<PAGE>

               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC  20549
                                   FORM 10-Q


 X  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---
    SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2001
                               --------------

                                      OR

___  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________________ to ______________________

Commission File Number 0-20080
                       -------

                              GALEY & LORD, INC.
            ------------------------------------------------------
            (Exact name of registrant as specified in its charter)

                DELAWARE                            56-1593207
     -------------------------------             ----------------
     (State or other jurisdiction of               (IRS Employer
      incorporation or organization)            (Identification No.)

980 Avenue of the Americas
New York, New York                                       10018
----------------------------------------         ---------------------
(Address of principal executive offices)               Zip Code

                                 212/465-3000
--------------------------------------------------------------------------------
              Registrant's telephone number, including area code

                                Not Applicable
--------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes  X   No __.
                                         --

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.

Common Stock, $.01 Par Value - 11,996,966 shares as of April 30, 2001.

                                                 Exhibit Index at page 39

                                       1
<PAGE>

INDEX

                              GALEY & LORD, INC.

<TABLE>
<CAPTION>
                                                                      Page
                                                                      ----
<S>                                                                   <C>
PART I.  FINANCIAL INFORMATION
------------------------------

Item 1. Financial Statements (Unaudited)

        Consolidated Balance Sheets --                                   3
        March 31, 2001, April 1, 2000
        and September 30, 2000

        Consolidated Statements of Income --                             4
        Three months and six months ended
        March 31, 2001 and April 1, 2000

        Consolidated Statements of Cash Flows --                         5
        Six months ended March 31, 2001 and
        April 1, 2000

        Notes to Consolidated Financial Statements --                 6-21
        March 31, 2001

Item 2. Management's Discussion and Analysis of                      22-34
        Financial Condition and Results of
        Operations

Item 3. Quantitative and Qualitative Disclosures About                  35
        Market Risk

PART II.  OTHER INFORMATION
---------------------------

Item 1. Legal Proceedings                                               36

Item 2. Changes in Securities and Use of Proceeds                       36

Item 3. Defaults upon Senior Securities                                 36

Item 4. Submission of Matters to a Vote of Security                     36
        Holders

Item 5. Other Information                                               37

Item 6. Exhibits and Reports on Form 8 - K                              37

SIGNATURES                                                              38
----------

EXHIBIT INDEX                                                           39
-------------
</TABLE>

                                       2
<PAGE>

PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. FINANCIAL STATEMENTS


                              GALEY & LORD, INC.

                          CONSOLIDATED BALANCE SHEETS
                            (Amounts in thousands)

<TABLE>
<CAPTION>
                                                  March 31,        April 1,        September 30,
                                                     2001             2000             2000
ASSETS                                           (Unaudited)      (Unaudited)           *
------                                          -------------    -------------     -------------
<S>                                             <C>              <C>               <C>
Current assets:
  Cash and cash equivalents                     $      14,246    $      20,135     $       9,641
  Trade accounts receivable                           178,493          193,462           197,422
  Sundry notes and accounts receivable                  4,573            7,229             7,461
  Inventories                                         167,327          193,356           166,522
  Income taxes receivable                               2,346            8,507             1,556
  Deferred income taxes                                13,402           10,135            12,902
  Prepaid expenses and other current assets             3,110            3,393             3,957
                                                -------------    -------------     -------------

       Total current assets                           383,497          436,217           399,461

Property, plant and equipment, at cost                479,412          519,052           472,567
Less accumulated depreciation and
  amortization                                       (185,276)        (155,292)         (172,484)
                                                -------------    -------------     -------------
                                                      294,136          363,760           300,083

Investments in and advances to associated
  companies                                            35,316           24,766            31,878
Deferred charges, net                                  12,512           14,289            13,571
Other non-current assets                                1,632            1,950             1,735
Intangibles, net                                      146,985          151,760           149,376
                                                -------------    -------------     -------------
                                                $     874,078    $     992,742     $     896,104
                                                =============    =============     =============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
  Current portion of long-term debt             $       4,787    $       3,056     $       3,072
  Trade accounts payable                               63,252           64,095            59,907
  Accrued salaries and employee benefits               27,220           26,145            24,028
  Accrued liabilities                                  30,377           29,803            45,583
  Income taxes payable                                  5,234            2,194             1,507
                                                -------------    -------------     -------------

       Total current liabilities                      130,870          125,293           134,097

Long-term debt                                        640,475          689,634           648,505
Other long-term liabilities                            18,723           19,805            22,813
Deferred income taxes                                  29,837           57,148            35,100

Stockholders' equity:
  Common stock                                            124              124               124
  Contributed capital in excess of par value           40,337           39,552            39,673
  Retained earnings                                    32,801           70,136            32,537
  Treasury stock, at cost                              (2,247)          (2,247)           (2,247)
  Accumulated other comprehensive income              (16,842)          (6,703)          (14,498)
                                                -------------    -------------     -------------

       Total stockholders' equity                      54,173         100,862             55,589
                                                -------------    -------------     -------------
                                                $     874,078    $     992,742     $     896,104
                                                =============    =============     =============
</TABLE>

*Condensed from audited financial statements.

         See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

                               GALEY & LORD, INC.
                 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                  (Amounts in thousands except per share data)

<TABLE>
<CAPTION>
                                                Three Months Ended                 Six Months Ended
                                         -------------------------------   --------------------------------
                                            March 31,        April 1,         March 31,        April 1,
                                              2001             2000             2001             2000
                                         --------------    -------------   --------------    --------------
<S>                                      <C>               <C>             <C>               <C>
Net sales                                  $  231,707       $   251,000       $  453,392      $   452,144
Cost of sales                                 208,460           226,552          408,361          404,987
                                           ----------       -----------       ----------      -----------
Gross profit                                   23,247            24,448           45,031           47,157
Selling, general and administrative
 expenses                                       8,639             7,951           17,559           17,221
Amortization of intangibles                     1,202             1,192            2,390            2,384
Plant closing costs                              (142)                -             (587)               -
Net gain on benefit plan curtailments               -                 -           (2,327)               -
                                           ----------       -----------       ----------      -----------
Operating income                               13,548            15,305           27,996           27,552

Interest expense                               15,368            16,627           31,799           32,480

Equity in (income) loss from
 associated companies                          (1,874)           (1,688)          (3,738)          (3,465)
                                           ----------       -----------       ----------      -----------
Income (loss) before income taxes                  54               366              (65)          (1,463)
Income tax expense (benefit):
   Current                                      2,975              (897)           5,434              980
   Deferred                                    (3,115)            1,061           (5,763)          (1,754)
                                           ----------       -----------       ----------      -----------
Net income (loss)                          $      194       $       202       $      264      $      (689)
                                           ==========       ===========       ==========      ===========

Net income (loss) per common share:
Basic:
   Average common shares outstanding           11,984            11,942           11,973           11,922
   Net income (loss) per common share
     - Basic                               $      .02       $       .02       $      .02      $      (.06)
                                           ==========       ===========       ==========      ===========
Diluted:
   Average common shares outstanding           12,015            11,952           12,000           11,922
   Net income (loss) per common share
     - Diluted                             $      .02       $       .02       $      .02      $      (.06)
                                           ==========       ===========       ==========      ===========
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                              GALEY & LORD, INC.

               CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                            (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                      Six Months Ended
                                                               -----------------------------
                                                                 March 31,         April 1,
                                                                   2001              2000
                                                               ------------       ----------
<S>                                                            <C>               <C>
Cash flows from operating activities:
 Net income (loss)                                             $      264        $      (689)
 Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities:
  Depreciation of property, plant and equipment                    16,341             20,238
  Amortization of intangible assets                                 2,391              2,384
  Amortization of deferred charges                                  1,477              1,414
  Deferred income taxes                                            (5,763)            (1,754)
  Non-cash compensation                                               664                133
  (Gain)/loss on disposals of property, plant
    and equipment                                                      41                267
  Undistributed income from associated companies                   (3,738)            (3,465)
  Plant closing costs                                                (587)                 -
  Net gain on benefit plan curtailments                            (2,327)                 -
  Other                                                               166                  -
 Changes in assets and liabilities:
  (Increase)/decrease in accounts receivable - net                 18,014            (19,166)
  (Increase)/decrease in sundry notes & accounts
  receivable                                                        1,283               (680)
  (Increase)/decrease in inventories                               (1,416)           (20,835)
  (Increase)/decrease in prepaid expenses and other
    current assets                                                    835              1,068
  (Increase)/decrease in other non-current assets                     101                352
  (Decrease)/increase in accounts payable - trade                   3,522              2,858
  (Decrease)/increase in accrued liabilities                       (8,878)            (1,038)
  (Decrease)/increase in income taxes payable                       4,176               (807)
  (Decrease)/increase in other long-term liabilities               (4,046)              (681)
                                                               ----------        -----------
Net cash provided by (used in) operating activities                22,520            (20,401)

Cash flows from investing activities:
  Property, plant and equipment expenditures                      (13,250)            (7,453)
  Proceeds from sale of property, plant and equipment               1,301                 21
  Distributions received from associated companies                  2,742              1,072
  Investment in affiliates                                         (1,148)                 -
  Other                                                              (942)                97
                                                               ----------        -----------
Net cash provided by (used in) investing activities               (11,297)            (6,263)

Cash flows from financing activities:
  Increase/(decrease) in revolving line of credit                  14,490             35,700
  Principal payments on long-term debt                            (29,603)            (2,665)
  Issuance of long-term debt                                        9,000                  -
  Payment of bank fees and loan costs                                (473)              (100)
                                                               ----------        -----------
Net cash provided by (used in) financing activities                (6,586)            32,935

Effect of exchange rate changes on cash and cash equivalents          (32)              (436)
                                                               ----------        -----------
Net increase/(decrease) in cash and cash equivalents                4,605              5,835

Cash and cash equivalents at beginning of period                    9,641             14,300
                                                               ----------        -----------

Cash and cash equivalents at end of period                     $   14,246        $    20,135
                                                               ==========        ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       5
<PAGE>

                              GALEY & LORD, INC.

                  Notes to Consolidated Financial Statements
                                March 31, 2001
                                  (Unaudited)

NOTE A - Basis of Presentation

The consolidated financial statements include the accounts of Galey & Lord, Inc.
(the "Company") and its wholly-owned subsidiaries.  Investments in affiliates in
which the Company owns 20 to 50 percent of the voting stock are accounted for
using the equity method.  Intercompany items have been eliminated in
consolidation.

