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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

|(Mark One)
|----------
|[X]       
|          
|OR        
|[   ]     
|          

Commission File No. 1-15381

|WESTPOINT STEVENS INC.                                      
|------------------------------------------------------------
|(Exact name of registrant as specified in its
      charter)

|Delaware                                                             |  | 36-3498354                            
|-------------------------------------------------------------------- |  | --------------------------------------
|                                                                     |  |                                       
|(State or other jurisdiction of incorporation or
      organization) |  | (I.R.S. Employer Identification
  No.)

|507 West 10th Street, West Point,
      Georgia |  | 31833     
|----------------------------------------------- |  | ----------
|                                                |  |           
|(Address of principal executive offices)        |  | (Zip Code)

Registrant's telephone number, including area code:   (706)
645-4000Securities registered pursuant to Section 12(b) of the
Act:   None.Securities registered pursuant to Section
12(g) of the Act:



|Common Stock, $.01 par value
|----------------------------
|                            
|Title of each Class         



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

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statement incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
          [X]

Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the
Act).   [X] Yes    [ ] No

The aggregate market value of voting stock held by
non-affiliates of the registrant as of the last business day of the registrant's
most recently completed second fiscal quarter, June 30, 2003, was approximately
$997,948.

Indicate the number of shares outstanding of each of the
registrant's classes of common stock as of the latest practicable date:
49,897,409 at March 12, 2004.



DOCUMENTS INCORPORATED BY REFERENCE

None



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TABLE OF CONTENTS

|         |                                                                                                |    | Page No.
|-------- | ---------------------------------------------------------------------------------------------- | -- | --------
|         |                                                                                                |    |         
|Part I  
|Item 1.  | Business                                                                                       | 2 
|Item 2.  | Properties                                                                                     | 8 
|Item 3.  | Legal Proceedings                                                                              | 9 
|Item 4.  | Submission of Matters to a Vote of Security Holders                                            | 10
|Part II 
|Item 5.  | Market for Registrant's Common Equity and Related Stockholder Matters                          | 11
|Item 6.  | Selected Financial Data                                                                        | 13
|Item 7.  | Management's Discussion and Analysis of Financial Condition and Results of Operations          | 15
|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk                                     | 30
|Item 8.  | Financial Statements and Supplementary Data                                                    | 31
|Item 9.  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           | 67
|Item 9A. | Controls and Procedures                                                                        | 67
|Part III
|Item 10. | Directors and Executive Officers of the Registrant                                             | 68
|Item 11. | Executive Compensation                                                                         | 72
|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 78
|Item 13. | Certain Relationships and Related Transactions                                                 | 79
|Item 14. | Principal Accounting Fees and Services                                                         | 80
|Part IV 
|Item 15. | Financial Statement Schedules, Reports on Form 8-K and Exhibits                                | 81
|         | Signatures                                                                                     | 90



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Item 1.   Business

General

On June 1, 2003, (the "Petition Date") WestPoint Stevens Inc.,
a Delaware corporation (the "Company"), and several of its subsidiaries
(together with the Company, the "Debtors") filed a petition for reorganization
under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code")
with the United States. Bankruptcy Court for the Southern District of New York
(the "Bankruptcy Court"). The Debtors are authorized to operate their business
and manage their properties as debtors in possession pursuant to sections
1107(a) and 1108 of the Bankruptcy Code. On June 2, 2003, the Bankruptcy Court
entered a number of orders enabling the Company to continue regular operations
throughout the reorganization proceedings. On June 18, 2003, the Bankruptcy
Court approved $300 million of debtor in possession financing pursuant to a
Post-Petition Credit Agreement, dated as of June 2, 2003, among the Company and
certain of its subsidiaries, the financial institutions named therein and Bank
of America, N.A. and Wachovia Bank, National Association (the "DIP Credit
Agreement"). For a more complete discussion of the DIP Credit Agreement see
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations -- DIP Credit Agreement."

Since commencement of its chapter 11 cases, the Debtors have
been operating as debtors in possession under chapter 11 and conducting business
in the ordinary course. Pursuant to the Bankruptcy Code, pre-petition
obligations of the Debtors (including obligations under debt instruments)
generally may not be enforced against the Debtors, and any actions to collect
pre-petition indebtedness are automatically stayed, unless the stay is lifted by
the Bankruptcy Court. In addition, as debtors in possession, the Debtors have
the right, subject to Bankruptcy Court approval and certain other limitations,
to assume or reject executory contracts and unexpired leases.

The Company initially announced that it had reached an
agreement in principle with the holders of approximately 52% of the aggregate
principal amount of its 7-7/8% Senior Notes due 2005 and 7-7/8% Senior Notes due
2008 the "Senior Notes") on the terms of a financial restructuring to be
implemented through the chapter 11 process. The agreement in principle was
subject to numerous conditions and further agreements, including the entry of an
order confirming the plan of reorganization contemplated by the proposal. On
October 17, 2003, the Company announced that it had determined not to implement
the previously announced agreement in principle. Instead, the Company intends to
negotiate new terms for a chapter 11 plan of reorganization with all of its
major creditor constituencies. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" below.

The Company, which was organized in 1987, is the successor corporation to West Point-Pepperell, Inc. through a series of mergers occurring in December 1993.  The Company operates its business directly and through its consolidated subsidiaries.  The Company is a leading manufacturer, marketer and distributor of an extensive range of bed and bath home fashions ("Home Fashions") products.  The Company's trademark brands include ATELIER MARTEX(r);, BABY MARTEX(r);, CHATHAM(r);, GRAND PATRICIAN(r);, MARTEX(r);, PATRICIAN(r);, UTICA(r);, STEVENS(r);, LADY PEPPERELL(r);, LUXOR(r); and VELLUX(r);.  In addition, certain Home Fashions products are manufactured and sold pursuant to licensing agreements under designer names that include, among others, Ralph Lauren Home, Sanderson, Glynda Turley and Disney Home.  The Company's products are marketed through leading department stores, mass merchants, specialty stores, institutional channels, and WestPoint Stevens Stores Inc.

The Company estimates that it has one of the largest market
shares in the domestic sheet and pillowcase market, the domestic bath towel
market and the domestic blanket market. The Company also has significant market
share in the domestic accessories market, which includes comforters, bedspreads,
bed pillows, throw pillows and mattress pads, among others.

