Exhibit 13

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


Burlington Industries, Inc. and Subsidiary Companies

Overview

The Company's  operating earnings for fiscal year 1997 were slightly higher than
the year before. Sales were approximately 4 percent lower, primarily as a result
of closing or selling certain businesses for strategic reasons. During the year,
the Company  accomplished  several  objectives as part of its basic  strategy of
focusing  on  core  businesses,  investing  in  growth  and  building  financial
strength.
         Sedgefield  Specialties (a chemical  subsidiary) and Advanced Textiles,
Inc. (a small fiberglass business) were sold. The Lees division discontinued its
residential carpet line to concentrate  exclusively on its successful commercial
carpets business.  Certain yarn  manufacturing  facilities were restructured and
consolidated  for better  asset  management.  In  addition,  costs were  reduced
throughout the Company during 1997 by reducing overhead. The net result of these
streamlining  activities,   including  reducing  staff,  consolidation  of  yarn
facilities and exiting the residential  carpet product line, was a net charge of
$0.12 per share.
         During the year, operating results generated $166.3 million in cash and
asset sales provided an additional  $20.7 million.  This cash was primarily used
to invest $99.3 million in capital expenditures and a joint venture,  repurchase
4.5 million shares of stock for $53.4 million and reduce debt by $32.7 million.
         The  Company's  operating  performance  in the  1997  fiscal  year  was
restrained by an oversupply in denim markets.

         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  September  27,  1997,
September 28, 1996 and September 30, 1995.

                                          Fiscal       Fiscal       Fiscal
(dollar amounts in millions)               1997         1996         1995
                                          ------       ------       -----

Net sales
  Apparel products                      $ 1,253.2    $ 1,328.3    $ 1,347.1
  Interior furnishings products             837.5        854.0        862.1
                                         --------     --------     --------
   Total                                $ 2,090.7    $ 2,182.3    $ 2,209.2
                                         ========     ========     ========


Operating income before interest and taxes
  Apparel products                      $   112.1    $   121.7    $   107.1
   As a percentage of net sales               8.9%         9.2%         8.0%
  Interior furnishings products         $    43.6    $    55.6    $    67.4
   As a percentage of net sales               5.2%         6.5%         7.8%
  Operating income before interest,
   taxes, provision for restructuring
   and loss on closing of division      $   155.7    $   177.3    $   174.5
  Loss on closing of division           $       -    $   (29.9)   $       -
  Provision for restructuring           $   (12.1)   $       -    $       -
                                          --------     -------     --------
   Total                                $   143.6    $   147.4    $   174.5
    As a percentage of net sales              6.9%         6.8%         7.9%
                                          =======      =======     ========


<PAGE>



Results of Operations

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 activity 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
mainly  attributable to the reduced level of operations in the Burlington  House
and Area  Rugs  divisions  partially  offset  by  improved  results  in the Lees
division.
         Selling, administrative and general 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 ITEMS: Income tax expense of $37.7
million was recorded for the 1997 fiscal year in comparison with $33.7 million


<PAGE>



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 NET  INCOME  PER SHARE:  Net income for the 1997  fiscal
year was $58.7 million, or $0.96 per share, in comparison with $40.9 million, or
$0.65 per share,  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.

Comparison of Fiscal Years ended September 28, 1996 and September 30, 1995

         NET SALES: Net sales for the 1996 fiscal year were $2,182.3 million,  a
decrease of 1.2% from the  $2,209.2  million  recorded in the 1995 fiscal  year.
Exports totaled $213 million and $161 million in the 1996 and 1995 fiscal years,
respectively (an increase of 32.3%).
         Products for Apparel Markets: Net sales of products for apparel markets
for the 1996 fiscal  year were  $1,328.3  million,  1.4% lower than net sales of
$1,347.1  million for the 1995 fiscal year. Lower unit volumes from the Menswear
and Knitted  Fabrics  divisions were only partially  offset by  improvements  in
selling price and product mix.
         Products for Interior  Furnishings  Markets:  Net sales of products for
interior  furnishings  markets for the 1996 fiscal year were $854.0  million,  a
decrease of 0.9% from the $862.1 million recorded in the 1995 fiscal year. Lower
unit  volumes  resulting  from a carpets  division  strategy to  streamline  its
residential  product line, the difficult business  environment faced by the rugs
divisions  and the sale of a non-core  business  were only  partially  offset by
enhancements to product mix and higher selling prices.


         OPERATING  INCOME BEFORE  INTEREST AND TAXES:  Operating  income before
interest  and taxes for the 1996  fiscal  year was  $147.4  million.  Before the
charges for  closing  the Knitted  Fabrics  division,  operating  income  before
interest  and taxes for the 1996  fiscal year was $181.0  million in  comparison
with $174.5 million  recorded in the 1995 fiscal year.  Amortization of goodwill
was  $18.2  million  and  $18.1  million  in the  1996 and  1995  fiscal  years,
respectively.
         Products for Apparel  Markets:  Operating  income  before  interest and
taxes for the  apparel  products  segment  before the  charges  for  closing the
Knitted Fabrics  division for the 1996 fiscal year was $125.4 million,  up 17.1%
from the $107.1 million recorded for the 1995 fiscal year. The principal factors
leading to this increase were  improvements in selling price and product mix and
lower bad debts, offset by lower unit volume,  operating capacity inefficiencies
and wage  increases.  Better  operating  earnings  were  achieved  by the Denim,
Klopman and Menswear divisions.
         Products for Interior  Furnishings  Markets:  Operating  income  before
interest and taxes for the interior  furnishings  products  segment for the 1996
fiscal year was $55.6 million, down 17.5% from the $67.4 million recorded in the
1995 fiscal year. Manufacturing inefficiencies resulting from lower unit volume,
wage increases and severance costs associated with manpower reductions more than
offset the benefit of better product mix and higher selling prices. Good results
in the  Burlington  House and Lees  divisions  were  offset  by slower  business
activity in the area rugs divisions.
         Selling, administrative and general expenses totaled $166.3 million, or
7.6% of net sales,  in the 1996 fiscal year,  compared with $162.5  million,  or