The accompanying unaudited consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to present fairly
the financial position of the Company as of March 31, 2001 and the results of
operations and cash flows for the periods ended March 31, 2001 and April 1,
2000.  Such adjustments consisted only of normal recurring items.  Interim
results are not necessarily indicative of results for a full year.  These
financial statements should be read in conjunction with the financial statements
and footnotes included in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 2000.

NOTE B - Accounting Change

Effective October 1, 2000, the Company adopted Financial Accounting Standard No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended
(FAS 133), which requires that all derivative instruments be reported on the
balance sheet at fair value and establishes criteria for designation and
effectiveness of hedging relationships.  The cumulative effect of adopting FAS
133 as of October 1, 2000 was not material to the Company's financial
statements.

Cash Flow Hedging Strategy

The Company conducts its business in various foreign currencies and, as a
result, is exposed to movements in foreign currency exchange rates.  To protect
against the volatility of forecasted foreign currency cash flows resulting from
sales or purchases denominated in other than the Company's functional currencies
over the next year, the Company has instituted a foreign currency hedging
program.  The Company hedges portions of its forecasted sales and purchases
denominated in foreign currencies with forward contracts.

Foreign currency forward contracts that hedge forecasted sales and purchases are
designated as cash flow hedges.  The amount of gain or loss resulting from hedge
ineffectiveness for these contracts is attributable to the difference in the
spot exchange rates and forward contract rates.  The net loss was not material
for the three months and six months ended March 31, 2001 and is included in cost
of sales in the consolidated statement of income.

                                       6
<PAGE>

                              GALEY & LORD, INC.

                  Notes to Consolidated Financial Statements
                                March 31, 2001
                                  (Unaudited)


NOTE B - Accounting Change (Continued)

At March 31, 2001, the Company expects to reclassify $0.2 million of pre-tax
gains ($0.1 million after-tax) on derivative instruments from accumulated other
comprehensive income to earnings over the next twelve months.  This
reclassification will be made when the forecasted transactions occur.

Fair Value Hedging Strategy

The Company also maintains foreign currency forward contracts to hedge
receivables and payables denominated in foreign currencies.  These contracts are
designated as fair value hedges.  The gain or loss resulting from hedge
ineffectiveness for these contracts is attributable to the difference in spot
exchange rates and forward contract rates.  The net loss was not material for
the three months and six months ended March 31, 2001 and is included in cost of
sales in the consolidated statement of income.

NOTE C - Inventories

The components of inventory at March 31, 2001, April 1, 2000, and September 30,
2000 consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                        March 31,     April 1,   September 30,
                                          2001         2000          2000
                                        --------     --------    -------------
   <S>                                  <C>          <C>         <C>
   Raw materials                        $  3,695     $  5,763      $  5,009
   Stock in process                       30,154       31,312        32,502
   Produced goods                        127,810      154,261       126,348
   Dyes, chemicals and supplies           13,342       11,283        11,536
                                        --------     --------      --------
                                         175,001      202,619       175,395
   Less LIFO and other reserves           (7,674)      (9,263)       (8,873)
                                        --------     --------      --------
                                        $167,327     $193,356      $166,522
                                        ========     ========      ========
</TABLE>

                                       7
<PAGE>

                              GALEY & LORD, INC.

                  Notes to Consolidated Financial Statements
                                March 31, 2001
                                  (Unaudited)

NOTE D - Long-Term Debt

On July 13, 1999, the Company amended its credit agreement, dated as of January
29, 1998, as amended, with First Union National Bank ("FUNB"), as agent and
lender and its syndicate of lenders.  The amendment became effective as of July
3, 1999 (the "Amendment").  Under the Amendment, for the period beginning July
4, 1999 through February 15, 2001, the revolving line of credit borrowings bear
interest at a per annum rate, at the Company's option, of either (i) (a) the
greater of the prime rate or the federal funds rate plus .50% plus (b) a margin
of 1.75% or (ii) LIBOR plus a margin of 3.00%.  Term Loan B and Term Loan C bear
interest at a per annum rate, at the Company's option, of (A) with respect to
Term Loan B either (i)(a) the greater of the prime rate or federal funds rate
plus .50%, plus (b) a margin of 2.25% or (ii) LIBOR plus a margin of 3.50% or
(B) with respect to Term Loan C, either (i)(a) the greater of the prime rate or
federal funds rate plus .50%, plus (b) a margin of 2.50% or (ii) LIBOR plus a
margin of 3.75%.  In addition, the Company repaid $25 million principal amount
of its term loan balance using available borrowings under its revolving line of
credit and reduced the maximum amount of borrowings under the revolving line of
credit by $25 million to $200 million. The repayment of the Term Loan B and Term
Loan C principal balances ratably reduced the remaining quarterly principal
payments.

Under the Senior Credit Facility, the Company is required to make mandatory
prepayments of principal annually in an amount equal to 50% of Excess Cash Flow
(as defined in the Senior Credit Facility), and also in the event of certain
dispositions of assets or debt or equity issuances (all subject to certain
exceptions) in an amount equal to 100% of the net proceeds received by the
Company therefrom.  On December 19, 2000, the Company made an Excess Cash Flow
payment related to fiscal 2000 of $15.6 million.

As a result of the February 2001 funding of the Company's Canadian Loan
Agreement (as defined below), the Company repaid $12.7 million principal amount
of its U.S. term loan balance and reduced the maximum amount of borrowings under
its U.S. revolving line of credit by $12.3 million to $187.7 million.  The
repayment of the Term Loan B and Term Loan C principal balances ratably reduced
the remaining quarterly principal payments.  The reduction in the U.S. revolving
line of credit facility resulted in a write-off of $0.1 million of deferred debt
charges which is included in selling, general and administrative expenses in the
March quarter 2001.

                                       8
<PAGE>

                              GALEY & LORD, INC.

                  Notes to Consolidated Financial Statements
                                March 31, 2001
                                  (Unaudited)

NOTE D - Long-Term Debt (Continued)

In February 2001, the Company's wholly owned Canadian subsidiary, Drummondville
Services Inc. ("Drummondville"), entered into a Loan Agreement (the "Canadian
Loan Agreement") with Congress Financial Corporation (Canada), as lender.  The
Canadian Loan Agreement provides for (i) a revolving line of credit under which
Drummondville may borrow up to an amount equal to the lesser of U.S. $16.0
million or a borrowing base (comprised of eligible accounts receivable and
eligible inventory of Drummondville, as defined in the Canadian Loan Agreement),
and (ii) a term loan in the principal amount of U.S. $9.0 million, which was
originally borrowed in Canadian dollars.

Under the Canadian Loan Agreement, the revolving line of credit expires in
February 2004 and the principal amount of the term loan is repayable in equal
monthly installments of $229,500 CDN with the unpaid balance repayable in
February 2004; provided, however, that the revolving line of credit and the
maturity of the term loan may be extended at the option of Drummondville for up
to two additional one year periods subject to and in accordance with the terms
of the Canadian Loan Agreement.  Under the Canadian Loan Agreement, the interest
rate on Drummondville's borrowings initially is fixed through the second quarter
of fiscal year 2001 (March quarter 2001) at a per annum rate, at Drummondville's
option, of either LIBOR plus 2.75% or the U.S. prime rate plus .75% (for
borrowings in U.S. dollars) or the Canadian prime rate plus 1.5% (for borrowings
in Canadian dollars).  Thereafter, borrowings will bear interest at a per annum
rate, at Drummondville's option, of either (i) the U.S. prime rate plus 0%,
 .25%, .50%, .75%, or 1.0% (for borrowings in U.S. dollars), (ii) the Canadian
prime rate plus .75%, 1.0%, 1.25%, 1.50%, or 1.75% (for borrowings in Canadian
dollars), or (iii) LIBOR plus 2.00%, 2.25%, 2.50%, 2.75% or 3.00%, all based on
Drummondville maintaining certain quarterly excess borrowing availability levels
under the revolving line of credit or Drummondville achieving certain fixed
charge coverage ratio levels (as set forth in the Canadian Loan Agreement).

Drummondville's obligations under the Canadian Loan Agreement are secured by all
of the assets of Drummondville.  The Canadian Loan Agreement contains certain
covenants, including without limitation, those limiting Drummondville's ability
to incur indebtedness (other than incurring or paying certain intercompany
indebtedness), incur liens, sell or acquire assets or businesses, pay dividends,
make loans or advances or make certain investments.  In addition, the Canadian
Loan Agreement requires Drummondville to maintain a certain level of tangible
net worth (as defined in the Canadian Loan Agreement).

                                       9
<PAGE>

                              GALEY & LORD, INC.

                  Notes to Consolidated Financial Statements
                                March 31, 2001
                                  (Unaudited)

NOTE E - Net Income (Loss) Per Common Share

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

<TABLE>
<CAPTION>
                                                      Three Months Ended                Six Months Ended
                                                   ------------------------         ------------------------
                                                   March 31,       April 1,         March 31,       April 1,
                                                     2001            2000             2001            2000
                                                   --------        --------         ---------       --------
<S>                                                <C>             <C>              <C>             <C>
Numerator:
   Net income (loss)                               $    194        $    202         $     264       $   (689)
                                                   ========        ========         =========       ========

Denominator:
   Denominator for basic earnings per share          11,984          11,942            11,973         11,922
   Effect of dilutive securities:
    stock options                                        31              10                27              -
                                                   --------        --------         ---------       --------
   Diluted potential common shares
    denominator for diluted earnings per
    share - adjusted weighted average
    shares and assumed exercises                     12,015          11,952            12,000         11,922
                                                   ========        ========         =========       =========
 </TABLE>

Incremental shares for diluted earnings per share represent the dilutive effect
of options outstanding during the quarter.  Options to purchase 85,450 shares
and 874,499 shares of common stock were outstanding during the three months and
six months ended March 31, 2001 and April 1, 2000, respectively, but were not
included in the computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the common shares.
Options to purchase 798,150 shares and 15,000 shares of common stock were
outstanding during the three months and six months ended March 31, 2001 and
April 1, 2000, respectively, but were not included in the computation of diluted
earnings per share pursuant to the contingent share provisions of Financial
Accounting Standards Board Statement No. 128, "Earnings Per Share".  Vesting of
these options is contingent upon the market price of common shares reaching
certain target prices, which were greater than the average market price of the
common shares.

