
                                                     ===        ====       ====

    Identifiable assets
      Apparel................................   $1,135.1    $1,088.7   $1,091.8
      Interior furnishings...................      685.0       707.3      734.2
      Corporate..............................       92.8        77.7       59.9
                                                --------    --------   --------
             Total...........................   $1,912.9    $1,873.7   $1,885.9
                                                ========    ========   ========

    Depreciation and amortization
      Apparel................................   $   52.5    $   50.9   $   52.3
      Interior furnishings...................       34.1        34.2       35.0
                                                --------    --------   --------
             Total...........................   $   86.6    $   85.1   $   87.3
                                                ========    ========   ========

    Capital expenditures
      Apparel................................   $  116.5    $   72.0   $   48.6
      Interior furnishings...................       23.8        24.5       30.6
                                                --------    --------   --------
             Total...........................   $  140.3    $   96.5   $   79.2
                                                ========    ========   ========

The Company primarily markets its products to approximately  10,500 customers in
the United States. The Company also markets its products to customers in Canada,
Mexico, Latin America, Europe and Asian countries.  For the 1998 fiscal year, no
single customer  represented  more than 10% of the Company's net sales,  and the
Company's 10 largest  customers  accounted for  approximately  27% of net sales.
Export sales from the Company's U.S.  operations to unaffiliated  customers were
as follows (in millions):
                                                 1998        1997       1996  
                                                ------      ------     ------
    Asia.....................................   $ 28.0      $ 38.6     $ 51.5
    Europe...................................     71.6        78.3       61.5
    North and South America..................    118.1       108.2       91.5
    Other....................................     19.2        14.2        9.0
                                                ------      ------     ------
             Total...........................   $236.9      $239.3     $213.5
                                                ======      ======     ======

Note P - Financial Instruments

The Company utilizes interest rate agreements and foreign exchange  contracts to
manage interest rate and foreign currency exposures.  The principal objective of
such contracts is to minimize the risks and/or costs  associated  with financial
and  global  operating  activities.  The  Company  does  not  utilize  financial
instruments for trading or other  speculative  purposes.  The  counterparties to
these   contractual   arrangements  are  a  diverse  group  of  major  financial
institutions  with which the  Company  also has other  financial  relationships.
These counterparties  expose the Company to the risk of credit loss in the event
of nonperformance.  However,  the Company does not anticipate  nonperformance by
the  other  parties,   and  no  material  loss  would  be  expected  from  their
nonperformance.

INTEREST RATE  INSTRUMENTS:  The Company  enters into  interest rate swap,  cap,
floor and collar agreements to reduce the impact of changes in interest rates on
all or a portion of its floating rate debt. The swap agreements are contracts to
exchange variable rate for fixed interest payments periodically over the life of
the agreements  without the exchange of the  underlying  notional  amounts.  The
notional  amounts of interest rate agreements are used to measure interest to be
paid or received and do not represent the amount of exposure to credit loss. The
net cash paid for interest rate cap, floor and collar  agreements is recorded in
intangibles and deferred charges in the  consolidated  balance sheet and charged
to interest expense over the life of the agreement. The net cash amounts paid or
received on swap  agreements  are accrued and  recognized  as an  adjustment  to
interest  expense.  If an arrangement  is replaced by another  instrument and no
longer qualifies as a hedge instrument,  then it is marked to market and carried
on the balance sheet at fair value.

         As of October 3, 1998 and  September  27,  1997,  the  Company  had the
following  interest rate  instruments in effect (the variable rates are based on
three-month LIBOR):
                           Notional
                            Amount    Fixed
                          (millions)   Rate      Period   
           1998           ----------  -----   -----------
           ----
    Interest rate swaps      $200      7.37%  10/95-10/00
                               50      6.10%  11/97-11/04
                               50      5.72%  01/98-01/05

           1997        
           ----
    Interest rate swaps      $200      7.37%  10/95-10/00

    FOREIGN  EXCHANGE  INSTRUMENTS:  The Company  enters into  forward  currency
exchange  contracts  in the regular  course of  business to manage its  exposure
against foreign  currency  fluctuations  on sales,  raw material and fixed asset
purchase  transactions  denominated  in  foreign  currencies.  Foreign  currency
receivables that have forward exchange contracts are recorded in U.S. dollars at
the  applicable  forward rate.  The foreign  exchange  contracts on  receivables
($29.7  million and $27.1  million at October 3, 1998 and  September  27,  1997,
respectively)  require the Company to exchange  British  pounds,  German  marks,
French  francs,  Canadian  dollars,  Spanish  pesetas and Italian  lira for U.S.
dollars and mature in one to eight months. Forward exchange contracts related to
raw material and fixed asset purchase transactions are recognized as adjustments
to the bases of the underlying assets. At October 3, 1998, the Company had $31.1
million of forward currency  exchange  contracts  maturing in one to nine months
related to purchases of wool and fixed assets denominated in Australian dollars,
Italian lira and Mexican pesos, compared to $10.6 million at September 27, 1997.
At October 3, 1998 and September 27, 1997,  deferred gains and losses on foreign
exchange contracts are not material to the consolidated financial statements.