As a result of a strategic review of the Company's businesses,
manufacturing and other facilities and products, the Board of Directors has
approved various restructuring initiatives designed to streamline operations and
improve profitability. For a comprehensive discussion of the Company's
restructuring initiatives and overall financial condition, see "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Products



|The Company markets a broad range of manufactured and
      sourced bed, bath and basic bedding products, including:
|--------------------------------------------------------------------------------------------------------------------
|                                                                                                                    
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|                                                                                                                    
|                                                                                                                    

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| | -                                 | beach towels;                                              
| | --------------------------------- | -----------------------------------------------------------
| | -                                 | bedskirts;                                                 
| | -                                 | bedspreads;                                                
| | -                                 | comforters and duvet covers;                               
| | -                                 | decorative throw pillows;                                  
| | -                                 | drapes and valances;                                       
| | -                                 | quilts;                                                    
| | -                                 | scatter rugs;                                              
| | -                                 | sheets and pillowcases;                                    
| | -                                 | shower curtains;                                           
| | -                                 | table covers; and                                          
| |                                  
| | Basic Bedding Products, including
| | -                                 | bed pillows;                                               
| | -                                 | flocked blankets;                                          
| | -                                 | mattress pads;                                             
| | -                                 | natural fill pillows, comforters and featherbeds;
      and
| | -                                 | woven blankets and
throws.                                 

Such products are made from a variety of fabrics, such as
chambray, twill, sateen, flannel, linen, cotton and cotton blends and are
available in a wide assortment of colors and patterns. The Company has
positioned itself as a single-source supplier to retailers of bed and bath
products, offering a broad assortment of products across multiple price points.
Such product and price point breadth allows the Company to provide a
comprehensive product offering for each major distribution channel. For each of
the last three years all of the Company's products have consisted of Home
Fashions products.



Trademarks and Licenses

The Company's products are marketed under well-known and firmly
established trademarks, brand names and private labels. The Company uses
trademarks, brand names and private labels as merchandising tools to assist its
customers in coordinating their product offerings and differentiating their
products from those of their competitors. Registered trademarks include ATELIER
MARTEX(r), BABY MARTEX(r), CHATHAM(r), GRAND PATRICIAN(r), MARTEX(r), PATRICIAN(r), UTICA(r),
STEVENS(r), LADY PEPPERELL(r), LUXOR(r) and VELLUX(r). In addition, products are
manufactured and sold pursuant to licensing agreements under designer names that
include, among others, Ralph Lauren Home, Disney Home, Sanderson and Glynda
Turley. A portion of the Company's sales is derived from licensed designer
brands. The license agreements for the Company's designer brands generally are
for a term of two or three years. Some of the licenses are automatically
renewable for additional periods, provided that certain sales thresholds set
forth in the license agreements are met. No single license has accounted for
more than 13.5% of the Company's total sales volume during any of the last five
fiscal years. Although the Company currently has no reason to believe that it
will lose any of its licenses, the loss of a significant license could have a
material adverse effect upon the Company's business. The licensing agreements
with fixed expiration dates are: Ralph Lauren Home, December 31, 2005 (with an
option to renew until December 31, 2008); Glynda Turley, December 31, 2005; and
Disney Home, December 31, 2005. Both the license with Ralph Lauren Home and the
license with Disney Home were modified in 2003 and assumed by the Company in the
chapter 11 case.

Marketing

The Company is committed to developing and maintaining integral
relationships with its customers through "Strategic Partnering," a program
designed to improve customers' operating results by leveraging the Company's
merchandising, manufacturing and inventory management skills. "Strategic
Partnering" includes Electronic Data Interchange ("EDI") direct electronic entry
systems, "Quick Response" and "Vendor Managed Inventory" customer delivery
programs and point-of-sale processing. The Company incorporates Strategic
Partnering into its planning, manufacturing and shipping systems, in order to
enable it to anticipate and respond more efficiently and economically to
customers' inventory requirements. This has assisted the Company to plan and
forecast its own production and inventory requirements. Sales and marketing of
the Company's Home Fashions products are conducted through an organizational
format consisting of divisions for Bed and Bath Products and Basic Bedding
Products, each with supporting domestic sales, marketing and merchandising teams
and international sales and marketing teams. Distribution specific teams focused
on targeted key accounts are linked with product management, operations,
customer service and distribution to service each segment of retail. In response
to industry trends during the past three years, the Company has focused on the
fastest growing product categories in the home fashions industry (bedding and
bath accessories and basic bedding products), and on the fastest growing
distribution channels such as

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discount retailers, specialty stores and warehouse clubs. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Executive Summary."



|The Bed and Bath Products Division and the Basic Bedding
      Products Division focus sales on the following channels of
      distribution:                                                                                          
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                       
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|                                                                                                                                                                                                                                       
|For the Bed and Bath Products Division and the Basic
      Bedding Products Division, marketing is comprised of the following
      functions that create products and services in direct response to
      recognized consumer trends:
|                                                                                                                                                                                                                                       
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|                                                                                                                                                                                                                                       
|For the Bed and Bath Products Division and the Basic
      Bedding Products Division, merchandising is comprised of the following
      functions:                                                                                     
|                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                       
|The Retail Stores Division is comprised of:                                                                                                                                                                                            
|                                                                                                                                                                                                                                       

The Company works closely with its major customers to assist
them in merchandising and promoting its products to consumers. In addition, the
Company periodically meets with its customers in an effort to maximize product
exposure and sales and to jointly develop merchandise assortments and plan
promotional events specifically tailored to the customer. The Company provides
merchandising assistance with store layouts, fixture designs, advertising and
point-of-sale displays. A national consumer and trade advertising campaign and
comprehensive internet website have served to enhance brand recognition. The
Company also provides its customers with suggested customized advertising
materials designed to increase its product sales. A heightened focus on consumer
research provides needed products on a continual basis.

Approximately 87% of the Company's total sales in 2003 were
made to retail establishments in the United States, including catalog retailers,
chain and department stores, mass merchants, specialty bed and bath stores,
warehouse clubs and WestPoint Stores. Finished products are distributed to
retailers directly from the Company's plants. The majority of the remaining
portion of the Company's sales of Home Fashions products are through the
institutional channel, which includes hospitality and healthcare establishments,
as well as laundry supply businesses. In addition to domestic sales, the Company
distributes its Home Fashions products for eventual sale in certain foreign
markets, principally Australia, Canada, Mexico, the United Kingdom, continental
Europe, the Middle East and the Far East. International operations accounted for
approximately 4% of the total sales of the Company in 2003. On August 28, 2003,
one of the Company's foreign subsidiaries, WestPoint Stevens (Europe) Ltd.,commenced an insolvency proceeding in the
United Kingdom and is in the process of being closed and liquidated.