On February 13, 2001, the Company's stockholders approved an amendment to the
Company's 1999 Stock Option Plan to increase the number of shares of Common
Stock available under the Stock Option Plan by an aggregate of 800,000 shares.
The approved increase in shares available for grant allowed the Company to
cancel and exchange its' employees outstanding options (which were granted under
the Company's Amended and Restated 1989 Stock Option Plan which is no longer in
effect) with an exercise price equal to or in excess of $10.00 per share for an
amount granted under the 1999 Stock Option Plan equal to the same number of
options cancelled (the "New Options") with an exercise price of $4.1875 per
share.  The New Options will vest and become exercisable when the Company's
Common Stock equals or exceeds $12 per share for a 90 consecutive trading day
period.  The Company, as required under Financial Accounting Standard 123, has
determined the fair value of the options granted and is expensing this over the
expected vesting period.

                                       10
<PAGE>

                              GALEY & LORD, INC.

                  Notes to Consolidated Financial Statements
                                March 31, 2001
                                  (Unaudited)

NOTE F - Stockholders' Equity

Comprehensive income represents the change in stockholders' equity during the
period from non-owner sources.  Currently, changes from non-owner sources
consist of net income, foreign currency translation adjustments and gains on
derivative instruments.  Total comprehensive income (loss) for the three and six
months ended March 31, 2001 was $(6.6) million and $(2.1) million, respectively,
and for the three and six months ended April 1, 2000 was $(4.1) million and
$(8.0) million, respectively.

Activity in Stockholders' Equity is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                                         Accumulated
                                   Current Year                                                             Other
                                  Comprehensive     Common     Contributed    Retained     Treasury     Comprehensive
                                  Income (Loss)     Stock        Capital      Earnings       Stock       Income(Loss)      Total
                                  -------------     -----        -------      --------       -----       ------------      -----
<S>                               <C>               <C>         <C>           <C>         <C>            <C>               <C>
Balance at
  September 30, 2000                               $   124       $39,673       $32,537      $(2,247)       $(14,498)       $55,589
Issuance of 36,212
  shares of Restricted
  Common Stock                                           -           102             -            -               -            102
Compensation earned
  related to stock options                               -           562             -            -               -            562

Comprehensive income(loss):
  Net income for six months
   ended March 31, 2001              $   264             -             -           264            -               -            264

  Foreign currency translation
   adjustment                         (2,428)            -             -             -            -          (2,428)        (2,428)
  Gain on derivative instruments          84             -             -             -            -              84             84
                                     -------       -------       -------       -------      -------        --------        -------
  Total comprehensive
    income (loss)                    $(2,080)
                                     =======
Balance at March 31, 2001                          $   124       $40,337       $32,801      $(2,247)       $(16,842)       $54,173
                                                   =======       =======       =======      =======        ========        =======
</TABLE>

Included in Accumulated Other Comprehensive Income (Loss) at March 31, 2001 was
a $16.9 million loss related to foreign currency translation adjustment and a
$0.1 million gain related to derivative instruments.

                                       11
<PAGE>

                              GALEY & LORD, INC.

                  Notes to Consolidated Financial Statements
                                March 31, 2001
                                  (Unaudited)

NOTE G - Income Taxes

The components of income tax expense (benefit) are as follows (in thousands):

<TABLE>
<CAPTION>
                                             Three Months Ended                Six Months Ended
                                          ------------------------        --------------------------
                                          March 31,       April 1,        March 31,         April 1,
                                             2001           2000             2001             2000
                                          ---------       --------        ---------         --------
<S>                                       <C>             <C>             <C>               <C>
Current tax provision:
   Federal                                $       -       $      -        $       5         $      -
   State                                         27             40               46               54
   Foreign                                    2,948           (937)           5,383              926
                                          ---------       --------        ---------         --------
Total current tax provision                   2,975           (897)           5,434              980

Deferred tax provision:
   Federal                                   (2,782)          (213)          (5,301)          (4,284)
   State                                        (82)           (61)            (379)            (276)
   Foreign                                     (251)         1,335              (83)           2,806
                                          ---------       --------        ---------         --------
Total deferred tax provision                 (3,115)         1,061           (5,763)          (1,754)
                                          ---------       --------        ---------         --------
Total provision for income taxes          $    (140)      $    164        $    (329)        $   (774)
                                          =========       ========        =========         ========
</TABLE>

The Company's overall tax rate differed from the statutory rate principally due
to the impact of domestic tax benefits being established at a higher effective
rate than foreign tax expense.  The result is an overall tax benefit rate which
is higher than the statutory rate.

At March 31, 2001, the Company had outstanding net operating loss carryforwards
("NOLs") for US federal and state tax purposes of approximately $34.3 million.
The federal NOLs will expire in years 2019-2020, and the state NOLs will expire
in years 2004-2015.  Management has reviewed the Company's operating results for
recent years as well as the outlook for its businesses in concluding it is more
likely than not that the deferred tax assets of $13.4 million at March 31, 2001
will be realized. This review, along with the timing of the reversal of the
Company's temporary differences and the expiration dates of the NOLs, were
considered in reaching this conclusion. The Company's ability to generate future
taxable income is dependent on numerous factors, including the state of the
apparel industry, general economic conditions and other factors beyond
management's control. Accordingly, there can be no assurance that the Company
will meet its expectation of future taxable income.

                                       12
<PAGE>

                              GALEY & LORD, INC.

                  Notes to Consolidated Financial Statements
                                March 31, 2001
                                  (Unaudited)

NOTE H - Fiscal 2000 Strategic Initiatives

During the fourth quarter of fiscal 2000, the Company announced a series of
strategic initiatives aimed at increasing the Company's competitiveness and
profitability by reducing costs.  The initiatives include completing a joint
venture in Mexico, closing two of the Company's plants, consolidating some
operations, outsourcing certain yarn production and eliminating excess employees
in certain operations.  The cost of these initiatives was reflected in a plant
closing and impairment charge totaling $63.6 million before taxes in the fourth
quarter of fiscal 2000. The original components of the plant closing and
impairment charge included $49.3 million for fixed asset write-offs, $10.8
million for severance expense and $3.5 million for the write-off of leases and
other exit costs.  In the first six months of fiscal 2001, the Company recorded
a change in estimate for severance benefits that reduced the plant closing
charge by $0.6 million.  The components of the plant closing and impairment
charge include $49.3 million for fixed asset write-offs, $10.2 million for
severance expense and $3.5 million for the write-off of leases and other exit
costs.  All production at the affected facilities ceased during the December
quarter 2000.  Of the 1,370 employees to be terminated, 1,333 have been
terminated as of March 31, 2001.  The remaining employees are expected to be
terminated by the end of fiscal 2001.  Severance will be paid out in either a
lump sum or over a maximum period of up to eighteen months.  The Company expects
that the sale of the related real estate and equipment could take 12 months or
longer to complete.

The table below summarizes the activity related to the plant closing accruals
for the six months ended March 31, 2001 (in thousands):

<TABLE>
<CAPTION>
                                 Accrual                                      Accrual
                                Balance at                                   Balance at
                               September 30,      Cash        Change in      March 31,
                                   2000         Payments      Estimate         2001
                               -------------    --------      ---------      ----------
<S>                            <C>              <C>           <C>            <C>
Severance benefits                $10,763       $(5,680)        $(588)         $4,495
Lease cancellation and
 other                              3,553          (521)            -           3,032
                                  -------       -------         -----          ------
                                  $14,316       $(6,201)        $(588)         $7,527
                                  =======       =======         =====          ======
</TABLE>

The Company incurred run-out expenses totaling $2.4 million and $7.1 million
during the three and six months ended March 31, 2001, respectively.  These
expenses, which include efficiency losses, equipment relocation, losses on
inventories of discontinued styles, plant carrying costs and other costs, are
included in cost of sales in the consolidated statement of income.

                                       13
<PAGE>

                              GALEY & LORD, INC.

                  Notes to Consolidated Financial Statements
                                March 31, 2001
                                  (Unaudited)


NOTE H - Fiscal 2000 Strategic Initiatives (Continued)

In connection with the Fiscal 2000 Strategic Initiatives, the Company curtailed
certain defined benefit pension and post-retirement medical plans.  The
financial effect of the curtailment and settlement of these plans resulted in a
$2.3 million net gain and was recorded during the three months ended December
30, 2000.

NOTE I - Segment Information

The Company's operations are classified into four business segments: Galey &
Lord Apparel, Swift Denim, Klopman International and Home Fashion Fabrics. The
Company is principally organized around differences in products; however, one
segment exists primarily due to geographic location.  The business segments are
managed separately and distribute products through different marketing channels.
Galey & Lord Apparel manufactures and sells woven cotton and cotton blended
apparel fabrics and garment packages.  Swift Denim manufactures and markets a
wide variety of denim products for apparel and non-apparel uses.  Klopman
International manufactures principally workwear and careerwear fabrics as well
as woven sportswear apparel fabrics primarily for consumption in Europe.  Home
Fashion Fabrics manufactures and sells dyed and printed fabrics to the home
furnishing trade for use in bedspreads, comforters, curtains and accessories as
well as greige fabrics (undyed and unfinished) which it sends to independent
contractors for dyeing and finishing.

The Company evaluates performance and allocates resources based on operating
income; therefore, certain expenses, principally net interest expense and income
taxes, are excluded from the chief operating decision makers' assessment of
segment performance.  Accordingly, such expenses have not been allocated to
segment results.  The corporate segment's operating income (loss) represents
principally the administrative expenses from the Company's various holding
companies.  Additionally, the corporate segment assets consist primarily of
corporate cash, deferred bank charges and investments in and advances to
associated companies.

                                       14
<PAGE>

                              GALEY & LORD, INC.