FAIR VALUE OF FINANCIAL INSTRUMENTS:  It is estimated that the carrying value of
the Company's financial  instruments  approximated fair value at October 3, 1998
and September 27, 1997, unless indicated  otherwise below. The following methods
and   assumptions   were  used  in  estimating  the  fair  values  of  financial
instruments:

Cash and Cash Equivalents:  The carrying amount  approximates fair value because
of the short maturity of those instruments.

Short-term  Investments:  The fair values are  estimated  based on quoted market
prices for these or similar instruments.

Long-term  Investments and  Receivables:  The fair values are estimated based on
one of the following methods:  (i) quoted market prices;  (ii) current rates for
similar issues;  (iii) recent  transactions for similar issues;  or (iv) present
value of expected cash flows.

Short-term  and  Long-term  Debt:  The fair value is estimated  based on current
rates  offered  for  similar  debt.  At October 3, 1998,  long-term  debt with a
carrying value of $802.0 million had an estimated fair value of $804.3  million.
At September 27, 1997,  long-term  debt with a carrying  value of $806.9 million
had an estimated fair value of $809.2 million.

Interest Rate  Instruments:  The fair values are the estimated  amounts that the
Company would receive or pay to terminate the agreements at the reporting  date,
taking into account current interest rates and the current  creditworthiness  of
the  counterparties.  At October 3, 1998 and  September  27, 1997,  the carrying
amounts of these  instruments  were a $0.7 million  liability and a $0.6 million
liability, respectively. At October 3, 1998, the Company estimates it would have
paid $16.0  million and at  September  27, 1997 would have paid $8.4  million to
terminate the agreements.

Foreign Currency Contracts:  The fair values of foreign currency contracts (used
for hedging purposes) are estimated by obtaining quotes from brokers. At October
3, 1998 and September 27, 1997,  carrying  amounts  related to foreign  currency
contracts in the  consolidated  balance sheets were not material.  At October 3,
1998,  foreign  currency  contracts to pay $31.1  million had an estimated  fair
value to receive $27.8 million,  and foreign currency contracts to receive $29.7
million had an estimated fair value to pay $31.6 million. At September 27, 1997,
foreign  currency  contracts to pay $10.7 million had an estimated fair value to
receive $10.9 million,  and foreign currency  contracts to receive $27.1 million
had an estimated fair value to pay $27.6 million.

Note Q - Stock-Based Compensation

Under the Company's various Equity Incentive Plans, the Company is authorized to
award  restricted  shares of the  Company's  common  stock,  options to purchase
common stock,  or  Performance  Units that are  dependent  upon  achievement  of
specified  performance  goals and are  payable in common  stock and cash.  Stock
options granted generally have a maximum term of 10 years.  Under these plans at
October  3,  1998,  34,447  shares  of  common  stock  are  reserved  to  settle
Performance  Unit awards  currently  outstanding  and  982,213  shares to settle
additional future awards remain available.

A summary of the Company's stock option activity and related information for the
1998, 1997 and 1996 fiscal years follows:


<PAGE>



                               1998                1997              1996       
                         -----------------  -----------------  -----------------
                                 Weighted-          Weighted-          Weighted-
                                  Average            Average            Average
                         Options Exercise   Options Exercise   Options Exercise
                          (000)    Price     (000)    Price     (000)    Price  
                         ------- ---------  ------- ---------  ------- ---------
Outstanding at
 beginning of year.....   5,754   $11.58      6,203   $11.57     4,202   $11.55
Granted................     253    14.78         27    11.70     2,411    11.59
Exercised..............  (2,136)   11.46       (323)   11.41      (338)   11.39
Forfeited..............    (182)   13.07       (153)   11.68       (72)   11.99
                         ------              ------             ------
Outstanding at
 end of year...........   3,689   $11.79      5,754   $11.58     6,203   $11.57
                         ======              =======            ======

Exercisable at end
 of year...............      59   $ 8.40      3,483   $11.57     3,807   $11.55

Per share weighted-average
 fair value of options
 granted during the year..    $6.66               $5.24              $5.12

The following table summarizes  information  about stock options  outstanding at
October 3, 1998:

                           Options Outstanding            Options Exercisable  
                 ------------------------------------     -------------------
                                            Weighted-               Weighted-
  Range of               Weighted-Average    Average                 Average
  Exercise        Number     Remaining      Exercise       Number   Exercise
   Prices         (000)   Contractual Life    Price        (000)      Price 
---------------  -------- ----------------  ---------     --------  --------

$ 8.40 to 10.40      408        4.4          $ 9.68            59    $ 8.40
$10.70 to 14.90    3,211        5.8          $11.86             -    $    -
$15.60 to 21.93       70        4.4          $20.83             -    $    -
                  ------                                   ------
                   3,689        5.6          $11.79            59    $ 8.40
                  ======                                   ======

The Company has elected to follow Accounting  Principles Board (APB) Opinion No.
25,  "Accounting  for Stock Issued to Employees".  Under APB 25, no compensation
expense is recognized  for the  Company's  employee  stock  options  because the
exercise price of the options equals the market price of the underlying stock on
the date of grant.  Total compensation cost charged (credited) to income related
to restricted share and Performance Unit awards was $(0.8) million, $4.3 million
and $7.9 million for the 1998, 1997 and 1996 fiscal years, respectively.

The  following  pro forma  information  regarding  net income and net income per
share is required when APB 25 accounting  is elected,  and was  determined as if
the Company had  accounted  for its employee  stock options under the fair value
method of SFAS No. 123,  "Accounting  for  Stock-Based  Compensation."  The fair
values  for  these  options  were  estimated  at  the  date  of  grant  using  a
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions:  risk-free interest rates of 5.84%, 6.12% and 5.81% for fiscal year
1998,  1997 and 1996,  respectively;  volatility  factors of the expected market
price of the Company's common stock of 0.35 for 1998 and 0.34 for 1997 and 1996;
dividend  yields of 0%; and a  weighted-average  expected life of the options of
six years. For purposes of pro forma  disclosures,  the estimated fair values of
the options are  amortized  to expense  over the  option's  vesting  periods (in
thousands except for per share information):


<PAGE>



                                             1998         1997        1996   
                                           --------    ---------   ---------

Net income:
  As reported.........................     $ 80,452    $ 58,698    $ 40,906
  Pro forma...........................     $ 78,212    $ 56,266    $ 38,794

Diluted earnings per share:
  As reported.........................      $ 1.32      $ 0.95      $ 0.64
  Pro forma...........................      $ 1.28      $ 0.91      $ 0.61

During the initial phase-in  period,  as required by SFAS No. 123, the pro forma
amounts were determined  based on stock option grants in the 1996, 1997 and 1998
fiscal years only.  Therefore,  the pro forma amounts for compensation  cost may
not be  indicative  of the  effects  on pro forma net  income  and pro forma net
income per share for future years.

Note R - Earnings Per Share

In February 1997, the FASB issued SFAS No. 128,  "Earnings Per Share," which was
required  to be  adopted  in the  December  1997  fiscal  quarter.  SFAS No. 128
replaced the  calculation  of primary and fully diluted  earnings per share with
basic and diluted earnings per share.  Unlike primary earnings per share,  basic
earnings  per share  excludes  any  dilutive  effects of options,  warrants  and
convertible  securities.  Diluted  earnings  per  share is very  similar  to the
previously  calculated  fully  diluted  earnings  per share and must be reported
regardless of materiality when potentially  dilutive securities exist.  Earnings
per share amounts for all prior periods have been restated where  appropriate to
conform to the requirements of SFAS No. 128.

The following table sets forth the computation of basic and diluted earnings per
share (in thousands):

                                             1998      1997       1996   
                                           --------- ---------  ---------
Numerator:
  Income before extraordinary item....     $ 80,452  $ 58,698   $ 41,603
  Effect of dilutive securities:
   Convertible note...................          116       360        520
                                           --------  --------   --------
    Numerator for diluted earnings
     per share........................     $ 80,568  $ 59,058   $ 42,123
                                           ========  ========   ========

Denominator:
  Denominator for basic earnings per
   share - weighted-average shares....       60,428    61,289     63,326
  Effect of dilutive securities:
   Stock options......................          524       154        432
   Convertible note...................          183       568        814
   Contingent Performance Unit awards.            4         -          -
                                           --------  --------   --------
  Dilutive potential common shares....          711       722      1,246
                                           --------  --------   --------
    Denominator for diluted earnings
     per share - adjusted weighted-
     average shares and assumed
     conversions......................       61,139    62,011     64,572
                                           ========  ========   ========


<PAGE>



Note S - Quarterly Results of Operations (unaudited)

The Company's  unaudited quarterly results of operations are presented below (in
thousands,  except for per share data).  The three month period ended October 3,
1998  represents  a 14-week  period;  all other  periods  presented  represent a
13-week period.