<PAGE>



7.4% of net sales, in the 1995 fiscal year. The increase was mainly attributable
to the new Bacova operation which was acquired during fiscal year 1995.
         The Company recorded  provisions for doubtful  accounts of $6.5 million
and $10.4  million in the 1996 and 1995 fiscal  years,  respectively,  resulting
primarily from bankruptcies which occurred in those periods.
         INTEREST  EXPENSE:  Interest expense for the 1996 fiscal year was $65.9
million, or 3.0% of net sales, compared with $56.3 million, or 2.5% of net sales
in the 1995 fiscal year.  The  increase in interest  expense was  primarily  the
result of  lengthening  maturities  and higher rates  partially  offset by lower
average debt.
         OTHER EXPENSE (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.  Other  income of $1.9
million for fiscal year 1995 consisted primarily of interest income.
         INCOME TAX EXPENSE AND EXTRAORDINARY ITEMS: Income tax expense of $33.7
million was recorded for the 1996 fiscal year in  comparison  with $51.7 million
for fiscal year 1995. 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 (principally the write-off of unamortized bank financing costs).
         NET INCOME AND NET  INCOME  PER SHARE:  Net income for the 1996  fiscal
year was $40.9 million, or $0.65 per share, in comparison with $68.4 million, or
$1.05 per share,  for the 1995 fiscal year.  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 for the early extinguishment of debt.

Legal and Environmental Contingencies

         The Company and its subsidiaries  have sundry claims and other lawsuits
pending  against  them and also have certain  guarantees  which 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 which 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  which 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 $5.7 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  has also  recorded  $1.1  million  for  estimated


<PAGE>



recoveries under insurance  policies to the extent that coverage for such claims
has been acknowledged by the relevant insurer and for estimated  recoveries from
third parties.  No provision has been made for liabilities  that may be incurred
with respect to sites which may be identified in the future because insufficient
basis exists for making informed estimates in such cases.
         Like most owners of computer software,  the Company will be required to
modify significant portions of its software so that it will function properly in
the year 2000. The Company has initiated a  company-wide  program to prepare its
computer  systems and  applications  to  recognize  the year 2000 and beyond and
expects to complete this project during 1998. The Company also is dependent upon
the  successful  efforts of its customers and suppliers to modify their software
and could be impacted by the failure of one or more of these efforts.
         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.

Liquidity and Capital Resources

         During the 1995-97  fiscal years,  the Company took steps to strengthen
its capital  structure and enhance the  flexibility  of its financial  resources
going  forward.  During the last quarter of the 1995 fiscal year, a $400 million
senior debt shelf registration statement was filed and became effective, and the
Company  has used $300  million  of its  capacity  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,  which  underscored  the  continued
improvement  in the Company's  credit  standing.  In November  1995, the Company
entered into a $750 million bank credit  facility which reduces  borrowing costs
compared  to the  previous  bank  credit  facility,  and  further  enhances  the
Company's  financial  flexibility.  At  September  27,  1997,  total debt of the
Company  (consisting of current and  non-current  portions of long-term debt and
short-term  borrowings)  was $806.9  million  compared  with  $838.9  million at
September 28, 1996.  The ratio of debt to total  capital  declined from 57.7% at
the beginning of fiscal year 1997 to 56.1% 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 1997 fiscal year amounted to $166.3 million;  additionally $20.7 million was
provided  from  sales of assets  and $3.7  million  from the  exercise  of stock
options.  Cash generated in this manner was primarily used for: $99.3 million of
capital  expenditures  and investment in a joint venture,  $53.4 million for the
repurchase  of Company  common  stock and $32.7  million for net  repayments  of
long-term debt.  Shares of Company common stock purchased during the 1997 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.
         During the 1997 fiscal year,  investment in capital  expenditures and a
joint  venture  totaled  $99.3  million,  compared to $81.4  million in the 1996
fiscal year. The Company anticipates that the level of capital  expenditures for
fiscal year 1998 could total approximately $185 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") at a price of 99.402%  plus
accrued  interest.  Proceeds from the sale were used to prepay  Revolving  Loans
under its 1995 Bank Credit  Agreement on the same date.  The Notes Due 2027 will


<PAGE>



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.
On September 26, 1995,  the Company issued $150.0  million  principal  amount of
7.25% notes due September 15, 2005 ("Notes Due 2005") at a price of 99.926% plus
accrued  interest.  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 ("1995
Bank Credit  Agreement") which expires in March,  2001. At November 7, 1997, the
Company had approximately $432.0 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 1995 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 which 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,  a  deterioration  in the Company's
debt ratings would increase the interest rate and facility fees.
         The 1995 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.
         On December 22, 1992, the Company, established a $225.0 million A-1/D-1
rated  commercial  paper  facility ("CP  Facility")  backed by a $225.0  million
Receivables-Backed  Liquidity Facility ("Liquidity Facility") established with a
group of banks. On November 7, 1997, $173.9 million of commercial paper maturing
on or before  December  10, 1997 was  outstanding.  The  Company has  received a
commitment from a bank to replace the CP Facility and Liquidity  Facility with a
five-year,  $225.0 million Trade Receivables  Financing Agreement  ("Receivables
Facility")  which is scheduled to close on or about December 5, 1997. 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.
         Because the Company's  obligations under the 1995 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 interest rate exposure,  rather than
for trading purposes.


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  which  could  affect the  Company's  actual


<PAGE>



future results and which 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,  including  the  acceptance by customers and consumers of the
Company's  products  and the possible  imbalances  between  consumer  demand and
inventories   of  the  Company's   customers;   the  success  of  the  Company's
value-added,  fashion-driven product strategy; the Company's  relationships with
its principal  customers and suppliers;  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  which impose higher costs,  or greater  restrictions,  on the Company's
operations and which 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>



              BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
                    Consolidated Statements of Operations
                 For the fiscal years ended September 27, 1997,
                   September 28, 1996 and September 30, 1995
              (amounts in thousands, except for per share amounts)




                                            1997        1996         1995
                                        ----------   ----------   ----------