                  Notes to Consolidated Financial Statements
                                March 31, 2001
                                  (Unaudited)


NOTE I - Segment Information (Continued)

Information about the Company's operations in its different industry segments
for the three and six months ended March 31, 2001 and April 1, 2000 is as
follows (in thousands):

<TABLE>
<CAPTION>
                                                   Three Months Ended               Six Months Ended
                                                ------------------------        ------------------------
                                                March 31,       April 1,        March 31,       April 1,
                                                  2001            2000             2001           2000
                                                ---------       --------        ---------       --------
<S>                                             <C>             <C>             <C>             <C>
Net Sales to External Customers
   Galey & Lord Apparel                         $ 112,117      $ 117,170        $ 219,673      $ 215,879
   Swift Denim                                     77,743         91,878          156,347        155,543
   Klopman International                           38,948         35,498           70,772         68,689
   Home Fashion Fabrics                             2,899          6,454            6,600         12,033
                                                ---------      ---------        ---------      ---------
   Consolidated                                 $ 231,707      $ 251,000        $ 453,392      $ 452,144
                                                =========      =========        =========      =========

Operating Income (Loss)/(1)/
   Galey & Lord Apparel                         $   9,231      $  10,596        $  15,612      $  16,092
   Swift Denim                                      2,752          1,451           10,185          5,520
   Klopman International                            3,448          3,507            5,451          7,428
   Home Fashion Fabrics                            (1,264)           (87)          (2,373)          (513)
   Corporate                                         (619)          (162)            (879)          (975)
                                                ---------      ---------        ---------      ---------
                                                   13,548         15,305           27,996         27,552
Interest expense                                   15,368         16,627           31,799         32,480
Income from associated companies/(2)/              (1,874)        (1,688)          (3,738)        (3,465)
                                                ---------      ---------        ---------      ---------
Income (loss) before income taxes               $      54      $     366        $     (65)     $  (1,463)
                                                =========      =========        =========      =========
</TABLE>

<TABLE>
<CAPTION>
                                                        March 31,                       April 1,
                                                           2001                           2000
                                                        ---------                       --------
<S>                                                     <C>                             <C>
Assets/(3)/
   Galey & Lord Apparel                                 $ 299,346                       $ 323,762
   Swift Denim                                            348,788                         440,528
   Klopman International                                  111,815                         122,382
   Home Fashion Fabrics                                    53,475                          57,030
   Corporate                                               60,654                          49,040
                                                        ---------                       ---------
                                                        $ 874,078                       $ 992,742
                                                        =========                       =========
</TABLE>

/(1)/Operating income (loss) for the three and six months ended March 31, 2001
     includes run-out charges and plant closing costs related to the Fiscal 2000
     Strategic Initiatives of $0.4 million and $2.0 million for Galey & Lord
     Apparel, respectively, $1.9 million and $2.2 million for Swift Denim,
     respectively, and $0.1 million and $0.1 million for Corporate,
     respectively.
/(2)/Net of amortization of $163, $145, $326 and $298, respectively.
/(3)/Excludes intercompany balances and investments in subsidiaries which are
     eliminated in consolidation.

                                       15
<PAGE>

                              GALEY & LORD, INC.

                  Notes to Consolidated Financial Statements
                                March 31, 2001
                                  (Unaudited)


NOTE J - Supplemental Condensed Consolidating Financial Information

The following summarizes condensed consolidating financial information for the
Company, segregating Galey & Lord, Inc. (the "Parent") and guarantor
subsidiaries from non-guarantor subsidiaries.  The guarantor subsidiaries are
wholly-owned subsidiaries of the Company and guarantees are full, unconditional
and joint and several.  Separate financial statements of each of the guarantor
subsidiaries are not presented because management believes that these financial
statements would not be material to investors.

<TABLE>
<CAPTION>
                                                          March 31, 2001
                          -------------------------------------------------------------------------------
                                                          (in thousands)

                                                              Non-
                                           Guarantor        Guarantor
                             Parent      Subsidiaries     Subsidiaries     Eliminations     Consolidated
                           --------      ------------     ------------     ------------     ------------
<S>                        <C>           <C>              <C>              <C>              <C>
Financial Position
------------------

Current assets:
   Trade accounts
     receivable            $        -       $  132,669       $   45,824      $         -      $  178,493
   Inventories                      -          131,414           35,913                -         167,327
   Other current
     assets                     3,679           17,349           16,649                -          37,677
                           ----------       ----------       ----------      -----------      ----------
        Total current
           assets               3,679          281,432           98,386                -         383,497

Property, plant and
  equipment, net                    -          210,787           83,349                -         294,136

Intangibles                         -          146,985                -                -         146,985

Other assets                  182,338            5,788           33,529         (172,195)         49,460
                           ----------       ----------       ----------      -----------      ----------

                           $  186,017       $  644,992       $  215,264      $  (172,195)     $  874,078
                           ==========       ==========       ==========      ===========      ==========

Current liabilities:
   Trade accounts
     payable               $        -       $   41,142       $   22,110      $         -      $   63,252
   Accrued
     liabilities               20,470           20,774           16,392              (39)         57,597
   Other current
     liabilities                2,219            1,528            6,274                -          10,021
                           ----------       ----------       ----------      -----------      ----------
        Total current
          liabilities          22,689           63,444           44,776              (39)        130,870

Net intercompany balance     (508,912)         588,350          (79,438)               -               -
Long-term debt                616,388            6,318           17,769                -         640,475
Other non-current
  liabilities                   1,679           37,648            9,738             (505)         48,560

Stockholders' equity           54,173          (50,768)         222,419         (171,651)         54,173
                           ----------       ----------       ----------      -----------      ----------
                           $  186,017       $  644,992       $  215,264      $  (172,195)     $  874,078
                           ==========       ==========       ==========      ===========      ==========
</TABLE>

                                       16
<PAGE>

                              GALEY & LORD, INC.

                  Notes to Consolidated Financial Statements
                                March 31, 2001
                                  (Unaudited)

NOTE J - Supplemental Condensed Consolidating Financial Information (Continued)

<TABLE>
<CAPTION>
                                                          April 1, 2000
                          ------------------------------------------------------------------------------
                                                          (in thousands)

                                                             Non-
                                          Guarantor        Guarantor
                             Parent      Subsidiaries    Subsidiaries     Eliminations     Consolidated
                           --------      ------------    ------------     ------------     ------------
<S>                        <C>           <C>             <C>              <C>              <C>
Financial Position
------------------

Current assets:
   Trade accounts
     receivable            $       -     $    149,240    $     44,222     $          -     $    193,462
   Inventories                     -          153,831          39,525                -          193,356
   Other current
     assets                    2,837           21,519          25,292             (249)          49,399
                           ---------     ------------    ------------     ------------     ------------
        Total current
         assets                2,837          324,590         109,039             (249)         436,217

Property, plant and
  equipment, net                   -          271,068          92,692                -          363,760

Intangibles                        -          151,760               -                -          151,760

Other assets                 262,212            7,532          25,302         (254,041)          41,005
                           ---------     ------------    ------------     ------------     ------------
                           $ 265,049     $    754,950    $    227,033     $   (254,290)    $    992,742
                           =========     ============    ============     ============     ============

Current liabilities:
   Trade accounts
     payable               $     125     $     41,324    $     22,646     $          -     $     64,095
   Accrued
     liabilities              19,835           18,278          17,852              (17)          55,948
   Other current
     liabilities               2,857            4,366            (784)          (1,189)           5,250
                           ---------     ------------    ------------     ------------     ------------
        Total current
          liabilities         22,817           63,968          39,714           (1,206)         125,293

Net intercompany balance    (533,334)         616,502         (83,168)               -                -
Long-term debt               672,454            7,020          10,160                -          689,634
Other non-current
  liabilities                  2,250           63,542           8,037            3,124           76,953

Stockholders' equity         100,862            3,918         252,290         (256,208)         100,862
                           ---------     ------------    ------------     ------------     ------------
                           $ 265,049     $    754,950    $    227,033     $   (254,290)    $    992,742
                           =========     ============    ============     ============     ============
</TABLE>

                                       17
<PAGE>

                              GALEY & LORD, INC.

                  Notes to Consolidated Financial Statements
                                March 31, 2001
                                  (Unaudited)


NOTE J - Supplemental Condensed Consolidating Financial Information (Continued)

<TABLE>
<CAPTION>
                                                 Three Months Ended March 31, 2001
                           ------------------------------------------------------------------------------
                                                           (in thousands)

                                                               Non-
                                            Guarantor       Guarantor
                              Parent      Subsidiaries     Subsidiaries    Eliminations     Consolidated
                           ------------  ---------------  --------------  ---------------  --------------
<S>                        <C>           <C>              <C>             <C>              <C>
Results of Operations
---------------------

Net sales                  $         -         $171,995         $ 69,129        $ (9,417)        $231,707

Gross profit                         -           14,883            8,364               -           23,247

Operating income (loss)           (422)           8,133            5,837               -           13,548

Interest expense,
  income taxes and
    other, net                  (1,270)          13,502              576             546           13,354

Net income (loss)          $       848         $ (5,369)        $  5,261        $   (546)        $    194

<CAPTION>
                                                  Six Months Ended March 31, 2001
                           ------------------------------------------------------------------------------
                                                           (in thousands)

                                                               Non-
                                            Guarantor       Guarantor
                              Parent      Subsidiaries     Subsidiaries    Eliminations     Consolidated
                           ------------  ---------------  --------------  ---------------  --------------
<S>                        <C>           <C>              <C>             <C>              <C>
Results of Operations
-------------------------

Net sales                  $         -         $342,824         $132,910        $(22,342)        $453,392

Gross profit                         -           27,203           17,828               -           45,031

Operating income (loss)           (691)          15,847           12,840               -           27,996

Interest expense,
  income taxes and
    other, net                  (1,233)          27,695            1,584            (314)          27,732

Net income (loss)          $       542         $(11,848)        $ 11,256        $    314         $    264
</TABLE>

                                       18
<PAGE>

                              GALEY & LORD, INC.