Fiscal 1998 Quarters
                                        December    March     June    September
                                        --------  --------  --------  ---------
Net sales.............................. $481,703  $517,954  $511,033  $499,724
Cost of sales..........................  402,803   423,272   414,781   418,629
Income tax expense.....................   (9,369)  (15,222)  (15,412)   (9,557)
Net income ............................ $ 13,224  $ 24,570  $ 25,951  $ 16,707

Basic earnings per share .............. $   0.22  $   0.41  $   0.42  $   0.28
Diluted earnings per share............. $   0.22  $   0.40  $   0.42  $   0.28

COMMON STOCK PRICES
  High.................................  15 5/8    17 7/8    18 7/8    14 1/2
  Low..................................  13 1/16   13 3/16   13 3/4     8 3/16


Fiscal 1997 Quarters
                                        December    March    June(a)  September
                                        --------  --------  --------  ---------
Net sales.............................. $476,490  $537,161  $553,590  $523,442
Cost of sales..........................  403,910   450,196   463,975   440,617
Income tax expense.....................   (7,247)  (14,088)   (7,235)   (9,103)
Net income............................. $  9,385  $ 21,115  $ 13,491  $ 14,707

Basic earnings per share............... $   0.15  $   0.34  $   0.22  $   0.25
Diluted earnings per share............. $   0.15  $   0.34  $   0.22  $   0.25

COMMON STOCK PRICES
  High.................................  12        13 5/8    12 3/8   14 11/16
  Low..................................   9 3/4    10 3/4    10 1/8   11  5/16


(a)    June  quarter  1997  includes a $7.3  million  charge  for  restructuring
       associated with reducing staff,  consolidation of certain yarn facilities
       and exiting the  residential  carpet  line,  as well as $3.0  million for
       certain other non-recurring charges, each net of income taxes.


<PAGE>






STATISTICAL REVIEW

Burlington Industries, Inc. and Subsidiary Companies

(Dollar amounts in thousands, except per share data and ratios)

<TABLE>
<CAPTION>

                                    1998(a)     1997       1996       1995       1994 
                                  ---------- ---------- ---------- ---------- ----------
<S>                               <C>        <C>        <C>        <C>        <C>

   SUMMARY OF OPERATIONS
   Net sales....................  $2,010,414 $2,090,683 $2,182,347 $2,209,191 $2,127,067
   Operating income before
    interest and taxes..........     182,769    143,643    147,390    174,498    204,242
   Interest expense.............      59,544     60,062     65,936     56,294     49,841
   Income tax expense...........      49,560     37,673     33,747     51,707     69,982
   Income before extraordinary
    item........................      80,452     58,698     41,603     68,394     99,299

   Per share of common stock:
    Income before extraordinary
     item (basic)...............        1.33       0.96       0.66       1.05       1.46
    Income before extraordinary
     item (diluted).............        1.32       0.95       0.65       1.04       1.44
    Dividends...................           -          -          -          -          -


   FINANCIAL POSITION AT YEAR END
   Current assets...............  $  675,778 $  697,627 $  719,370 $  732,837 $  733,538
   Fixed assets - net...........     642,756    584,647    569,540    575,080    549,942
   Total assets.................   1,912,887  1,873,692  1,885,942  1,931,731  1,907,148
   Current liabilities..........     227,680    263,595    265,352    272,397    315,468
   Long-term liabilities........     860,538    865,008    894,496    932,227    915,884
   Shareholders' equity.........     700,221    630,726    615,920    615,440    574,364
   Current ratio................         3.0        2.6        2.7        2.7        2.3
   Total debt as % of
    capitalization..............        53.8%      56.1%      57.7%      59.7%      61.3%

   OTHER DATA
   Capital expenditures.........  $  140,333 $   96,500 $   79,174  $ 101,876  $  98,869
   Number of employees at
    year end....................      18,900     20,100     21,000     22,500     23,800
   Cash interest coverage
    ratio.......................         4.6        4.0        4.3        4.9        6.1



   (a) Fiscal year 1998 represents a 53-week period.
</TABLE>

<PAGE>





                         Report of Independent Auditors



Shareholders and Board of Directors
Burlington Industries, Inc.

We have  audited the  accompanying  consolidated  balance  sheets of  Burlington
Industries,  Inc. and  Subsidiary  Companies as of October 3, 1998 and September
27, 1997, and the related  consolidated  statements of operations and cash flows
for each of the three years in the period ended October 3, 1998. 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 consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Burlington  Industries,  Inc.  and  Subsidiary  Companies at October 3, 1998 and
September 27, 1997, and the  consolidated  results of their operations and their
cash flows,  for each of the three years in the period ended October 3, 1998, in
conformity with generally accepted accounting principles.

/s/Ernst & Young LLP

Greensboro, North Carolina
October 28, 1998