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Inventory Management, Electronic Communication and
Delivery

The Company has been recognized as a leader and innovator of
advanced technology, as evidenced by its inclusion in the 2003 InformationWeek
500, which recognizes businesses that make innovative use of information
technology. The Company deploys a variety of innovative, leading-edge e-commerce
applications and has been selected as a preferred vendor for many customers
wishing to participate in web-based collaboration programs, Quick Response, EDI
and Vendor Managed Inventory. The Company utilizes collaborative planning,
forecasting and replenishment practices supported by systems from leading
technology providers such as i2Technologies, Inc., GlobalNetXchange LLC and
Syncra Systems, Inc. It operates a retail merchandising and inventory
replenishment system (Inforem(r)) in conjunction with its forecasting and planning
system (Demand Planner(r) from i2 Technologies, Inc.). It also utilizes ESSBASE(r)
business intelligence tools for inventory optimization and performance
measurement to complement the Company's core business systems, including its
supply chain, sourcing and logistics systems. The Company combines the use of an
advanced, customer order fulfillment system, real-time radio frequency and
in-line label printing distribution systems, and in-house transportation to
compress the order to delivery cycle time, maintain low inventory levels and
achieve high customer scorecard objectives. The Company has placed a strong
emphasis on the supply chain and logistics function and believes that continued
investment in planning, sourcing, distribution and transportation capabilities
will enhance its ability to provide its customers with superior
service.

Customers

The Company is pursuing strategic relationships with key
merchandisers. An important component of the Company's strategy is to increase
its share of shelf and floor space by strengthening its partnership with its
customers. The Company is working closely with retailers and is sharing
information and business practices with them to improve service and achieve
higher profitability for both the retailer and the Company.

The Company's Home Fashions products are sold to catalog
retailers, chain stores, mass merchants, department stores, specialty stores,
warehouse clubs and its own retail stores. The Company's six largest customers,
Costco Wholesale Corp., Federated Department Stores, Inc., J.C. Penney Company,
Inc., Kmart Corporation, Target Corporation and Wal-Mart Stores, Inc. accounted
for approximately 52% of the net sales of the Company during the fiscal year
ended December 31, 2003. In 2003, sales to Target Corporation and Wal-Mart
Stores, Inc. were 14% and 11%, respectively, of the net sales of the Company.
Each of such customers has purchased goods from the Company in each of the last
10 years. Although the Company has no reason to believe that it will lose the
business of any of its largest customers, a loss of any of these accounts (or a
material portion of any thereof) would have an adverse effect upon the Company's
business, which could be material.

On January 22, 2002, Kmart Corporation filed a voluntary
petition for reorganization under chapter 11 of title 11 of the Bankruptcy Code.
Kmart Corporation subsequently received approval of its plan of reorganization
and emerged from chapter 11 on May 6, 2003. In conjunction with the
restructuring, Kmart Corporation initially announced the closing of 284 retail
store locations and, on January 14, 2003, announced the closing of 318
additional stores. The collective closings represent approximately 28% of its
total store base.

Manufacturing

The Company currently uses the latest manufacturing and
distribution equipment and technologies in its mills. Management therefore
believes that the Company is one of the most efficient manufacturers in the home
fashions industry. Over the past five years, the Company has spent approximately
$351 million to modernize its manufacturing and distribution systems and has
spent approximately $19 million of that amount during 2003. The capital
expenditures have been used to, among other things, further automate the
Company's cut and sew operations and modernize yarn processing. The Company
intends to invest approximately $35 million in capital improvements in the
aggregate in 2004, which includes the further automation of the cut and sew
operations, continued modernization and upgrading of distribution centers and
the conversion of certain sheet product manufacturing operations to bath product
manufacturing. These capital programs have resulted, and are expected to
continue to result, in improved product quality, increased efficiency, lower
costs and shorter response time to customer orders. As of March 1, 2004, the
Company (including its subsidiaries) owns and utilizes 21 manufacturing
facilities and leases and utilizes four manufacturing facilities. These
facilities are located primarily in the Southeastern United States. As a result
of our increased sourcing efforts, the Company has reduced its domestic
capacity. See "Item 2. Properties."

Sourcing

The Company has had a long-standing history of domestic and
international sourcing of selected component products such as specialty yarns
and specialty greige sheeting fabric for use in domestic production of Home
Fashions products. Historically,

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the percentage of sourced components used in domestic
production was not material. However, beginning in 2000, increased focus was
placed on global sourcing. As such, the Company today views sourcing as a means
to drive business growth and improve profitability by providing products and
services that accelerate product and packaging innovation resulting in a
competitive market advantage. In 2003, the Company imported both component and
finished products from 23 countries and has established strong relationships in
several key export countries including China, India, Pakistan and Turkey. To
accelerate speed to market and improve customer service, the Company maintains
third party logistics' operations on the east coast. The Company continues to
increase the number of sourced product categories and estimates that sales from
sourced products accounted for roughly 22% of the Company's sales in 2003.
Through global sourcing operations, the categories of product offerings by the
Company to its customers has been significantly expanded to increase focus on
high growth product categories such as bath accessories, rugs and quilts.

The Company's policy on sourcing prohibits the purchase of
merchandise that is produced in whole or in part by indentured, prison or
illegal immigrant or child labor. The Company requires that vendors certify the
locations used for the production of products it purchases and that the vendors
submit to compliance inspections from the Company or its representatives to
ensure that the Company does not do business with suppliers who violate human
rights.

Raw Materials

The principal raw materials used in the manufacture of Home
Fashions products are cotton of various grades and staple lengths, polyester and
nylon in staple and filament form. Cotton, polyester and nylon presently are
available from several sources in quantities sufficient to meet the Company's
requirements. The Company is not dependent on any one supplier as a source of
raw materials. Since cotton is an agricultural product, its supply and quality
are subject to weather patterns, disease and other factors. The price of cotton
is also influenced by supply and demand considerations, both domestically and
worldwide, and by the cost of polyester. Although the Company has always been
able to acquire sufficient quantities of cotton for its operations in the past,
any shortage in the cotton supply by reason of weather, disease or other factors
could adversely affect the Company's operations. The price of man-made fibers
such as polyester and nylon is influenced by demand, manufacturing capacity and
costs, petroleum prices, cotton prices and the cost of polymers used in
producing man-made fibers. Any significant prolonged petrochemical shortages
could significantly affect the availability of man-made fibers and cause a
substantial increase in demand for cotton, resulting in decreased availability
and, possibly, increased price. The Company also purchases substantial
quantities of dyes and chemicals. Dyes and chemicals have been and are expected
to continue to be available in sufficient supply from a wide variety of sources.
The Company also purchases feathers and down for use as fill for certain
products it produces which it had previously sourced.