                  Notes to Consolidated Financial Statements
                                March 31, 2001
                                  (Unaudited)

NOTE J - Supplemental Condensed Consolidating Financial Information (Continued)

<TABLE>
<CAPTION>
                                                 Three Months Ended April 1, 2000
                           -------------------------------------------------------------------------------
                                                          (in thousands)

                                                              Non-
                                           Guarantor       Guarantor
                             Parent      Subsidiaries     Subsidiaries    Eliminations     Consolidated
                           -----------  ---------------  --------------  ---------------  ----------------
<S>                        <C>          <C>              <C>             <C>              <C>
Results of Operations
---------------------

Net sales                  $         -         $194,976          $ 68,205        $(12,181)        $251,000

Gross profit                         -           16,652             7,825             (29)          24,448

Operating income (loss)            (98)          10,277             5,126               -           15,305

Interest expense,
  income taxes and
    other, net                    (903)          15,011               386             609           15,103

Net income (loss)          $       805         $ (4,734)         $  4,740        $   (609)        $    202

<CAPTION>
                                                   Six Months Ended April 1, 2000
                           -------------------------------------------------------------------------------
                                                           (in thousands)

                                                               Non-
                                            Guarantor       Guarantor
                              Parent      Subsidiaries     Subsidiaries    Eliminations     Consolidated
                           ------------  ---------------  --------------  ---------------  ---------------
<S>                        <C>           <C>              <C>             <C>              <C>
Results of Operations
---------------------

Net sales                  $         -         $349,489          $124,963        $(22,308)        $452,144

Gross profit                         -           31,676            15,450              31           47,157

Operating income (loss)           (515)          18,146             9,890              31           27,552

Interest expense,
  income taxes and
    other, net                  (1,445)          28,454               754             478           28,241

Net income (loss)          $       930         $(10,308)         $  9,136        $   (447)        $   (689)
</TABLE>

                                       19
<PAGE>

                              GALEY & LORD, INC.

                  Notes to Consolidated Financial Statements
                                March 31, 2001
                                  (Unaudited)


NOTE J - Supplemental Condensed Consolidating Financial Information (Continued)

<TABLE>
<CAPTION>
                                                  Six Months Ended March 31, 2001
                         ---------------------------------------------------------------------------------
                                                          (in thousands)

                                                              Non-
                                           Guarantor        Guarantor
                            Parent       Subsidiaries     Subsidiaries     Eliminations     Consolidated
                         -------------  ---------------  ---------------  ---------------  ---------------
<S>                      <C>            <C>              <C>              <C>              <C>
Cash Flows
----------

Cash provided by
  (used in) operating
  activities                 $ (1,182)         $16,809         $  7,565   $         (672)        $ 22,520

Cash provided by
  (used in) investing
  activities                   17,886           (8,812)         (21,034)             663          (11,297)

Cash provided by
  (used in) financing
  activities                  (16,705)          (6,573)          16,683                9           (6,586)

Effect of exchange
  rate change on cash
  and equivalents                   -                -              (32)               -              (32)
                             --------          -------         --------   --------------         --------

Net change in cash
  and cash equivalents             (1)           1,424            3,182                -            4,605

Cash and cash
  equivalents at
  beginning of period              10            4,194            5,437                -            9,641
                             --------          -------         --------   --------------         --------

Cash and cash
  equivalents at end
  of period                  $      9          $ 5,618         $  8,619   $            -         $ 14,246
                             ========          =======         ========   ==============         ========
</TABLE>

                                       20
<PAGE>

                              GALEY & LORD, INC.

                  Notes to Consolidated Financial Statements
                                March 31, 2001
                                  (Unaudited)

NOTE J - Supplemental Condensed Consolidating Financial Information (Continued)

<TABLE>
<CAPTION>
                                                  Six Months Ended April 1, 2000
                         ---------------------------------------------------------------------------------
                                                          (in thousands)

                                                              Non-
                                           Guarantor        Guarantor
                            Parent       Subsidiaries     Subsidiaries     Eliminations     Consolidated
                         -------------  ---------------  ---------------  ---------------  ---------------
<S>                      <C>            <C>              <C>              <C>              <C>
Cash Flows
----------

Cash provided by
  (used in) operating
  activities                  $ 5,136         $(35,096)         $10,358   $         (799)        $(20,401)

Cash provided by
  (used in) investing
  activities                   (1,124)          (6,017)              69              809           (6,263)

Cash provided by
  (used in) financing
  activities                   (3,965)          39,889           (2,979)             (10)          32,935

Effect of exchange
  rate change on cash
  and equivalents                   -                -             (436)               -             (436)
                              -------         --------          -------   --------------         --------

Net change in cash
  and cash equivalents             47           (1,224)           7,012                -            5,835

Cash and cash
  equivalents at
  beginning of period               -            6,126            8,174                -           14,300
                              -------         --------          -------   --------------         --------

Cash and cash
  equivalents at end
  of period                   $    47         $  4,902          $15,186   $            -         $ 20,135
                              =======         ========          =======   ==============         ========
</TABLE>

                                       21
<PAGE>

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

Results of Operations

The Company's operations are primarily classified into four operating segments:
(1) Galey & Lord Apparel, (2) Swift Denim, (3) Klopman International and (4)
Home Fashion Fabrics.  Results for the three and six months ended March 31, 2001
and April 1, 2000 for each segment are shown below:

<TABLE>
<CAPTION>
                                              Three Months Ended                   Six Months Ended
                                         ----------------------------        -----------------------------
                                          March 31,          April 1,           March 31,         April 1,
                                            2001              2000                2001              2000
                                         --------           --------            --------          --------
                                                              (Amounts in thousands)
<S>                                    <C>                <C>                 <C>              <C>
Net Sales per Segment
   Galey & Lord Apparel                       $112,117          $117,170          $219,673          $215,879
   Swift Denim                                  77,743            91,878           156,347           155,543
   Klopman International                        38,948            35,498            70,772            68,689
   Home Fashion Fabrics                          2,899             6,454             6,600            12,033
                                              --------          --------          --------          --------
   Total                                      $231,707          $251,000          $453,392          $452,144
                                              ========          ========          ========          ========
Operating Income (Loss) per Segment
   As Reported
   Galey & Lord Apparel                       $  9,231          $ 10,596          $ 15,612          $ 16,092
   Swift Denim                                   2,752             1,451            10,185             5,520
   Klopman International                         3,448             3,507             5,451             7,428
   Home Fashion Fabrics                         (1,264)              (87)           (2,373)             (513)
   Corporate                                      (619)             (162)             (879)             (975)
                                              --------          --------          --------          --------
                                              $ 13,548          $ 15,305          $ 27,996          $ 27,552
                                              ========          ========          ========          ========
Operating Income (Loss) per Segment
   Excluding Strategic Initiatives
   Galey & Lord Apparel                       $  9,621          $ 10,596          $ 17,618          $ 16,092
   Swift Denim                                   4,641             1,451            12,408             5,520
   Klopman International                         3,448             3,507             5,451             7,428
   Home Fashion Fabrics                         (1,264)              (87)           (2,373)             (513)
   Corporate                                      (488)             (162)             (748)             (975)
                                              --------          --------          --------          --------
                                              $ 15,958          $ 15,305          $ 32,356          $ 27,552
                                              ========          ========          ========          ========
</TABLE>

March Quarter 2001 Compared to March Quarter 2000

Net Sales

Net sales for the March quarter 2001 (second quarter of fiscal 2001) were $231.7
million as compared to $251.0 million for the March quarter 2000 (second quarter
of fiscal 2000).

Galey & Lord Apparel  Galey & Lord Apparel's net sales for the March quarter
2001 were $112.1 million, a $5.1 million decrease as compared to the March
quarter 2000 net sales of $117.2 million.  The decline in net sales was
primarily attributable to a decline in average selling prices, inclusive of
product mix changes, of approximately 2.9%.  The average selling price decline
was partially offset by an 8% increase in unit sales of garment packages.  The
increase in unit sales of

                                       22
<PAGE>

garment packages reflects the additional production capacity at the Company's
Monclova, Mexico garment facility which is continuing to increase production.

Swift Denim  Swift Denim's net sales for the March quarter 2001 were $77.7
million as compared to $91.9 million in the March quarter 2000.  The $14.2
million decrease was primarily attributable to the reduction in manufacturing
capacity resulting from the closure of the Erwin facility in December quarter
2000, partially offset by changes in product mix as customer orders were
comprised of more value-added styles.

Klopman International  Klopman International's net sales for the March quarter
2001 were $39.0 million, a $3.5 million increase as compared to the March
quarter 2000 net sales of $35.5 million.  The increase in net sales was
primarily attributable to a 21.3% increase in sales volume, partially offset by
an 6.3% decline in net sales due to exchange rate changes used in translation
and a 5.3% decline in selling prices, inclusive of product mix changes.

Home Fashion Fabrics  Net sales for Home Fashion Fabrics for the March quarter
2001 were $2.9 million compared to $6.4 million for the March quarter 2000.  The
$3.5 million decline in net sales primarily resulted from changes in product mix
and lower selling prices.

Operating Income

Operating income for the March quarter 2001 was $13.5 million as compared to
$15.3 million for the March quarter 2000.  Excluding the charges related to the
Fiscal 2000 Strategic Initiatives, the March quarter 2001 operating income would
have been $16.0 million.

Galey & Lord Apparel  Galey & Lord Apparel's operating income was $9.2 million
for the March quarter 2001 as compared to $10.6 million for the March quarter
2000.  Excluding the run-out costs associated with the Fiscal 2000 Strategic
Initiatives, Galey & Lord Apparel's operating income would have been $9.6
million.  The decrease principally reflects higher utility costs and $1.4
million in lower fabric selling prices and changes in product mix, partially
offset by lower raw material prices and a $0.4 million improvement in the
Company's garment production facilities in Mexico.

Swift Denim  March quarter 2001 operating income for Swift Denim was $2.8
million, a $1.3 million increase as compared to the March quarter 2000 operating
income of $1.5 million.  Excluding the run-out costs associated with the Fiscal
2000 Strategic Initiatives, Swift Denim's operating income would have been $4.6
million.  The increase in Swift Denim's operating income principally reflects
changes in product mix and improvement in raw material variances, partially
offset by higher utility costs and $0.9 million related to higher selling,
general and administrative expenses.

                                       23
<PAGE>

Klopman International  Klopman International's operating income in the March
quarter 2001 decreased $0.1 million to $3.4 million as compared to the March
quarter 2000 operating income of $3.5 million.  The decrease principally
reflects the impact of lower selling prices, changes in product mix and higher
raw material and utility costs, partially offset by $1.5 million related to
increases in sales volume.  In addition, Klopman International's results were
negatively impacted $0.2 million by foreign currency translation due to the
weakness of the Euro against the US Dollar.