Net sales.............................  $2,090,683   $2,182,347   $2,209,191
Cost of sales.........................   1,758,698    1,814,160    1,843,752
                                        ----------   ----------   ----------
Gross profit..........................     331,985      368,187      365,439
Selling, administrative and
  general expenses....................     154,648      166,283      162,504
Provision for doubtful accounts.......       3,478        6,457       10,382
Amortization of goodwill..............      18,158       18,201       18,055
Loss on closing of division...........           -       29,856            -
Provision for restructuring...........      12,058            -            -
                                        ----------   ----------   ----------
Operating income before
  interest and taxes..................     143,643      147,390      174,498
Interest expense......................      60,062       65,936       56,294
Other expense (income) - net..........     (12,790)       6,104       (1,897)
                                        ----------   ----------   ----------
Income before income taxes............      96,371       75,350      120,101
Income tax expense:
  Current.............................     (33,048)     (36,822)     (31,706)
  Deferred............................      (4,625)       3,075      (20,001)
                                        ----------   ----------   ----------
    Total income tax expense..........     (37,673)     (33,747)     (51,707)
                                        ----------   ----------   ----------
Income before
  extraordinary item..................      58,698       41,603       68,394
Extraordinary item:
  Loss from early extinguishment
   of debt, net of income tax
   benefit of $454 in 1996............           -         (697)           -
                                        ----------   ----------   ----------
Net income............................  $   58,698   $   40,906   $   68,394
                                        ==========   ==========   ==========

Average common shares
  outstanding.........................      61,289       63,231       65,273

Net income per common share:
  Income before
   extraordinary item.................  $     0.96   $     0.66   $     1.05
  Extraordinary item..................           -        (0.01)           -
                                        ----------   ----------   ----------
                                        $     0.96   $     0.65   $     1.05
                                        ==========   ==========   ==========

See notes to consolidated financial statements.



<PAGE>



              BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
                         Consolidated Balance Sheets
                           (amounts in thousands)




                                                    September 27,  September 28,
                                                        1997           1996
                                                    -------------  -------------
ASSETS
Current assets:
Cash and cash equivalents.......................    $    17,863     $    15,392
Short-term investments..........................         23,832          22,755
Customer accounts receivable after deductions
  of $20,688 and $21,466 for the respective
  dates for doubtful accounts, discounts,
  returns and allowances........................        331,457         342,390
Sundry notes and accounts receivable............          6,762           6,608
Inventories.....................................        314,994         329,386
Prepaid expenses................................          2,719           2,839
                                                    -----------     -----------
     Total current assets.......................        697,627         719,370
Fixed assets, at cost:
Land and land improvements......................         36,677          35,869
Buildings.......................................        400,212         384,153
Machinery, fixtures and equipment...............        607,502         585,587
                                                    -----------     -----------
                                                      1,044,391       1,005,609
Less accumulated depreciation and amortization..        459,744         436,069
                                                    -----------     -----------
     Fixed assets - net.........................        584,647         569,540
Other assets:
Investments and receivables.....................         22,670          14,032
Intangibles and deferred charges................         29,781          25,875
Excess of purchase cost over
 net assets acquired............................        538,967         557,125
                                                    -----------     -----------
     Total other assets.........................        591,418         597,032
                                                    -----------     -----------
                                                    $ 1,873,692     $ 1,885,942
                                                    ===========     ===========
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt due currently....................    $       470     $     1,720
Accounts payable - trade........................        102,898          93,688
Sundry payables and accrued expenses............        100,039         102,895
Income taxes payable............................         16,406          20,674
Deferred income taxes...........................         43,782          46,375
                                                    -----------     -----------
     Total current liabilities..................        263,595         265,352
Long-term liabilities:
Long-term debt..................................        806,413         837,136
Other...........................................         58,595          57,360
                                                    -----------     -----------
     Total long-term liabilities................        865,008         894,496
Deferred income taxes...........................        114,363         110,174
Shareholders' equity:
Common stock issued (Note G)....................            684             684
Capital in excess of par value..................        882,837         885,185
Accumulated deficit.............................       (134,301)       (192,999)
Currency translation adjustments................        (10,211)         (9,263)
                                                    -----------     -----------
                                                        739,009         683,607
Less cost of common stock held in treasury......       (108,283)        (67,687)
                                                    -----------     -----------
     Total shareholders' equity.................        630,726         615,920
                                                    -----------     -----------
                                                    $ 1,873,692     $ 1,885,942
                                                    ===========     ===========




See notes to consolidated financial statements.


<PAGE>



        BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
              Consolidated Statements of Cash Flows
           For the fiscal years ended September 27, 1997,
              September 28, 1996 and September 30, 1995
                     (amounts in thousands)

                                                   1997       1996       1995
                                                 --------  ---------  ---------

Cash flows from operating activities:
Net income.....................................  $ 58,698   $ 40,906  $  68,394
Adjustments to reconcile net income to net
  cash provided by operating activities:
    Depreciation and amortization of
     fixed assets..............................    66,742     66,942     66,646
    Provision for doubtful accounts............     3,478      6,457     10,382
    Amortization of intangibles
     and deferred debt expense.................    18,600     22,053     20,733
    Deferred income taxes......................     4,625     (3,075)    20,001
    (Gain) loss on disposal of assets
     and other expense.........................   (11,821)     7,641          -
    Loss from early extinguishment of debt.....         -      1,151          -
    Restructuring/loss on closing of division..    12,058     29,856          -
    Changes in assets and liabilities:
        Customer accounts receivable - net.....     6,400    (16,165)     8,331
        Sundry notes and accounts receivable...      (154)    10,203     (7,511)
        Inventories............................    11,478      9,561    (12,645)
        Prepaid expenses.......................       120       (627)        51
        Accounts payable and accrued expenses..    (2,428)     3,694    (15,910)
    (Payment) receipt of financing fees........        80       (444)    (3,848)
    Change in interest payable.................        64      3,257     (1,222)
    Change in income taxes payable.............     1,821     11,273     (7,252)
    Other......................................    (3,481)       442      6,414
                                                 --------   --------  ---------
         Total adjustments.....................   107,582    152,219     84,170
                                                 --------   --------  ---------
Net cash provided by operating activities......   166,280    193,125    152,564
                                                 --------   --------  ---------

Cash flows from investing activities:
Capital expenditures...........................   (96,500)   (79,174)  (101,876)
Payment for purchase of business, net
 of cash acquired..............................         -          -    (12,022)
Proceeds from sales of assets..................    20,672      8,785      6,472
Investment in joint venture....................    (2,750)    (2,200)         -
Change in investments..........................    (2,817)      (957)    (3,073)
                                                 --------   --------  ---------
Net cash used by investing activities..........   (81,395)   (73,546)  (110,499)
                                                 --------   --------  ---------