Seasonality; Cyclicality; Inventory

Traditionally, the home fashions industry has been seasonal,
with peak sales in the fall. In accordance with industry practice, the Company
increases its Home Fashions' inventory levels during the first six months of the
year to meet customer demands for the fall peak season. The Company's commitment
to EDI, Quick Response and Vendor Managed Inventory, however, has facilitated a
more even distribution of products throughout the calendar year and reduced some
of the need to stockpile inventory to meet peak season demands. Inventory
imbalances are typical during recessions; however, the impact of technology on
excess inventory management was unusual during the most recent recession.
Technology has allowed for real time information on inventory levels relative to
sales levels, and retailers now respond much faster to slower sales by cutting
orders and reducing forecasts. Because the Company produces the majority of its
inventory to a sales forecast versus an order backlog in order to provide rapid
replenishment service to its customers, the quick reduction of inventory at
retail by customers has required the Company to curtail production levels in
each of the past three years in order to avoid producing significant quantities
of excess inventory.

The home fashions industry is also cyclical. While the
Company's performance may be negatively affected by downturns in consumer
spending, management believes the effects thereof are somewhat mitigated by the
Company's large market shares and broad distribution base.

Backlog Orders

The backlog of the Company's unfilled customer orders, believed
by management to be firm, was approximately $71.8 million at February 1, 2004,
as compared with approximately $67.1 million at February 1, 2003. The Company
does not believe that its backlogs are a meaningful indicator of its business
due in part to its use of Vendor Managed Inventory systems.



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Competition

The home fashions industry is highly competitive. The Company
competes on the basis of price, quality, design and customer service, among
other factors. In the sheet, towel and blanket markets, the Company competes
primarily with Springs Industries, Inc. In the other bedding and accessories
markets, the Company competes with many companies, most of which are much
smaller in size than the Company. The Company has pursued a competitive strategy
focused on providing the best fashion, quality, service and value to its
customers and to the ultimate consumer. There has been an increase in the sale
of imported Home Fashions products in the domestic market and the Company is
actively pursuing its own foreign sourcing opportunities to meet the demand for
such products. This increase is expected to intensify with the lifting of import
quotas in the year 2005. There can be no assurance that foreign competition will
not grow to a level that could have a material effect upon the Company's ability
to compete effectively.

Other Operations

The Company's operations also include Grifftex Chemicals
("Grifftex") which formulates chemicals primarily used in the Company's
finishing processes, and WestPoint Stevens Graphics ("Graphics"), which prints
product packaging and labeling. Neither Grifftex nor Graphics represent a
material portion of the Company's business.

Research and Development

Management believes that research and development in product
innovation and differentiation is important to maintain the Company's
competitive edge. The Company continually seeks to develop new specialty
finishes and finishing techniques that would improve fabric quality and enhance
fabric aesthetics. Research also is conducted to develop new products in
response to changing customer demands and environmental concerns. The Company
has continued to invest in product development to maintain a leadership position
in the market place.

Environmental Matters

The Company is subject to various federal, state and local
environmental laws and regulations governing, among other things, the storage,
handling, usage, discharge and disposal of a variety of hazardous and
non-hazardous substances and wastes used in or resulting from its operations,
including, but not limited to, the Water Pollution Control Act, as amended; the
Clean Air Act, as amended; the Resource Conservation and Recovery Act, as
amended; the Toxic Substances Control Act; and the Comprehensive Environmental
Response, Compensation and Liability Act.

The Company's operations also are governed by laws and
regulations relating to employee safety and health, principally the Occupational
Safety and Health Act and regulations thereunder which, among other things,
establish exposure limitations for cotton dust, formaldehyde, asbestos and
noise, and regulate chemical, physical and ergonomic hazards in the workplace.

Although the Company does not expect that compliance with any
of the aforementioned laws and regulations will have a material adverse effect
on its capital expenditures, earnings or competitive position in the foreseeable
future, there can be no assurances that environmental requirements will not
become more stringent in the future or that the Company will not incur
significant costs in the future to comply with such requirements.

Employees

The Company (including its subsidiaries) employed approximately
13,886 active employees as of February 29, 2004. The Company believes that its
relations with its employees are excellent. The Company has not experienced a
strike or work stoppage by any of its unionized employees during the past 20
years. Currently, less than 10% of the Company's employees are unionized.

The Company has developed an effective employee relations and
communications program that includes rules and regulations for employee conduct
and procedures for employee complaints. This long-standing program focuses on
and, in the view of management, has resulted in, strong, positive employee
relation's practices, good working conditions, progressive human resources
policies and expansive safety programs.



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Other Factors

This Annual Report on Form 10-K includes "forward-looking
statements," within the meaning of the Private Securities Litigation Reform Act
of 1995, with respect to the Company's business, financial condition and results
of operations. Statements that use the terms "believe," "anticipate," "expect,"
"plan," "intend," "estimate," "project" and similar expressions in the
affirmative and the negative are intended to identify forward-looking
statements. These statements reflect the Company's current views with respect to
future events and are based on current assumptions, expectations, estimates and
projections about the Company's business and the markets in which it operates
and are subject to risks and uncertainties. Actual events (including the
Company's results) could differ materially from those anticipated in these
forward-looking statements as a result of various factors which include, but are
not limited to, the following: uncertainties exist related to the Company's
having filed a chapter 11 petition and the reorganization proceedings resulting
therefrom; product margins may vary from those projected; raw material prices
may vary from those assumed; additional reserves may be required for bad debts,
returns, allowances, governmental compliance costs or litigation; there may be
changes in the performance of financial markets or fluctuations in foreign
currency exchange rates; unanticipated natural disasters could have a material
impact upon results of operations; there may be changes in the general economic
conditions which affect customer payment practices or consumer spending;
competition for retail and wholesale customers, pricing and transportation of
products may vary from time to time due to seasonal variations or otherwise;
customer preferences for our products can be affected by competition, or general
market demand for domestic or imported goods or the quantity, quality, price or
delivery time of such goods; there could be an unanticipated loss of a material
customer or a material license; there may be changes in governmental standards
for the Company's products that materially affect the cost of production or
availability of raw materials; the availability and price of raw materials could
be affected by weather, disease, energy costs or other factors. In addition,
consideration should be given to any other risks and uncertainties discussed in
other documents filed by the Company with the Securities and Exchange
Commission. Except as required by applicable law, the Company assumes no
obligation to update or revise publicly any forward-looking statements, whether
as the result of new information, future events or otherwise.