Home Fashion Fabrics  Home Fashion Fabrics reported an operating loss for the
March quarter 2001 of $1.3 million as compared to an operating loss for the
March quarter 2000 of $0.1 million.  The decrease in operating income was
principally due to changes in product mix and the lower selling prices discussed
above.

Corporate  The corporate segment reported an operating loss for the March
quarter 2001 of $0.6 million as compared to an operating loss for the March
quarter 2000 of $0.2 million.  The corporate segment's operating income (loss)
typically represents the administrative expenses from the Company's various
holding companies.

Income from Associated Companies

Income from associated companies was $1.9 million in the March quarter 2001 as
compared to $1.7 million in the March quarter 2000.  The income represents
amounts from several joint venture interests that manufacture and sell denim
products.

Interest Expense

Interest expense was $15.4 million for the March quarter 2001 compared to $16.6
million for the March quarter 2000.  The decrease in interest expense was
primarily due to lower average debt balances in the March quarter 2001 as
compared to the March quarter 2000 and lower prime and LIBOR base rates in the
March quarter 2001 as compared to the March quarter 2000.  The average interest
rate paid by the Company on its bank debt in the March quarter 2001 was 9.0% per
annum as compared to 9.2% per annum in the March quarter 2000.

Income Taxes

The Company's overall tax rate differed from the statutory rate principally due
to the impact of domestic tax benefits being established at a higher effective
rate than foreign tax expense.  The result is an overall tax benefit rate which
is higher than the statutory rate.

                                       24
<PAGE>

Net Income (Loss) and Net Income (Loss) Per Share

Net income for the March quarter 2001 and March quarter 2000 was $0.2 million or
$.02 per common share.  Excluding the Fiscal 2000 Strategic Initiatives, the
Company's net income for the March quarter 2001 would have been $1.7 million or
$.14 per common share.

Historically, June quarter has been the Company's strongest fiscal quarter.
However, based on current market conditions, the Company anticipates that the
June quarter 2001 financial results will be similar to the March quarter 2001
financial results.

First Six Months of Fiscal 2001 Compared to First Six Months of Fiscal 2000

Net Sales

Net sales for the first six months of fiscal 2001 were $453.4 million as
compared to $452.1 million for the first six months of fiscal 2000.

Galey & Lord Apparel  Galey & Lord Apparel's net sales for the first six months
of fiscal 2001 were $219.7 million, an $3.8 million increase as compared to the
first six months of fiscal 2000's net sales of $215.9 million.  The net sales
improvement was primarily attributable to a 3% increase in fabric sales volume
and a 34% increase in unit sales of garment packages.  The increase in unit
sales of garment packages reflects the additional production capacity at the
Company's Monclova, Mexico garment facility which is continuing to increase
production.  Overall, average selling prices, inclusive of product mix changes,
declined approximately 2.0%.

Swift Denim  Swift Denim's net sales for the first six months of fiscal 2001
were $156.3 million as compared to $155.5 million in the first six months of
fiscal 2000.  The $0.8 million increase was primarily attributable to changes in
product mix, partially offset by to the reduction in manufacturing capacity
resulting from the closure of the Erwin facility in December quarter 2000.

Klopman International  Klopman International's net sales for the first six
months of fiscal 2001 were $70.8 million, a $2.1 million increase as compared to
the first six months of fiscal 2000 net sales of $68.7 million.  The increase
was primarily attributable to an 18.5% increase in sales volume, partially
offset by a 11.5% decline in net sales due to exchange rate changes used in
translation and a 5.6% decline in selling prices, inclusive of product mix
changes.

Home Fashion Fabrics  Net sales for Home Fashion Fabrics for the first six
months of fiscal 2001 were $6.6 million compared to $12.0 million for the first
six months of fiscal 2000.  The $5.4 million decline in net sales primarily
resulted from changes in product mix and lower selling prices.

                                       25
<PAGE>

Operating Income

Operating income for the first six months of fiscal 2001 was $28.0 million as
compared to $27.6 million for the first six months of fiscal 2000.  Excluding
the charges related to the Fiscal 2000 Strategic Initiatives, the first six
months operating income would have been $32.4 million.

Galey & Lord Apparel  Galey & Lord Apparel's operating income was $15.6 million
for the first six months of fiscal 2001 as compared to $16.1 million for the
first six months of fiscal 2000.  Excluding the run-out costs associated with
the Fiscal 2000 Strategic Initiatives, Galey & Lord Apparel's operating income
would have been $17.6 million.  The increase, excluding the Fiscal 2000
Strategic Initiatives, principally reflects lower raw material prices, the
impact of $1.1 million related to increased fabric sales volume and a $1.9
million improvement in the Company's garment production facilities in Mexico,
partially offset by higher utility costs and $2.7 million in lower fabric
selling prices and changes in product mix.  While the Company's garment
facilities have continued to show improvement in the current quarter, the
Company expects to continue to incur inefficiencies at the Company's Monclova,
Mexico garment facility until it reaches full production.

Swift Denim  Operating income for the first six months of fiscal 2001 for Swift
Denim was $10.2 million, a $4.7 million increase as compared to the first six
months of fiscal 2000 operating income of $5.5 million.  Excluding the run-out
costs associated with the Fiscal 2000 Strategic Initiatives, Swift Denim's
operating income would have been $12.4 million.  The increase in Swift Denim's
operating income principally reflects changes in product mix and improvement in
raw material variances, partially offset by higher utility costs, $0.5 million
related to declines in selling prices and $1.3 million of higher selling,
general and administrative expenses.

Klopman International  Klopman International's operating income in the first six
months of fiscal 2001 decreased $2.0 million to $5.5 million as compared to the
first six months of fiscal 2001 operating income of $7.5 million.  The decrease
principally reflects $3.9 million related to the impact of lower selling prices
and changes in product mix and higher raw material and utility costs, partially
offset by $2.7 million related to increases in sales volume.  In addition,
Klopman International's results were negatively impacted $0.6 million by foreign
currency translation due to the weakness of the Euro against the US Dollar.

Home Fashion Fabrics  Home Fashion Fabrics reported an operating loss for the
first six months of fiscal 2001 of $2.4 million as compared to an operating loss
for the first six months of fiscal 2000 of $0.5 million.  The decrease in
operating income was principally due to

                                       26
<PAGE>

changes in product mix and the lower selling prices discussed above.

Corporate  The corporate segment reported an operating loss for the first six
months of fiscal 2001 of $0.9 million as compared to an operating loss for the
first six months of fiscal 2000 of $1.0 million.  The corporate segment's
operating income (loss) typically represents the administrative expenses from
the Company's various holding companies.

Income from Associated Companies

Income from associated companies was $3.7 million in the first six months of
fiscal 2001 as compared to $3.5 million in the first six months of fiscal 2000.
The income represents amounts from several joint venture interests that
manufacture and sell denim products.

Interest Expense

Interest expense was $31.8 million for the first six months of fiscal 2001
compared to $32.5 million for the first six months of fiscal 2000.  The decrease
in interest expense was primarily due to lower average debt balances in the
first six months of fiscal 2001 as compared to the first six months of fiscal
2000, partially offset by higher prime and LIBOR base rates in the first six
months of fiscal 2001 as compared to the first six months of fiscal 2000.  The
average interest rate paid by the Company on its bank debt in the first six
months of fiscal 2001 was 9.3% per annum as compared to 9.2% per annum in the
first six months of fiscal 2000.

Income Taxes

The Company's overall tax rate differed from the statutory rate principally due
to the impact of domestic tax benefits being established at a higher effective
rate than foreign tax expense.  The result is an overall tax benefit rate which
is higher than the statutory rate.

Net Income (Loss) and Net Income (Loss) Per Share

Net income for the first six months of fiscal 2001 was $0.3 million or $.02 per
common share, compared to a net loss for the first six months of fiscal 2000 of
$0.7 million or $.06 per common share.  Excluding the Fiscal 2000 Strategic
Initiatives, the Company's net income for the first six months of fiscal 2001
would have been $3.0 million or $.25 per common share.

Order Backlog

The Company's order backlog at March 31, 2001 was $181.5 million, a 6.5%
decrease from the April 1, 2000 backlog of $194.1 million.  The Company's
backlog has decreased from the previous year, and the Company has noted that
many apparel manufacturers, including many of

                                       27
<PAGE>

the Company's customers, have modified their purchasing procedures and have
shortened lead times from order to delivery. The Company believes that order
backlogs may not provide as meaningful information with regard to the Company's
future sales as order backlogs have in the past.

Liquidity and Capital Resources

The Company and its subsidiaries had cash and cash equivalents totaling $14.2
million and $20.1 million at March 31, 2001 and April 1, 2000, respectively.  As
of March 31, 2001, the Company had a total of $51.2 million of revolving credit
borrowing availability under its Senior Credit Facility and a total of U.S. $6.7
million of revolving credit borrowing availability under the Canadian Loan
Agreement (as defined below).

During the March quarter 2001, the Company primarily utilized its available cash
and revolving credit borrowings under its Senior Credit Facility (as defined
below) to fund the Company's operating and investing requirements.

Senior Credit Facility

On January 29, 1998 the Company entered into a new credit agreement (as amended,
the "Senior Credit Facility") with First Union National Bank ("FUNB"), as agent
and lender, and, as of March 27, 1998, with a syndicate of lenders.  The Senior
Credit Facility provides for (i) a revolving line of credit under which the
Company may borrow up to an amount (including letters of credit up to an
aggregate of $30.0 million) equal to the lesser of $225.0 million or a borrowing
base (comprised of eligible accounts receivable and eligible inventory, as
defined in the Senior Credit Facility), (ii) a term loan in the principal amount
of $155.0 million ("Term Loan B") and (iii) a term loan in the principal amount
of $110.0 million ("Term Loan C").  In July 1999, the Company amended its Senior
Credit Facility (the "July 1999 Amendment") pursuant to which the Company, among
other things, repaid $25 million principal amount of its term loan balance using
available borrowings under its revolving line of credit and reduced the maximum
amount of borrowings under the revolving line of credit by $25 million to $200
million.  The repayment of the Term Loan B and Term Loan C principal balances
ratably reduced the remaining quarterly principal payments.