Cash flows from financing activities:
Net change in short-term borrowings............         -       (274)    (1,136)
Repayments of long-term debt...................  (200,472)  (600,708)  (211,966)
Proceeds from issuance of long-term debt.......   167,768    527,478    197,818
Proceeds from exercise of stock options........     3,709      3,848         73
Purchase of treasury stock.....................   (53,419)   (45,038)   (37,858)
                                                 --------   --------  ---------
Net cash used by financing activities..........   (82,414)  (114,694)   (53,069)
                                                 --------   --------  ---------

Net change in cash and cash equivalents........     2,471      4,885    (11,004)
Cash and cash equivalents at beginning
 of period.....................................    15,392     10,507     21,511
                                                 --------   --------  ---------
Cash and cash equivalents at end of period.....  $ 17,863   $ 15,392  $  10,507
                                                 ========   ========  =========







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 20 to 50 percent 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
$181,744,000  and  $163,586,000  at September  27, 1997 and  September 28, 1996,
respectively.

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
$11,841,000,  $13,482,000  and  $17,082,000  in the 1997,  1996 and 1995  fiscal
years, respectively.

Income  per common  share:  Income per  common  share is  computed  based on the
weighted average number of common shares outstanding during each period.

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.



<PAGE>



Other: In 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial  Accounting  Standards (SFAS) No. 128, "Earnings per Share",  which
the Company is required to adopt in the first  quarter of the 1998 fiscal  year.
At that time,  the Company will be required to change the method  currently used
to compute  earnings per share and to restate all prior  periods.  The impact of
SFAS No. 128 on the  calculation  of earnings per share for these periods is not
expected to be material.  Also in 1997, the FASB issued 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 all other  nonowner  changes  in  shareholders'
equity, such as foreign currency translation adjustments. The effect of SFAS No.
131  on  the  Company's  financial  statement   disclosures  has  not  yet  been
determined,  but  adoption  will not affect  the  accounting  for the  Company's
consolidated results of operations, financial position or cash flows.

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.  Production  capacity of the residential  carpet product line will be
utilized by the commercial  carpet product line within existing  facilities.  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 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 September 27, 1997 were
$3.2 million.

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, and it is anticipated that sales
of the majority of the  division's  assets will be  completed  within a two-year
period.  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 closing the division paid or incurred  through  September 27, 1997 were $23.2
million.  Operating  results of the Knitted Fabrics  division before any charges
related to the restructuring were as follows (in millions):

                                                  1996         1995
                                               --------     --------
       Net sales ...........................   $  108.2     $  134.1
       Net operating loss before
         interest and taxes ................   $  (17.2)    $  (17.9)








<PAGE>



Note C - Inventories

Inventories are summarized as follows (in thousands):
                                                            1997         1996
                                                          ---------   ---------
    Inventories at average cost:
        Raw materials................................     $  46,722   $  49,481
        Stock in process.............................        97,973      96,836
        Produced goods...............................       190,326     200,679
        Dyes, chemicals and supplies.................        21,859      23,100
                                                          ---------   ---------
                                                            356,880     370,096
        Less excess of average cost over LIFO........        41,886      40,710
                                                          ---------   ---------
            Total....................................     $ 314,994   $ 329,386
                                                          =========   =========

Inventories valued using the LIFO method comprised  approximately 91% and 90% of
consolidated   inventories  at  September  27,  1997  and  September  28,  1996,
respectively.

Note D - Sundry Payables and Accrued Expenses

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

                                                             1997         1996
                                                          ---------   ---------
     Sundry accounts payable.........................     $   1,386   $   2,156
     Accrued expenses:
         Payroll and employee benefits...............        57,558      58,555
         Taxes, other than income taxes..............         9,960       9,597
         Interest....................................         9,156      12,464
         Other.......................................        21,979      20,123
                                                          ---------   ---------
             Total...................................     $ 100,039   $ 102,895
                                                          =========   =========

Note E - Long-term Debt

Long-term debt consisted of the following (in thousands):
                                                             1997         1996
                                                          ----------  ---------
  1995 Bank Credit Agreement...........................   $  335,000  $ 525,000
  Commercial Paper.....................................      163,592    144,221
  Senior Debentures due 2005...........................      149,911    149,900
  Senior Debentures due 2027...........................      149,117          -
  Other indebtedness with various rates and maturities.        9,263     19,735
                                                          ----------  ---------
                                                             806,883    838,856
  Less long-term debt due currently....................          470      1,720
                                                          ----------  ---------
    Total..............................................   $  806,413  $ 837,136
                                                          ==========  =========

Bank  Financing:  On November 8, 1995,  the Company  entered  into an  unsecured
credit agreement ("1995 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  September  27, 1997,  there were no letters of credit  outstanding
issued by the fronting bank,  and the unused  portion of the revolving  facility
commitment  was $415.0  million.  Additional  overnight  borrowings  up to $42.0
million are also available under bank lines of credit.

Loans under the 1995 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 which 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

<PAGE>



reduced.  Conversely,  a  deterioration  in the  Company's  debt  ratings  would
increase the interest rate and facility fees. At September 27, 1997, the average
bank financing  interest rate was 6.29%. See Note P for information on financial
instruments utilized to manage interest rate exposure.

The 1995 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 (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),  stock  repurchases,  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.

On November 20, 1995,  the Company  borrowed  $510.0 million under the 1995 Bank
Credit  Agreement to repay all $505.0  million  principal  amount of outstanding
indebtedness  under its 1994 Bank Credit Agreement and recorded a related charge
from early  extinguishment  of debt of $0.7 million (net of income taxes) during
the 1996 fiscal year.

Receivables-Backed  Financing:  On December 22, 1992, the Company  established a
$225.0 million A-1/D-1 rated commercial paper facility ("CP Facility") backed by
a $225.0 million  Receivables-Backed  Liquidity Facility ("Liquidity  Facility")
with a group of banks.  There were no  borrowings  outstanding  at September 27,
1997 or  September  28,  1996 under the  Liquidity  Facility.  The  Company  has
received a  commitment  from a bank to replace  the CP  Facility  and  Liquidity
Facility with a five-year,  $225.0 million Trade Receivables Financing Agreement
("Receivables  Facility")  which is scheduled  to close on or about  December 5,
1997; accordingly, commercial paper borrowings were classified as long-term debt
at September 27, 1997. 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.