Item 2.   Properties

The Company's properties are owned or leased directly and
indirectly through its subsidiaries. Management believes that the Company's
facilities and equipment are in good condition and sufficient for current
operations. The Company owns office space in West Point, Georgia, and Valley,
Alabama, and leases various additional office space, including approximately
140,000 square feet in New York City, of which approximately 36,000 square feet
is subleased to other tenants. The Company also leases approximately 14,000
square feet elsewhere for other administrative, storage and office space.

The Company and its subsidiaries own and utilize 21
manufacturing facilities located in Alabama, Florida, Georgia, Indiana, Maine,
North Carolina, South Carolina and Virginia which contain in the aggregate
approximately 8,258,000 square feet of floor space and lease and utilize four
manufacturing facilities in Alabama, Louisiana, Nevada and North Carolina which
contain in the aggregate approximately 682,000 square feet of floor space.

The Company owns a chemical plant containing approximately
43,000 square feet of floor space from which Grifftex Chemicals operates. In
addition, the Company owns a printing facility consisting of 38,000 square feet
in which Graphics prints product packaging and labeling.

The Company and its subsidiaries also own and operate 11
distribution centers and warehouses for their operations which contain
approximately 3,727,000 square feet of floor space. In addition, the Company and
its subsidiaries lease and operate five distribution outlets and warehouses
containing approximately 725,000 square feet of floor space.

WestPoint Stores owns two retail stores and leases its 35 other
retail stores, all of which are dispersed throughout the United States and
Canada.

The properties owned by the Company are subject to liens held
by the Company's secured lenders. See "Item 8. Financial Statements and
Supplementary Data -- Notes to Consolidated Financial Statements -- 3.
Indebtedness and Financial Arrangements."



8

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Item 3.   Legal
Proceedings

Except as stated below, as of the Petition Date, the following
actions in which the Company is a defendant have been enjoined from further
proceedings pursuant to section 362 of the Bankruptcy Code. To the extent
parties have filed timely proofs of claim, the Bankruptcy Court will determine
the amount of their pre-bankruptcy claims against the Company. In certain
instances, the Bankruptcy Court may permit actions to proceed to judgment for
the purpose of determining the amount of the pre-bankruptcy claim against the
Company. Lawsuits based on facts arising solely after the commencement of the
Company's chapter 11 case are not stayed by section 362 of the Bankruptcy
Code.

On October 5, 2001, a purported stockholder class action suit,
entitled Norman Geller v. WestPoint Stevens Inc., et al.(the
"Geller action"), was filed against the Company and certain of its former
officers and directors in the United States District Court for the Northern
District of Georgia. (A subsequent and functionally identical complaint was also
filed.) The actions were consolidated by Order dated January 25, 2002.
Plaintiffs served a Consolidated Amended Complaint (the "Amended Complaint") on
March 29, 2002. The Amended Complaint asserts claims against all Defendants
under section 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder
and against the Company and Defendant Holcombe T. Green, Jr. as "controlling
persons" under section 20(a) of the Exchange Act. The Amended Complaint alleges that,
during the putative class period (i.e., February 10, 1999, to October 10, 2000),
the Company and certain of its officers and directors caused false and
misleading statements to be issued regarding, inter alia, alleged overcapacity
and excessive inventories of the Company's towel-related products and customer
demand for such products and that certain Individual Defendants wrongfully sold
or pledged Company stock at inflated prices for their benefit. The Amended
Complaint refers to the Company's press releases and quarterly and annual
reports on Securities Exchange Commission Forms 10-Q and 10-K, which discuss the
Company's results and forecasts for the fiscal years 1999 and 2000. Plaintiffs
allege that these press releases and public filings were false and misleading
because they failed to disclose that the Company allegedly "knew sales would be
adversely affected in future quarters and years." Plaintiffs also allege in
general terms that the Company materially overstated revenues by making
premature shipments of products.

On June 6, 2002, Defendants filed Motions to Dismiss
Plaintiffs' Amended Complaint. On February 3, 2003, the court denied Defendants'
Motions to Dismiss.

The Company has been informed by its counsel that its insurance
carrier has reached an agreement in principle to settle the Geller action
at no cost to the Company, subject to definitive documentation and approvals of
the court and the Bankruptcy Court.

On March 11, 2002, a shareholder derivative action, entitled
Gordon Clark v. Holcombe T. Green, Jr., et al.(the "Clark
action"), was filed against certain of the Company's former directors and
officers in the Superior Court of Fulton County, Georgia. The Complaint alleges
that the named individuals breached their fiduciary duties by acting in bad
faith and wasting corporate assets. The Complaint also asserts claims under
Georgia Code Ann. sections 14-2-740 to 14-2-747 and 14-2-831. The claims are based on
the same or similar facts as are alleged in the Geller action.

On July 1, 2002, a shareholder derivative action, entitled
John Hemmer v. Holcombe T. Green, Jr., et al.(the "Hemmer
action"), was filed against Mr. Green and certain of the Company's other
current and former directors including Messrs. Hugh M. Chapman, John F. Sorte
and Ms. M. Katherine Dwyer in the Court of Chancery in the State of Delaware in
and for New Castle County. The Complaint alleges that the named individuals
breached their fiduciary duties and knowingly or recklessly failed to exercise
oversight responsibilities to ensure the integrity of the Company's financial
reporting. The Complaint also asserts that certain of the named individuals used
proprietary Company information in selling or pledging Company stock at inflated
prices for their benefit. The claims are based on the same or similar facts as
are alleged in the Geller action.

By agreements between the parties, the Clark and
Hemmer actions were both stayed pending entry of final judgment by the
Court in the Geller action. As with the Geller action, the
Clark and Hemmer actions were also stayed due to the Company's
bankruptcy filing.

The Company believes that the allegations in all of the actions
are without merit and intends to contest the actions vigorously on behalf of its
current and former officers and directors.

The Company has been informed by its counsel that its insurance
carrier is engaged in negotiations to settle the Clark and Hemmer
actions.





9

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On March 21, 2002, an Adversary Complaint of Debtors and
Debtors in Possession Against WestPoint Stevens Inc. was filed by Pillowtex,
Inc., a Delaware corporation, et al.,and Pillowtex Corporation, et
al., against the Company in the United States Bankruptcy Court for the
District of Delaware. Pillowtex Corporation and its related and affiliated
companies ("Pillowtex") as Debtors and Debtors in Possession allege breach of a
postpetition contract (the "Sale Agreement") dated January 31, 2001, among
Pillowtex, Ralph Lauren Home Collection, Inc. ("RLH") and Polo Ralph Lauren
Corporation ("PRLC") collectively referred to as "Ralph Lauren" and the Company.
Pillowtex alleges that the Company refused to perform its purchase obligation
under the Sales Agreement and is liable to it for $4,800,000 plus potentially
significant other consequential damages. The Company believes that the complaint
is without merit and intends to contest the action vigorously. The case is
currently stayed due to the Company's bankruptcy filing.