In September 2000, the Company amended the Senior Credit Facility to exclude
charges related to the Company's Fiscal 2000 Strategic Initiatives from the
computation of the covenants.  In March 2001, the Company further amended the
Senior Credit Facility to allow for a more tax efficient European corporate
structure.

Under the Senior Credit Facility (as amended by the July 1999 Amendment), for
the period beginning July 4, 1999 through February 15,

                                       28
<PAGE>

2001, the revolving line of credit borrowings bear interest at a per annum rate,
at the Company's option, of either (i) (a) the greater of the prime rate or the
federal funds rate plus .50% plus (b) a margin of 1.75% or (ii) LIBOR plus a
margin of 3.00%. Term Loan B and Term Loan C bear interest at a per annum rate,
at the Company's option, of (A) with respect to Term Loan B either (i)(a) the
greater of the prime rate or federal funds rate plus .50%, plus (b) a margin of
2.25% or (ii) LIBOR plus a margin of 3.50% and (B) with respect to Term Loan C,
either (i)(a) greater of the prime rate or federal funds rate plus .50%, plus
(b) a margin of 2.50% or (ii) LIBOR plus a margin of 3.75%.

Under the Senior Credit Facility, the revolving line of credit expires on March
27, 2004 and the principal amount of (i) Term Loan B is repayable in quarterly
payments of $349,157 through March 27, 2004, three quarterly payments of
$32,820,773 and final amount of $27,854,048 on Term Loan B's maturity of April
2, 2005 and (ii) Term Loan C is repayable in quarterly payments of $247,687
through April 2, 2005, three quarterly payments of $23,034,918 and a final
amount of $19,511,595 on Term Loan C's maturity of April 1, 2006. Under the
Senior Credit Facility, as amended on December 22, 1998 and July 3, 1999, the
revolving line of credit borrowings bear interest at a per annum rate, at the
Company's option, of either (i) (a) the greater of the prime rate or the federal
funds rate plus .50% plus (b) a margin of 0%, .25%, .50%, .75%, 1.00% or 1.25%,
based on the Company achieving certain leverage ratios (as defined in the Senior
Credit Facility) or (ii) LIBOR plus a margin of 1.25%, 1.50%, 1.75%, 2.00%,
2.25% or 2.50%, based on the Company achieving certain leverage ratios. Term
Loan B and Term Loan C bear interest at a per annum rate, at the Company's
option, of (A) with respect to Term Loan B either (i) (a) the greater of the
prime rate or federal funds rate plus .50%, plus (b) a margin of 1.00%, 1.25%,
1.50% or 1.75%, based on the Company achieving certain leverage ratios or (ii)
LIBOR plus a margin of 2.25%, 2.50%, 2.75%  or 3.00%, based on the Company
achieving certain leverage ratios and (B) with respect to Term Loan C, either
(i) (a)the greater of the prime rate or federal funds rate plus .50%, plus (b) a
margin of 1.25%, 1.50%, 1.75% or 2.00%, based on the Company achieving certain
leverage ratios, or (ii) LIBOR plus a margin of 2.50%, 2.75%, 3.00% or 3.25%,
based on the Company's achieving certain leverage ratios.  Pursuant to the July
1999 Amendment, borrowings under the Senior Credit Facility will bear interest
in accordance with the foregoing pricing options beginning on February 16, 2001.

The Company's obligations under the Senior Credit Facility, as amended pursuant
to the July 1999 Amendment, are secured by substantially all of the assets of
the Company and each of its domestic subsidiaries (including a lien on all real
property owned in the United States), a pledge by the Company and each of its
domestic subsidiaries of all the outstanding capital stock of its respective
domestic subsidiaries and a pledge of 65% of the outstanding voting capital
stock, and 100% of

                                       29
<PAGE>

the outstanding non-voting capital stock, of certain of its respective foreign
subsidiaries. In addition, payment of all obligations under the Senior Credit
Facility is guaranteed by each of the Company's domestic subsidiaries. Under the
Senior Credit Facility, the Company is required to make mandatory prepayments of
principal annually in an amount equal to 50% of Excess Cash Flow (as defined in
the Senior Credit Facility), and also in the event of certain dispositions of
assets or debt or equity issuances (all subject to certain exceptions) in an
amount equal to 100% of the net proceeds received by the Company therefrom. On
December 19, 2000, the Company made an Excess Cash Flow payment related to
fiscal 2000 of $15.6 million.

As a result of the February 2001 funding of the Company's Canadian Loan
Agreement (as defined below), the Company repaid $12.7 million principal amount
of its U.S. term loan balance and reduced the maximum amount of borrowings under
its U.S. revolving line of credit by $12.3 million to $187.7 million.  The
repayment of the Term Loan B and Term Loan C principal balances ratably reduced
the remaining quarterly principal payments.  The reduction in the U.S. revolving
line of credit facility resulted in a write-off of $0.1 million of deferred debt
charges which is included in selling, general and administrative expenses in the
March quarter 2001.

The Senior Credit Facility contains certain covenants, including, without
limitation, those limiting the Company's and its subsidiaries' ability to incur
indebtedness, incur liens, sell or acquire assets or businesses, change the
nature of its business, make certain investments or pay dividends. In addition,
the Senior Credit Facility requires the Company to meet certain financial ratio
tests and limits the amount of capital expenditures which the Company and its
subsidiaries may make in any fiscal year.

The Company was in full compliance with all of its lenders' covenants as of
March 31, 2001.

Senior Subordinated Debt

In February 1998, the Company closed its private offering of $300.0 million
aggregate principal amount of 9 1/8% Senior Subordinated Notes Due 2008 (the
"Notes").  In May 1998, the Notes were exchanged for freely transferable
identical Notes registered under the Securities Act of 1933.  Net proceeds from
the offering of $289.3 million (net of initial purchaser's discount and offering
expenses), were used to repay (i) $275.0 million principal amount of bridge
financing borrowings incurred to partially finance the acquisition of the
apparel fabrics business of Dominion Textile, Inc. on January 29, 1998 and (ii)
a portion of the outstanding amount under a revolving line of credit provided
for under the Senior Credit Facility (as defined herein). Interest on the Notes
is payable on March 1 and September 1 of each year.

                                       30
<PAGE>

In August 2000, the Company and its noteholders amended the indenture, dated
February 24, 1998 (the "Indenture"), entered into in connection with the Notes
to amend the definition of "Permitted Investment" in the Indenture to allow the
Company and its Restricted Subsidiaries (as defined in the Indenture) to make
additional investments (as defined in the Indenture) totaling $15 million at any
time outstanding in one or more joint ventures which conduct manufacturing
operations primarily in Mexico.  This amendment was completed to allow the
Company sufficient flexibility in structuring its investment in the Swift Denim-
Hidalgo joint venture.

The Notes are general unsecured obligations of the Company, subordinated in
right of payment to all existing and future senior indebtedness of the Company
and its subsidiaries and senior in right of payment to any subordinated
indebtedness of the Company.  The Notes are unconditionally guaranteed, on an
unsecured senior subordinated basis, by Galey & Lord Industries, Inc., Swift
Denim Services, Inc., G&L Service Company North America, Inc., Swift Textiles,
Inc., Galey & Lord Properties, Inc., Swift Denim Properties, Inc. and other
future direct and indirect domestic subsidiaries of the Company.

The Notes are subject to certain covenants, including, without limitation, those
limiting the Company and its subsidiaries' ability to incur indebtedness, pay
dividends, incur liens, transfer or sell assets, enter into transactions with
affiliates, issue or sell stock of restricted subsidiaries or merge or
consolidate the Company or its restricted subsidiaries.

Canadian Loan Agreement

In February 2001, the Company's wholly owned Canadian subsidiary, Drummondville
Services Inc. ("Drummondville"), entered into a Loan Agreement (the "Canadian
Loan Agreement") with Congress Financial Corporation (Canada), as lender.  The
Canadian Loan Agreement provides for (i) a revolving line of credit under which
Drummondville may borrow up to an amount equal to the lesser of U.S. $16.0
million or a borrowing base (comprised of eligible accounts receivable and
eligible inventory of Drummondville, as defined in the Canadian Loan Agreement),
and (ii) a term loan in the principal amount of U.S. $9.0 million.

Under the Canadian Loan Agreement, the revolving line of credit expires in
February 2004 and the principal amount of the term loan is repayable in equal
monthly installments of $229,500 CDN with the unpaid balance repayable in
February 2004; provided, however, that the revolving line of credit and the
maturity of the term loan may be extended at the option of Drummondville for up
to two additional one year periods subject to and in accordance with the terms
of the Canadian Loan Agreement.  Under the Canadian Loan Agreement, the interest
rate on Drummondville's borrowings initially is fixed through the second quarter
of fiscal year 2001 (March quarter 2001) at a per

                                       31
<PAGE>

annum rate, at Drummondville's option, of either LIBOR plus 2.75% or the U.S.
prime rate plus .75% (for borrowings in U.S. dollars) or the Canadian prime rate
plus 1.5% (for borrowings in Canadian dollars). Thereafter, borrowings will bear
interest at a per annum rate, at Drummondville's option, of either (i) the U.S.
prime rate plus 0%, .25%, .50%, .75%, or 1.0% (for borrowings in U.S. dollars),
(ii) the Canadian prime rate plus .75%, 1.0%, 1.25%, 1.50%, or 1.75% (for
borrowings in Canadian dollars), or (iii) LIBOR plus 2.00%, 2.25%, 2.50%, 2.75%
or 3.00%, all based on Drummondville maintaining certain quarterly excess
borrowing availability levels under the revolving line of credit or
Drummondville achieving certain fixed charge coverage ratio levels (as set forth
in the Canadian Loan Agreement).

Drummondville's obligations under the Canadian Loan Agreement are secured by all
of the assets of Drummondville.  The Canadian Loan Agreement contains certain
covenants, including without limitation, those limiting Drummondville's ability
to incur indebtedness (other than incurring or paying certain intercompany
indebtedness), incur liens, sell or acquire assets or businesses, pay dividends,
make loans or advances or make certain investments.  In addition, the Canadian
Loan Agreement requires Drummondville to maintain a certain level of tangible
net worth (as defined in the Canadian Loan Agreement).