Senior  Debentures:  On August 12, 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 its 1995 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.

On September  26, 1995,  the Company  issued  through a public  offering  $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% and the net proceeds  from the
sale were the principal  source of funds used to prepay  $150.0  million of term
loans under its 1994 Bank  Credit  Agreement  on the same date.  Interest on the
Senior Debentures Due 2005 is payable semiannually on March 15 and September 15,
and the


<PAGE>



debentures are not redeemable prior to maturity and are not entitled to any
sinking fund.

Maturities:  As of September 27, 1997,  aggregate annual maturities of long-term
debt for the next five  years are $0.5  million in 1998,  $0.7  million in 1999,
$1.2 million in 2000, $335.5 million in 2001 and $0.1 million in 2002.

Note F - Leases

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

          1998.............................................    $ 16,359
          1999.............................................      14,373
          2000.............................................      10,418
          2001.............................................       7,974
          2002.............................................       5,873
          Later years......................................      23,252
                                                               --------
                                                                 78,249
          Less sublease income.............................         102
                                                               --------
               Total minimum lease payments................    $ 78,147
                                                               ========

Approximately 37% 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 1997,  1996 and 1995
fiscal  years,   rental  expense  for  all  operating  leases  was  $19,751,000,
$20,023,000 and $18,542,000,  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 September 27, 1997 and September
28, 1996, respectively, were as follows:

                                       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
                                    ===========      ==========       ==========

                                       Shares          Shares           Shares
   September 28, 1996                Authorized        Issued        Outstanding
   ------------------               -----------      ----------      -----------
   Common Stock..................   200,000,000      61,366,741       55,852,652
   Nonvoting Common Stock........    15,000,000       7,026,708        7,026,708
                                    -----------      ----------       ----------
                                    215,000,000      68,393,449       62,879,360
                                    ===========      ==========       ==========


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 September 27, 1997 and September 28, 1996, the Company had 30,000,000  shares
of  preferred  stock  authorized,  par value $.01 per share,  none of which were
issued and outstanding.



<PAGE>



During the 1997 fiscal year, the Company purchased 1,750,000 shares of Nonvoting
Common Stock from a  shareholder  group in a  privately-negotiated  transaction.
Immediately thereafter,  these shares were converted to voting Common Stock held
as treasury  stock.  Additionally,  the Company  exchanged  2,227,820  shares of
Nonvoting  Common Stock for voting  Common  Stock.  During the 1997 fiscal year,
outstanding shares also changed due to (i) the purchase of 2,794,120  additional
shares of treasury stock;  (ii) the issuance of 488,280 shares of treasury stock
to the ESOP Plan (see Note M); (iii) the issuance of 250,101  shares of treasury
stock to settle  Performance  Unit  awards  (see Note Q);  (iv) the  issuance of
322,995 shares of treasury stock for exercise of stock options (see Note Q); and
(v) the issuance of 9,000 shares for other transactions.

Changes in  shareholders'  equity of the Company for fiscal 1995,  1996 and 1997
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 October 1, 1994........... $  683   $883,838  $ (302,299)   $  3,955   $ (11,813)  $574,364
Purchase of treasury stock........                                               (37,858)   (37,858)
Issuance of treasury stock........            (1,163)                             13,333     12,170
Awards issued under
 Equity Incentive Plans...........      1      5,818                                          5,819
Amortization of unearned
 compensation.....................             2,255                                          2,255
Exercise of stock options.........                73                                             73
Forfeiture of restricted shares...               126                                (126)       -
Net income for the period.........                        68,394                             68,394
Translation adjustment............                                    (9,777)                (9,777)
                                   ------   --------   ---------     -------   ---------   --------
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
                                   ======= =========  ===========   ========   =========   ========
</TABLE>


Note H - Other Expense (Income) - Net

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

                                              1997         1996         1995
                                            --------     --------     --------
    Loss (gain) on sale of assets - net..     (9,487)    $  3,651     $      -
    Provision for legal contingencies....          -        3,990            -
    Interest income......................     (2,991)      (2,583)      (2,133)
    Other................................       (312)       1,046          236
                                            --------     --------     --------
         Total...........................   $(12,790)    $  6,104     $ (1,897)
                                            ========     ========     ========

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


<PAGE>



combined sales of $5.3 million and $16.9 million during the 1997 and 1996 fiscal
years,  respectively.  On April 27, 1996,  the Company  sold its J.G.  Furniture
operation  for $1.1  million  in cash  and  $3.6  million  in  securities.  J.G.
Furniture had sales of $17.4 million during the 1995 fiscal year.  Additionally,
the  Company  recorded  a  charge  for  $2.3  million  in 1996 on the  sale of a
non-operating  asset.  The Company recorded a charge of $4.0 million in the 1996
fiscal year for legal contingencies.

Note I - Income Taxes

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

                                                    1997       1996       1995
                                                  --------   --------   --------

  United States...............................    $ 89,233   $ 70,598   $118,012
  Foreign.....................................       7,138      4,752      2,089
                                                  --------   --------   --------
       Total                                      $ 96,371   $ 75,350   $120,101
                                                  ========   ========   ========

Income tax expense consisted of (in thousands):
                                                    1997       1996       1995
                                                  --------   --------   --------
  Current:
       United States..........................    $ 32,799   $ 36,375   $ 31,418
       Foreign................................         249        447        288
                                                  --------   --------   --------
            Total current                           33,048     36,822     31,706
  Deferred:
       United States..........................       4,048     (3,716)    18,582
       Foreign................................         577        641      1,419
                                                  --------   --------   --------
            Total deferred....................       4,625     (3,075)    20,001
                                                  --------   --------   --------
                                                  $ 37,673   $ 33,747   $ 51,707
                                                  ========   ========   ========

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):
                                                   1997       1996       1995
                                                 --------   --------   --------
  U.S. tax at statutory rate..................   $ 33,730   $ 26,373   $ 42,035
  Goodwill amortization with no tax benefit...      6,140      6,212      6,166
  State income taxes, net of federal benefit..      1,712      1,465      3,622
  Foreign Sales Corporation...................     (2,865)      (913)      (867)
  Other.......................................     (1,044)       610        751
                                                 --------   --------   --------
                                                 $ 37,673   $ 33,747   $ 51,707
                                                 ========   ========   ========