The Company has been named as a defendant in three separate
purported class action suits seeking reparation for the historic enslavement of
African Americans in the United States. Eddlee Bankhead v. Lloyd's of
London, et al. (the "Bankheadaction") was filed on September
3, 2002, in the United States District Court for the Southern District of New
York. Timothy Hurdle and Chester Hurdle v. FleetBoston Financial
Corporation, et al. was initially filed in the California Superior
Court for San Francisco County on September 10, 2002, but has since been removed
to the United States District Court for the Northern District of California San
Francisco. Julie Mae Wyatt-Kerwin v. J.P. Morgan Chase was filed January
21, 2003, in the United States District Court for the Southern District of
Texas. All three cases have been consolidated with related cases in the U.S.
District Court for the Northern District of Illinois. The factual basis for all
three suits is the claim that the defendants profited from the slave labor of
the plaintiff classes' ancestors prior to 1865 and, specifically, that Pepperell
Manufacturing, predecessor to WestPoint Stevens Inc., utilized cotton from
southern planters who in turn purchased finished product to clothe their slaves.
The California suit alleges that such practices amount to an "unfair business
practice" in violation of the California Business and Professional Code.

The purported class includes all descendants of African
American slaves. The relief sought includes an accounting, the appointment of an
independent historical commission, imposition of a constructive trust,
restitution of the value of slave labor and defendants' unjust enrichment,
disgorgement of illicit profits and compensatory and punitive damages.

The consolidated cases are currently stayed, as to the Company,
due to the Company's bankruptcy filing, and on January 26, 2004, the District
Court granted defendants' motion to dismiss without prejudice.

The Company is subject to various federal, state and local
environmental laws and regulations governing, among other things, the discharge,
storage, handling and disposal of a variety of hazardous and nonhazardous
substances and wastes used in or resulting from its operations and potential
remediation obligations thereunder. Certain of the Company's facilities
(including certain facilities no longer owned or utilized by the Company) have
been cited or are being investigated with respect to alleged violations of such
laws and regulations. The Company is cooperating fully with relevant parties and
authorities in all such matters. The Company believes that it has adequately
provided in its financial statements for any expenses and liabilities that may
result from such matters. The Company also is insured with respect to certain of
such matters. The Company's operations are governed by laws and regulations
relating to employee safety and health which, among other things, establish
exposure limitations for cotton dust, formaldehyde, asbestos and noise, and
regulate chemical and ergonomic hazards in the workplace.

Although the Company does not expect that compliance with any
of such laws and regulations will adversely affect the Company's operations,
there can be no assurance such regulatory requirements will not become more
stringent in the future or that the Company will not incur significant costs in
the future to comply with such requirements.

The Company and its subsidiaries are involved in various other
legal proceedings, both as plaintiff and as defendant, which are normal to its
business. It is the opinion of management that the aforementioned actions and
claims, if determined adversely to the Company, will not have a material adverse
effect on the financial condition or operations of the Company taken as a
whole.

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

During the fourth quarter of fiscal year 2003, no matters were submitted by
the Company to a vote of its security holders.



10

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Part II

Item 5.   Market for Registrant's
Common Equity and Related Stockholder Matters

The Common Stock of the Company is listed on the Over the
Counter Bulletin Board ("OTCBB") under the ticker symbol "WSPT."  Such
listing became effective on January 30, 2003. Prior thereto, the Company's
Common Stock was listed on the New York Stock Exchange ("NYSE") under the ticker
symbol WXS from October 15, 1999.

The following table presents the high and low sales prices of
the Company's Common Stock as reported by the NYSE and the high and low bid
prices as reported by the OTCBB, as applicable, for each full quarterly period
within the two most recent fiscal years:





|Quarter Ended | Share Price
|------------- | -----------
|              |            
|              | 2003       
|              |            
|              |            
|              |            
|March 31      |            
|June 30       |            
|September 30  |            
|December 31   |            



Under its existing credit facilities,

As of February 23, 2004, there were approximately 3,790 holders
of the Company's Common Stock. Of that total, approximately 290 were
stockholders of record and approximately 3,500 held their stock in nominee name
through the Depository Trust Company.

The Company currently anticipates that all of the currently
outstanding shares of its Common Stock will be cancelled pursuant to the plan of
reorganization which it will propose under chapter 11 of the Bankruptcy
Code.

Website Access

Our website address is www.westpointstevens.com. You may
obtain free electronic copies of our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and all amendments to those
reports at our investor relations website,
www.investorwestpoint.com/performance/index.asp, under the heading "SEC
Filings."  You may also find our Code of Business Conduct and
Ethics and our Audit Committee Charter on our website under the heading "Corporate Governance." These reports are available on our investor relations website as soon
as reasonably practicable after we electronically file them with the SEC. The
information on our website is not part of or incorporated by reference in this
Annual Report on Form 10-K.





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Equity Compensation Plan Information

The following table sets forth information as of December 31, 2003, (except
as otherwise specified in the footnotes).

|Plan category                                              | Number of securities to be issued upon exercise of outstanding options,
      warrants and rights(a) | Weighted-average exercise price of outstanding options, warrants and
      rights(b) | Number of securities remaining available for future issuance under
      equity compensation plans (excluding securities reflected in column (a))
      (c)
|---------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders     | 3,170,682                                                                                            | $17.06                                                                               | 3,195,820(1)(2)                                                                                                                                            
|Equity compensation plans not approved by security
holders | 20,000                                                                                               | $14.50                                                                               | 41,351(3)                                                                                                                                                  
|Total                                                      | 3,190,682                                                                                            | $17.05                                                                               | 3,237,171(1)(2)(3)                                                                                                                                         

(1)

(2)

(3)



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Item 6.   Selected Financial Data

The selected historical financial data presented below for 2003, 2002 and
2001 were derived from the Audited Consolidated Financial Statements of the
Company and its subsidiaries as of and for the years ended December 31, 2003,
2002 and 2001 (the "Consolidated Financial Statements"), and should be read
in conjunction therewith, including the notes thereto and the other financial
information included elsewhere in this annual report.