Tax Matters

At March 31, 2001, the Company had outstanding net operating loss carryforwards
("NOLs") for US federal and state tax purposes of approximately $34.3 million.
The federal NOLs will expire in years 2019-2020 if unused, and the state NOLs
will be carried forward and will expire in years 2004-2015 if unused.
Management has reviewed the Company's operating results for recent years as well
as the outlook for its businesses in concluding it is more likely than not that
the deferred tax assets of $13.4 million at March 31, 2001 will be realized.
This review, along with the timing of the reversal of its temporary differences
and the expiration dates of the NOLs, were also considered in reaching this
conclusion. The Company's ability to generate future taxable income is dependent
on numerous factors, including the state of the apparel industry, general
economic conditions and other factors beyond management's control. Accordingly,
there can be no assurance that the Company will meet its expectation of future
taxable income.

Other

In the June quarter 2001, the Company expects to incur approximately a $5.0
million income tax charge related to realigning the Company's European legal
ownership structure.  This charge will not result in any current cash tax
payments, as the Company will utilize existing NOLs to completely offset any
taxes which otherwise would have been payable.

                                       32
<PAGE>

The Company also expects to incur run-out costs related to the Fiscal 2000
Strategic Initiatives in the June quarter 2001 and in the September quarter 2001
of $1.0 million and $0.7 million, respectively.

The Company expects to spend approximately $25 million for capital expenditures
in fiscal 2001, of which $13.3 million was spent in the first six months of
fiscal 2001.  The Company anticipates that approximately 60% of the forecasted
capital expenditures will be used to increase the Company's capacity while the
remaining 40% will be used to maintain existing capacity.

The Company anticipates that cash requirements, including working capital and
capital expenditure needs, will be met through funds generated from operations
and through revolving credit borrowings under the Company's Senior Credit
Facility.  In addition, from time to time, the Company uses borrowings under
secured and unsecured bank loans, through capital leases or through operating
leases for various equipment purchases.

Accounting Change

Effective October 1, 2000, the Company adopted Financial Accounting Standard No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended
(FAS 133), which requires that all derivative instruments be reported on the
balance sheet at fair value and establishes criteria for designation and
effectiveness of hedging relationships. The cumulative effect of adopting FAS
133 as of October 1, 2000 was not material to the Company's financial
statements.

Euro Conversion

On January 1, 1999, eleven of the fifteen member countries of the European Union
(the "Participating Countries") established fixed conversion rates between their
existing sovereign currencies ("legacy currencies") and the Euro.  Between
January 1, 1999 and December 31, 2001, the Euro will be used solely for non-cash
transactions.  During this time period, the Euro will be traded on currency
exchanges and will be the basis of valuing legacy currencies.  The legacy
currencies will continue to be legal tender.  Beginning January 1, 2002, the
participating countries will issue new Euro-denominated bills and coins for use
in cash transactions, and no later than July 1, 2002, will withdraw all bills
and coins denominated in the legacy currencies.  The legacy currencies will then
no longer be legal tender for any transactions.

The Company's European operations export the majority of its sales to countries
that are Participating Countries.  As the European pricing policy has
historically been based on local currencies, the Company believes that as a
result of the Euro conversion the uncertainty of the effect of exchange rate
fluctuations will be reduced.  In

                                       33
<PAGE>

addition, the Company's principal competitors are also located within the
Participating Countries. The Company believes that the conversion to the Euro
will eliminate much of the advantage or disadvantage coming from exchange rate
fluctuation resulting from transactions involving legacy currencies in
Participating Countries. Accordingly, competitiveness will be solely based on
price, quality and service in the Participating Countries. While the Company
believes the increased competitiveness based on these factors will provide the
Company with a strategic advantage over smaller local companies, it cannot
assess the magnitude of this impact on its operations.

As contemplated by the Company's Euro conversion plan, invoicing of products in
both local currencies and Euro began January 1, 1999.  The conversion of the
Company's financial reporting and information systems will be completed during
the Company's 2001 fiscal year.  The Company's Euro conversion plan has been
delayed due to the unavailability of software upgrades.  The upgrades are
expected to be available during the Company's 2001 fiscal year and the related
Euro conversion will be completed at that time.  The costs related to the
conversion will not be material to the Company's operating results or liquidity
although no assurances can be made in this regard.

Forward Looking Statements

This Form 10-Q contains statements which constitute 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.  Those
statements include statements regarding the intent, belief or current
expectations of the Company and its management team.  Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those projected in the forward-looking statements.  Such
risks and uncertainties include, among other things, competitive and economic
factors in the textile, apparel and home furnishings markets, successful
implementation of the Company's strategic initiatives announced September 20,
2000, raw materials and other costs, the level of the Company's indebtedness,
interest rate fluctuations, weather-related delays, general economic conditions,
governmental legislation and regulatory changes, the long-term implications of
regional trade blocs and the effect of quota phase-out and lowering of tariffs
under the WTO trade regulations and other risks and uncertainties that may be
detailed herein or in the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 2000.

                                       34
<PAGE>

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information relative to the Company's market risk sensitive instruments by major
category at September 30, 2000 is presented under Item 7a of the registrant's
Annual Report on Form 10-K for the fiscal year ended September 30, 2000.

Foreign Currency Exposures

The Company conducts its business in various foreign currencies and, as a
result, is exposed to movements in foreign currency exchange rates.  To protect
against the volatility of forecasted foreign currency sales and purchases and
accounts receivable and payable denominated in foreign currencies, the Company
uses natural offsets and forward contracts.  As of March 31, 2001, the result of
a uniform 10% change in the value of the U.S. dollar relative to currencies of
countries in which the Company manufactures or sells its products would not be
material.

Cotton Commodity Exposures

Purchase contracts are used to hedge against fluctuations in the price of raw
material cotton.  Increases or decreases in the market price of cotton may
effect the fair value of cotton commodity purchase contracts.  A 10% decline in
market price as of March 31, 2001 would have a negative impact of approximately
$7.3 million.

                                       35
<PAGE>

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings (not applicable)

Item 2.   Changes in Securities and Use of Proceeds (not applicable)

Item 3.   Defaults Upon Senior Securities (not applicable)

Item 4.   Submission of Matters to a Vote of Security Holders
          The following summarizes the votes at the Annual Meeting of the
          Company's Stockholders held on February 13, 2001.


<TABLE>
<CAPTION>
                                                                                           Broker
                                                                                        ------------
             Matter                 For         Against      Withheld     Abstentions    Non-Votes
             ------             ------------  -----------  ------------  -------------  ------------
<S>                             <C>           <C>          <C>           <C>            <C>
1. Election of Directors:
   Arthur Wiener                   9,494,512            -     1,185,912              -             -
   Michael T. Bradley              9,499,012            -     1,181,412              -             -
   Paul G. Gillease                9,499,012            -     1,181,412              -             -
   Howard S. Jacobs                9,487,312            -     1,193,112              -             -
   William M.R. Mapel              9,494,112            -     1,186,312              -             -
   Stephen C. Sherrill             9,498,812            -     1,181,612              -             -
   Jose de Jesus Valdez            9,499,012            -     1,181,412              -             -
</TABLE>

2. Adoption of the following amendments to the Company's 1999 Stock Option Plan
   (the "Stock Option Plan"):

   (a)  Increase the number of shares of Common Stock available under the Stock
        Option Plan by an aggregate of 800,000 shares:

<TABLE>
<CAPTION>
                                                                                                         Broker
                                                                                                         ------
                                            For          Against        Withheld       Abstentions      Non-Votes
                                            ---          -------        --------       -----------      ---------
<S>                                     <C>            <C>            <C>             <C>              <C>
                                         6,693,162      1,531,834              -            43,105      2,412,323
</TABLE>

   (b)  Increase the limitation on the number of options that may be granted to
        an executive officer of the Company, during any three year period, to
        options to purchase 600,000 share of Common Stock from 400,000 share of
        Common Stock:

<TABLE>
<CAPTION>
                                                                                                         Broker
                                                                                                         ------
                                           For           Against        Withheld       Abstentions      Non-Votes
                                           ---           -------        --------       -----------      ---------
<S>                                     <C>              <C>           <C>             <C>              <C>
                                        10,237,281       402,737               -           40,406               -
</TABLE>

3. Adoption of the amendment to the Company's 1996 Restricted Stock Plan (the
   "Restricted Stock Plan") to increase the number of shares of Common Stock
   available under the Restricted Stock Plan by an aggregate of 50,000 shares:


<TABLE>
<CAPTION>
                                                                                                         Broker
                                                                                                         ------
                                            For          Against        Withheld       Abstentions      Non-Votes
                                            ---          -------        --------       -----------      ---------
<S>                                     <C>            <C>            <C>             <C>              <C>
                                        6,876,365      1,343,633               -           48,103       2,412,323
</TABLE>

4. Ratification of selection of Ernst & Young LLP as independent auditors for
   the 2001 fiscal year.

<TABLE>
<CAPTION>
                                                                                                         Broker
                                                                                                         ------
                                            For          Against        Withheld       Abstentions      Non-Votes
                                            ---          -------        --------       -----------      ---------
<S>                                     <C>            <C>            <C>             <C>              <C>
                                        10,643,673        20,650               -           16,101               -
</TABLE>

                                       36
<PAGE>

Item 5.   Other Information (not applicable)

Item 6.   Exhibits and Reports on Form 8-K

     (a)  Exhibits - The exhibits to this Form 10-Q are listed in the
          accompanying Exhibit Index

     (b)  Reports on Form 8-K - None.

                                       37
<PAGE>

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                              Galey & Lord, Inc.
                                        -----------------------------
                                               (Registrant)



                                        /s/ Leonard F. Ferro
                                        ---------------------------------
                                        Leonard F. Ferro
                                        Vice President



May 4, 2001
-----------
   Date

                                       38
<PAGE>

                                 EXHIBIT INDEX



Exhibit                                                Sequential
Number    Description                                   Page No.
-------   -----------                                   --------

10.67     1996 Restricted Stock Plan (as amended)

10.68     Amendment to 1999 Stock Option Plan of
          Galey & Lord, Inc.

10.69     Loan Agreement by and between Congress
          Financial Corporation (Canada), as lender,
          and Drummondville Services Inc./Les Services
          Drummondville Inc., as borrower, dated as of
          February 13, 2001

10.70     Amended and Restated Supplemental Executive
          Retirement Plan of Galey & Lord, Inc.

                                       39