At September 27, 1997,  the Company had $44.3 million of deferred tax assets and
$202.4  million  of  deferred  tax  liabilities   which  have  been  netted  for
presentation  purposes.  At September 28, 1996, the Company had $40.4 million of
deferred tax assets and $196.9  million of deferred tax  liabilities  which have
been  netted  for   presentation   purposes.   Operating  loss  and  tax  credit
carryforwards  with  related tax  benefits of $2.1  million (net of $2.9 million
valuation  allowance)  at  September  27,  1997,  and $2.7  million (net of $2.9
million  valuation  allowance) at September 28, 1996,  expire from 1998 to 2008.
Net  deferred  tax  liabilities  at September  27, 1997 and  September  28, 1996
consisted of the following (in thousands):

                                       1997                     1996
                               ---------------------    ---------------------
                                Current  Noncurrent      Current   Noncurrent
   Fixed assets..............  $      -  $ 105,178      $      -    $ 104,187
   Inventory valuation.......    60,142          -        60,142            -
   Accruals, allowances
     and other...............   (15,794)    10,763       (13,188)       8,142
   Operating loss and tax
     credit carryforwards....      (566)    (1,578)         (579)      (2,155)
                               --------  ---------      --------    ---------
        Total................  $ 43,782  $ 114,363      $ 46,375    $ 110,174
                               ========  =========      ========    =========





<PAGE>



Note J - Supplemental Disclosures of Cash Flow Information

     (in thousands)                            1997         1996         1995
                                             --------     --------     --------

     Interest paid - net...................  $ 56,565     $ 56,244     $ 52,705
                                             ========     ========     ========

     Income taxes paid - net...............  $ 37,086     $ 25,089     $ 38,973
                                             ========     ========     ========

The Company's noncash investing and financing activities not disclosed elsewhere
included  the  issuance  of  convertible  notes in the  amount of $12.2  million
related to the acquisition of The Bacova Guild, Ltd. during the 1995 fiscal year
and exchange of  equipment  for notes  receivable  in the amount of $2.9 million
during the 1995 fiscal year.

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):

                                                              1997       1996
                                                           ---------  ---------
  Actuarial present value of benefit obligations:
  Accumulated benefit obligation, including
   vested benefits of $(281,212) in 1997 and
   $(260,261) in 1996...................................   $(299,800) $(273,994)
                                                           ---------  ---------
  Projected benefit obligation for service rendered
   to date..............................................    (337,730)  (310,992)
  Less plan assets at fair value, primarily listed
   stocks and bonds, short-term investment funds
   and insurance company contracts......................     349,069    298,346
                                                           ---------  ---------
  Plan assets in excess of (less than) projected
   benefit obligation...................................      11,339    (12,646)
  Unrecognized prior service cost.......................         469        625
  Unrecognized net loss.................................      15,280     34,652
                                                           ---------  ---------
  Pension asset recognized in the balance sheet.........   $  27,088  $  22,631
                                                           =========  =========

During the 1996 fiscal year,  the plan made cash lump sum payments to the former
member employees of a divested  division.  Curtailment and settlement  losses of
$3.7 million in 1996 were recognized and offset against reserves  established at
the time of the divestiture.

Net pension cost included the following  components for the 1997,  1996 and 1995
fiscal years (in thousands):
                                                     1997      1996      1995
                                                   --------  --------  --------
    Service cost - benefits earned during the
     period......................................  $  7,354  $  7,991  $  4,385
    Interest cost on projected benefit
     obligation..................................    25,128    24,093    24,148
    Return on assets, net of deferred gain
     of $37,690 in 1997, $19,579 in 1996,
     and $20,361 in 1995.........................   (24,077)  (22,686)  (20,270)
    Amortization:
     Unrecognized prior service cost.............       156       163       541
     Unrecognized losses.........................     1,982     2,928     3,892
                                                   --------  --------  --------
    Net pension cost.............................  $ 10,543  $ 12,489  $ 12,696
                                                   ========  ========  ========





<PAGE>



The following assumptions were used at each measurement date:
                                                     1997      1996      1995
                                                   --------  --------  -------
  Discount rate..................................    7.75%     8.0%      7.75%
  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
$10,842,000,  $12,940,000  and  $13,112,000  for the 1997,  1996 and 1995 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 health care 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 September 27,
1997 and September 28, 1996 (in thousands) and assumptions:

                                                1997                1996
                                         ------------------  ------------------
                                                    Life                Life
                                          Medical Insurance   Medical Insurance
                                           Plans     Plan      Plans     Plan
                                          -------  -------   -------   -------
  Accumulated postretirement benefit
  obligation:
   Retirees.............................  $(1,764) $(4,858)  $  (955)  $(5,028)
   Fully eligible active plan
    participants........................   (3,098)       -    (2,241)        -
   Other active plan participants.......   (3,521)       -    (2,530)        -
                                          -------  -------   -------   -------
                                           (8,383)  (4,858)   (5,726)   (5,028)
  Plan assets at fair value, primarily
   bonds................................       86    2,279       249     2,399
                                           ------  -------   -------   -------
  Accumulated postretirement benefit
   obligation in excess of plan assets..   (8,297)  (2,579)   (5,477)   (2,629)
  Unrecognized net (gain) loss..........    5,947     (531)    3,266      (551)
                                           ------  -------   -------   -------
  Accrued postretirement benefit cost...  $(2,350) $(3,110)  $(2,211)  $(3,180)
                                          =======  =======   =======   =======

  Discount rate.........................    7.75%    7.75%      8.0%      8.0%
  Long-term rate of return on plan
   assets...............................     8.5%     8.5%      8.5%      8.5%

The annual rate of increase in health care  expenses was 7% in the 1997 and 1996
fiscal  years.  This rate was  assumed to be 7% for the 1998  fiscal year and to
decrease gradually to 6% in 2004 and remain at that level thereafter.






<PAGE>



Note M - Employee Stock Ownership Plan

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  Internal  Revenue
Service  has  issued a  favorable  determination  letter  stating  that the ESOP
qualifies under the Code and that the ESOP Trust is exempt from tax.