|                                                | Year Ended December 31,
|----------------------------------------------- | -----------------------
|                                                |                        
|                                                | 2003                   
|                                                |                        
|(In millions, except per share data)            |                        
|                                                |                        
|Statement of                                    |                        
|                                                | Operations Data:       
|Net sales                                       | $1,646.2               
|Gross earnings (1)                              | 283.9                  
|Goodwill impairment charge                      | 46.3                   
|Operating earnings (loss) (2)                   | (43.6)                 
|Interest expense (3)                            | 102.0                  
|Chapter 11 expenses                             | 31.5                   
|Income (loss) from operations before income tax |                        
|                                                | expense (benefit) (4)  
|Net income (loss) (5)                           | (133.3)                
|                                                |                        
|                                                |                        
|Diluted net income (loss) per common share      | (2.67)                 
|                                                |                        
|Diluted average common shares outstanding       | 49.9                   
|                                                |                        
|Cash dividends declared per share               | -                      

|                               |             
|------------------------------ | ------------
|                               |             
|                               |             
|                               | December 31,
|                               |             
|                               |             
|                               |             
|(In millions)                 
|                               |             
|Balance Sheet Data:            |             
|Total assets                   | $1,279.8    
|Working capital (6)            | (264.1)     
|Total debt (7)                 | 1,744.7     
|Stockholders' equity (deficit) | (949.1)     

|                              |                        
|----------------------------- | -----------------------
|                              |                        
|                              |                        
|                              | Year Ended December 31,
|                              |                        
|                              |                        
|                              |                        
|(In millions)                 |                        
|                              |                        
|Other Data:                   |                        
|Depreciation and amortization | $69.4                  
|Capital expenditures          | 18.7                   

See footnotes on following page.



13

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(1) Gross earnings for the years ended December 31, 2003, 2002,
2001 and 2000 include costs related to restructuring initiatives of $17.4 million, $11.6 million, $13.7 million and $85.3
million, respectively, as discussed in Note 12 and Management's Discussion and
Analysis.

(2) Operating earnings for the years ended December 31, 2003,
2002, 2001 and 2000 include restructuring and impairment charges of $49.6
million, $6.6 million, $5.0 million and $109.2 million, respectively, and other
costs related to restructuring initiatives of $17.4
million, $11.6 million, $13.7 million and $85.3 million, respectively, totaling
$67.1 million, $18.2 million, $18.7 million and $194.5 million, respectively, as
discussed in Note 12 and Management's Discussion and Analysis.

(3) Contractual interest of $148.3 million for the year ended
December 31, 2003.

(4) Loss from operations before income tax benefit
for the years ended December 31, 2003, 2002, 2001 and 2000 include restructuring
and impairment charges of $49.6 million, $6.6 million, $5.0 million and $109.2
million, respectively, and other costs related to restructuring initiatives and other charges of $17.4 million, $11.6 million, $13.7
million and $94.0 million, respectively, totaling $67.1 million, $18.2 million,
$18.7 million and $203.2 million, respectively, as discussed in Note 12 and
Management's Discussion and Analysis.

(5) Net loss for the years ended December 31, 2003, 2002, 2001
and 2000 include restructuring and impairment charges of $49.6 million, $6.6
million, $5.0 million and $109.2 million, respectively, and other costs related
to restructuring initiatives and other charges of $17.4
million, $11.6 million, $13.7 million and $94.0 million, respectively, totaling
$67.1 million, $18.2 million, $18.7 million and $203.2 million, respectively,
before income tax benefit of $24.1 million, $6.6 million, $6.7 million and $73.1
million, respectively, for a net amount of $42.9 million, $11.7 million, $11.9
million and $130.1 million, respectively, as discussed in Note 12 and
Management's Discussion and Analysis.

(6) Working capital at December 31, 2003, 2002, 2001, 2000 and
1999 includes the current portion of bank indebtedness of $579.7 million, $447.8 million, $107.5 million, $152.8 million and $89.8
million, respectively. Working capital at December 31, 2003,
and 2002 also includes long-term debt of $165.0 million and $1,165.0 million,
respectively, classified as current (see Note 3).

(7) Total debt at December 31, 2003, includes $1,000.0 million
classified as Liabilities Subject to Compromise (see Notes 2 and 3).





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Item 7.   Management's Discussion
and Analysis of Financial Condition and Results of Operations

Chapter 11 Case

As more fully disclosed above (see "Item 1. Business -- Chapter
11 Filing") and in Note 2, on June 1, 2003, the Company and several of its
subsidiaries each commenced with the Bankruptcy Court a voluntary case under
chapter 11 of the Bankruptcy Code. The Bankruptcy Code prevents creditors and
other parties in interest from taking certain actions, including enforcement
actions, against the Debtors, without first obtaining prior approval of the
Bankruptcy Court. In addition, the Company has entered into the DIP Credit
Agreement, which is more fully described below. On August 28, 2003, one of the
Company's foreign subsidiaries, WestPoint Stevens (Europe) Ltd., commenced an
insolvency proceeding in the United Kingdom and is in the process of being
closed and liquidated.

The Company's consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States on a going concern basis. Except as otherwise disclosed, these
principles assume that assets will be realized and liabilities will be
discharged in the ordinary course of business. The Company is currently
operating as a debtor in possession under chapter 11 of the Bankruptcy Code, and
its continuation as a going concern is contingent upon, among other things the
confirmation by the Bankruptcy Court of a chapter 11 plan or reorganization and
its ability to comply with the DIP Credit Agreement, return to profitability,
generate sufficient cash flows from operations and obtain financing sources to
meet future obligations. There is no assurance that the Company will be able to
achieve any of these results. The Company's consolidated financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might result from the outcome of these uncertainties.

Whether as a result of its case under chapter 11 or otherwise,
the Company may sell or otherwise dispose of assets, and liquidate or settle
liabilities, for amounts other than those reflected in the financial statements.
Additionally, the amounts reported on the consolidated balance sheets could
materially change because of changes in business strategies and the effects of
any proposed plan of reorganization.

Basis of Presentation

The Company's consolidated financial statements are presented
in accordance with AICPA Statement of Position 90-7 ("Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code") ("SOP 90-7"). In the
chapter 11 case, substantially all unsecured liabilities as of the Petition Date
are subject to compromise or other treatment under a plan of reorganization
which must be confirmed by the Bankruptcy Court after submission to any required
vote by affected parties. For financial reporting purposes, the categories of
liabilities and obligations whose treatment and satisfaction are dependent on
the outcome of the chapter 11 case have been classified as Liabilities Subject
to Compromise in the consolidated balance sheets. The ultimate amount of and
settlement terms for the Company's pre-bankruptcy liabilities are subject to the
ultimate outcome of its chapter 11 case and, accordingly, are not presently
determinable. Pursuant to SOP 90-7, professional fees associated with the
chapter 11 case are expensed as incurred and reported as reorganization costs
(chapter 11 expenses). Also, interest expense will be reported only to the
extent that it will be paid during the pendency of the chapter 11 case or that
it is probable that it will be an allowed claim.