Substantially  all U.S.  salaried  and hourly  employees  who complete a minimum
period of service are eligible to  participate  in the ESOP.  The ESOP Plan also
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 483,076 shares of Common Stock valued at $5.7 million
was made to the ESOP for fiscal year 1995, a  contribution  of 488,280 shares of
Common  Stock  valued at $5.2 million was made to the ESOP for fiscal year 1996,
and a cash contribution of $3.1 million will be made to the ESOP for fiscal year
1997.  Such amounts have been charged to operations  in the 1995,  1996 and 1997
fiscal years, respectively.

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 which 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  which 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 $5.7 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
has also recorded $1.1 million for estimated recoveries under insurance policies
to the  extent  that  coverage  for such  claims  has been  acknowledged  by the
relevant insurer and for estimated recoveries from third parties.

The Company and its  subsidiaries  also have  sundry  claims and other  lawsuits
pending  against  them and also have certain  guarantees  which 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


<PAGE>



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):

                                                 1997        1996       1995
                                               --------    --------   ---------
    Net sales
      Apparel................................   $1,253.2    $1,328.3   $1,347.1
      Interior furnishings...................      837.5       854.0      862.1
                                                --------    --------   --------
             Total...........................   $2,090.7    $2,182.3   $2,209.2
                                                ========    ========   ========

    Operating income
      Apparel................................   $  112.1    $  121.7   $  107.1
      Interior furnishings...................       43.6        55.6       67.4
      Loss on closing of division............          -       (29.9)         -
      Provision for restructuring............      (12.1)          -          -
                                                --------    --------   --------
             Total...........................      143.6       147.4      174.5

    Interest expense.........................       60.0        65.9       56.3
    Other expense (income) - net.............      (12.8)        6.1       (1.9)
                                                --------    --------   --------
    Income before income taxes...............   $   96.4    $   75.4   $  120.1
                                                ========    ========   ========

    Operating margin
      Apparel................................        8.9%        9.2%       8.0%
      Interior furnishings...................        5.2         6.5        7.8
                                                    ----        ----       ----
             Total...........................        6.9%        6.8%       7.9%
                                                    ====        ====       ====

    Identifiable assets
      Apparel................................   $1,088.7    $1,091.8   $1,130.4
      Interior furnishings...................      707.3       734.2      748.8
      Corporate..............................       77.7        59.9       52.5
                                                --------    --------   --------
             Total...........................   $1,873.7    $1,885.9   $1,931.7
                                                ========    ========   ========

    Depreciation and amortization
      Apparel................................   $   50.9    $   52.3   $   53.4
      Interior furnishings...................       34.2        35.0       33.6
                                                --------    --------   --------
             Total...........................   $   85.1    $   87.3   $   87.0
                                                ========    ========   ========

    Capital expenditures
      Apparel................................   $   72.0    $   48.6   $   55.4
      Interior furnishings...................       24.5        30.6       46.5
                                                --------    --------   --------
             Total...........................   $   96.5    $   79.2   $  101.9
                                                ========    ========   ========

The Company primarily markets its products to approximately  12,000 customers in
the United States. The Company also markets its products to customers in Canada,
Mexico, Latin America, Europe and Asian countries.  For the 1997 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  28% of net sales.
Export  sales  from the  Company's  United  States  operations  to  unaffiliated
customers were as follows (in millions):
                                                  1997       1996        1995
                                                -------    --------    --------
    Asia.....................................   $ 38.6      $ 51.5      $ 32.0
    Europe...................................     78.3        61.5        41.5
    North and South America..................    108.2        91.5        78.5
    Other....................................     14.2         9.0         9.2
                                                ------      ------      ------
             Total...........................   $239.3      $213.5      $161.2
                                                ======      ======      ======

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


<PAGE>



arrangements are a diverse group of major financial  institutions with which the
Company also has other financial relationships. The Company is exposed to credit
loss in the  event of  nonperformance  by  these  counterparties.  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 floating 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 September 27, 1997 and  September  28, 1996,  the Company had the
following interest rate instruments in effect (notional amounts in millions; the
cap, swap, floor and collar rates are based on 3-month LIBOR):

                                           1997
                          ------------------------------------------
                          Notional         Strike
                           Amount           Rate            Period
                          --------         ------        -----------
    Interest rate swaps    $200             7.37%        10/95-10/00

                                          1996
                          ------------------------------------------
                          Notional         Strike
                           Amount           Rate            Period
                          --------         ------        -----------
    Interest rate caps     $100             9.50%        04/96-04/97
                            300             7.00         10/96-10/97
                            300             9.50         10/96-10/97
                            200            10.00         10/96-10/97

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

    Interest rate collars  $ 50             4.75%        10/96-10/97
                                            7.00
                             50             5.03         10/96-10/97
                                            7.00

    Interest rate floors   $100             5.50%        01/96-10/96
                            250             5.25         01/96-10/96
                            300(a)          5.60         10/96-10/97

(a) Entered into on October 3, 1996.

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
which have  forward  exchange  contracts  are  recorded  in U.S.  dollars at the
applicable  forward rate. The foreign exchange  contracts on receivables  ($27.1
million  and $19.8  million  at  September  27,  1997 and  September  28,  1996,
respectively)  require the Company to exchange  British  pounds,  German  marks,
French francs,  Canadian dollars 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 September 27, 1997, the Company had $10.6 million of
forward  currency  exchange  contracts  maturing in one to eleven  months  which
related to purchases of wool and machinery denominated in


<PAGE>



Australian dollars,  German marks and Swiss francs,  compared to $4.8 million at
September 28, 1996. At September 27, 1997 and September 28, 1996, deferred gains
and losses on foreign  exchange  contracts are not material to the  consolidated
financial statements.

FAIR VALUE OF FINANCIAL INSTRUMENTS:  The following methods and assumptions were
used in estimating the indicated 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 September  27, 1997,  long-term  debt with a
carrying value of $806.9 million had an estimated fair value of $809.2  million.
At September 28, 1996,  long-term  debt with a carrying  value of $838.9 million
had an estimated fair value of $834.9 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 September 27, 1997 and September 28, 1996, the carrying
amounts of these  instruments  were a $0.6 million  liability and a $0.2 million
liability,  respectively.  At September 27, 1997, the Company estimates it would
have paid $8.4 million and at September 28, 1996 would have paid $7.2 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
September  27, 1997 and  September  28,  1996,  there were no  carrying  amounts
related to foreign currency contracts in the consolidated balance sheets.

It is  estimated  that the  carrying  value  of the  Company's  other  financial
instruments  approximated  fair value at September  27, 1997 and  September  28,
1996.

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 which are dependent  upon  achievement  of
specified  performance  goals and are payable in common stock.  Awards presently
outstanding  are subject to vesting  schedules  ranging from three to five years
depending on whether  performance  goals are  achieved.  Stock  options  granted
generally have a maximum term of ten years. Under these plans, 739,507 shares of
common  stock  are  reserved  to  settle   Performance   Unit  awards  currently
outstanding  and  1,127,622  shares to settle  additional  future  awards remain
available.




<PAGE>



A summary of the Company's stock option activity and related information for the
1997, 1996 and 1995 fiscal years follows:

                               1997               1996               1995
                         -----------------  ----------------    ---------------
                                 Weighted-          Weighted-          Weighted-
                                  Average            Average            Average
                         Options  Exercise   Options Exercise   Options Exercise
                          (000)    Price      (000)    Price     (000)    Price
                         ------- ---------  -------- --------   ------- -------
Outstanding at
 beginning of year.....   6,203   $11.57      4,202   $11.55      4,130  $11.61
Granted................      27    11.70      2,411    11.59        140   10.13
Exercised..............    (323)   11.41       (338)   11.39         (6)  11.63
Forfeited..............    (153)   11.68        (72)   11.99        (62)  12.20
                         ------              ------              ------
Outstanding at
 end of year...........   5,754   $11.58      6,203   $11.57      4,202  $11.55
                         =======             ======              ======

Exercisable at end
 of year...............   3,483   $11.57      3,807   $11.55      3,472  $11.55

Per share weighted-average
 fair value of options
 granted during the year..    $5.24               $5.12               $4.86

The following table summarizes  information  about stock options  outstanding at
September 27, 1997:

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

$ 8.40 to 10.40    646        5.1            $ 9.71         647       $ 9.71
$10.70 to 14.90  5,040        6.3            $11.68       2,768       $11.76
$15.60 to 21.93     68        4.5            $21.47          68       $21.47
                ------                                   ------
                 5,754        6.1            $11.58       3,483       $11.57
                ======                                   ======

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  against income related to
restricted share and Performance Unit awards was $4.3 million,  $7.9 million and
$7.9 million for the 1997, 1996 and 1995 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 6.12% and 5.81% for fiscal year 1997
and 1996,  respectively;  volatility factors of the expected market price of the
Company's  common stock of 0.34;  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):

                                              1997           1996
                                           ---------      ---------

Net income as reported................     $ 58,698        $ 40,906
Pro forma net income..................     $ 56,266        $ 38,794

Net income per share as reported......      $ 0.96          $ 0.65
Pro forma net income per share........      $ 0.92          $ 0.61




<PAGE>




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 and 1997 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 - Quarterly Results of Operations (unaudited)

The Company's  unaudited quarterly results of operations are presented below (in
thousands, except for per share data).

Fiscal 1997 Quarters
                                        December    March     June    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 (a)......................... $  9,385  $ 21,115  $ 13,491  $ 14,707

NET INCOME PER SHARE (a)............... $   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


Fiscal 1996 Quarters
                                        December    March     June    September
                                        --------  --------  --------  ---------
Net sales.............................. $512,694  $572,081  $574,571  $523,001
Cost of sales..........................  434,689   471,760   471,697   436,014
Income tax expense.....................   (7,438)  (14,884)   (2,256)   (9,169)
Income before extraordinary item (b)...    8,473    20,701       570    11,859
Extraordinary item.....................     (697)        -         -         -
Net income............................. $  7,776  $ 20,701  $    570  $ 11,859


PER SHARE DATA
Income before extraordinary item (b)... $   0.13  $   0.33  $   0.01   $  0.19
Extraordinary item.....................    (0.01)        -         -         -
                                        ---------  --------  --------  -------
Net income............................. $   0.12  $   0.33  $   0.01   $  0.19


COMMON STOCK PRICES
  High.................................   14 1/4    13 1/4    14 7/8    14 1/2
  Low..................................   11        11 3/8    11 1/4     9 7/8



(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.

(b)    June  quarter 1996  includes a $20.3  million loss on closing the Knitted
       Fabrics  division  and  $4.7  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>

                                  1997        1996       1995        1994        1993
                               ----------  ---------- ----------  ----------  ----------
<S>                            <C>         <C>        <C>         <C>         <C>  

SUMMARY OF OPERATIONS
Net sales....................  $2,090,683  $2,182,347 $2,209,191  $2,127,067  $2,057,943
Operating income before
 interest and taxes..........     143,643     147,390    174,498     204,242     214,141
Interest expense.............      60,062      65,936     56,294      49,841      93,389
Income tax expense...........      37,673      33,747     51,707      69,982      58,514
Income from continuing
 operations..................      58,698      41,603     68,394      99,299      68,445
Income per common share
 from continuing operations..        0.96        0.66       1.05        1.46        1.00
Dividends per common share...           -           -          -           -           -


FINANCIAL POSITION AT YEAR END
Current assets...............  $  697,627  $  719,370 $  732,837  $  733,538  $  664,552
Fixed assets - net...........     584,647     569,540    575,080     549,942     537,088
Total assets.................   1,873,692   1,885,942  1,931,731   1,907,148   1,854,320
Current liabilities..........     263,595     265,352    272,397     315,468     314,265
Long-term liabilities........     865,008     894,496    932,227     915,884     948,960
Shareholders' equity.........     630,726     615,920    615,440     574,364     484,215
Current ratio................         2.6         2.7        2.7         2.3         2.1
Total debt as % of
 capitalization..............        56.1%       57.7%      59.7%       61.3%       67.5%

OTHER DATA
Capital expenditures.........  $   96,500  $   79,174  $ 101,876  $   98,869  $   80,590
Number of employees at
 year end....................      20,100      21,000     22,500      23,800      23,600
Cash interest coverage
 ratio.......................         4.0         4.3        4.9         6.1         4.0

</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 September 27, 1997 and September
28, 1996, and the related  consolidated  statements of operations and cash flows
for each of the three  years in the  period  ended  September  27,  1997.  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 September 27, 1997 and
September 28, 1996, and the  consolidated  results of their operations and their
cash flows,  for each of the three years in the period ended September 27, 1997,
in conformity with generally accepted accounting principles.

/s/Ernst & Young LLP

Greensboro, North Carolina
October 30, 1997