Senior Credit Facility and Second-Lien Facility Amendments

Effective March 31, 2003, the Company's Senior Credit Facility
was amended primarily to provide for an interim facility limitation and to add
an unused commitment fee. Under the interim facility limitation, the Company's
outstanding borrowings and letters of credit under the Senior Credit Facility
were limited to the following amounts for the periods indicated: $546.0 million
for the period April 1, 2003, through April 26, 2003; $530.0 million for the
period April 27, 2003, through May 17, 2003; $525.0 million for the period May
18, 2003, through June 10, 2003.

At the option of the Company and effective with the last
amendment to the Senior Credit Facility, interest under the Senior Credit
Facility was payable monthly, either at the prime rate plus 5.25% or at LIBOR
plus 7.00%, compared to prime rate plus 2.75% or LIBOR plus 4.50% in effect at
December 31, 2002. Effective with the chapter 11 filing, the Senior Credit
Facility LIBOR loans converted to prime rate loans upon maturity and LIBOR loans
are no longer available to the Company. Prior to the Petition Date, the Company
was also obligated to pay a facility fee in an amount equal to 0.50% of each

15

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Item 7.   Management's Discussion and Analysis
of Financial Condition and Results of Operations--Continued

Senior Credit Facility and Second-Lien Facility Amendments--Continued

Bank's commitment under the Revolver, and an unused commitment
fee in an amount equal to 1.00% of the difference between the revolver
commitment and the daily outstanding loans and letters of credit. As of the
Petition Date, the Company is no longer obligated to pay a facility fee or an
unused commitment fee for the Senior Credit Facility.

At March 31, 2003, the Company was not in compliance with
certain of its covenants under the Senior Credit Facility and Second-Lien
Facility. Effective March 31, 2003, the Company's lenders under the Senior
Credit Facility and Second-Lien Facility temporarily waived the defaults for the
period March 31, 2003, through and including June 10, 2003. Related to the
Company's chapter 11 filing, at December 31, 2003 and 2002, the Company
classified all of its outstanding debt under its Senior Credit Facility,
Second-Lien Facility and Senior Notes as current liabilities as a result of the
potential for the acceleration of the loans outstanding under its various credit
agreements.

DIP Credit Agreement

The Company is a party to the DIP Credit Agreement which
provides a facility consisting of revolving credit loans of up to $300 million
(with a sublimit of $75 million for letters of credit) with a term of one year
and a maturity date of June 2, 2004. At its option, the Company may extend the
term for up to two successive periods of six months each.

Initial advances under the DIP Credit Agreement bore interest
at a fluctuating rate per annum equal to LIBOR plus a margin of 2.75% or, at the
Company's option, prime plus a margin of 0.75%. Each margin is subject to
quarterly adjustments, commencing November 1, 2003, pursuant to a pricing
matrix, based on average availability, having a range of 2.25% to 3.00% for
LIBOR based loans and 0.25% to 1.00% for prime based loans. The DIP Credit
Agreement also has an unused line fee of 0.625% per annum, subject to quarterly
adjustments as above having a range of 0.375% to 0.75%. Effective November 1,
2003, as a result of average availability, interest rates under the DIP Credit
Agreement decreased to LIBOR plus 2.50% or, at the Company's option, prime plus
0.50% and the unused line fee decreased to 0.50%. Effective February 1, 2004, as
a result of average availability, interest rates under the DIP Credit Agreement
increased to LIBOR plus 2.75% or, at the Company's option, prime plus 0.75% and
the unused line fee increased to 0.625%.

The DIP Credit Agreement contains a number of covenants,
including among others, affirmative and negative covenants with respect to
certain financial tests and other indebtedness, as well as restrictions against
the declaration or payment of dividends, the making of certain intercompany
advances and the disposition of assets without consent. The DIP Credit Agreement
also contains Events of Default (as defined in the DIP Credit Agreement)
including among others, a failure to pay the principal and interest of the
obligations when due, default with respect to any Debt (as defined in the DIP
Credit Agreement) and a failure by the Company to comply with any provisions of
the Financing Orders (as defined in the DIP Credit Agreement).

During the third quarter of 2003, the Company's DIP Credit
Agreement was amended primarily to modify the minimum EBITDA covenant, add a
minimum availability covenant, permit certain restructuring, impairment and
other charges and modify other miscellaneous provisions. At December 31, 2003,
the Company was in compliance with its covenants under the DIP Credit
Agreement.

There can be no assurance, however, that the Company will be
able to comply with the debt covenants or that, if it fails to do so, it will be
able to obtain amendments to or waivers of such covenants. Failure of the
Company to comply with covenants contained in its DIP Credit Agreement, if not
waived, or to adequately service debt obligations, could result in a default
under the DIP Credit Agreement. Any default under the Company's DIP Credit
Agreement, particularly any default that results in acceleration of indebtedness
or foreclosure on collateral, could have a material adverse effect on the
Company.

Restructuring, Impairment, and Other Charges

As a result of a strategic review of the Company's businesses,
manufacturing and other facilities, and products in the second quarter of 2000,
the Company's Board of Directors approved a $222.0 million pretax charge to
cover the cost of implementing an Eight-Point Plan that was designed to
streamline operations and improve profitability. The Eight-Point Plan addressed
the following points: 1) expansion of brands; 2) exploration of new licensing
opportunities; 3) rationalization of



16

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Item 7.   Management's Discussion and
Analysis of Financial Condition and Results of
Operations--Continued

Restructuring, Impairment, and Other
Charges--Continued

manufacturing operations; 4) reduction in overhead expense; 5)
increase in global sourcing; 6) improvement of inventory utilization; 7)
enhancement of supply chain and logistics functions; and 8) improvement in
capital structure.

During 2000, the Company conducted an intense evaluation of its
manufacturing process flow and capacity and how they relate to market demand.
The Company adopted a plan to close certain manufacturing plants and consolidate
manufacturing operations in an arrangement that will reduce costs and enable
more efficient production. The Company also evaluated its internal support and
administrative functions and adopted a plan to consolidate certain internal
support and administrative functions.

Four plant closings were announced under the Eight-Point Plan.
On October 2, 2000, the Rosemary greige plant, a towel plant located in Roanoke
Rapids, North Carolina, and the Liebhardt basic bedding plant in Union, South
Carolina, were scheduled for closing. On January 29, 2001, the Seneca plant, a
sheeting plant in Seneca, South Carolina, was scheduled for closing. On March 1,
2001, the Whitmire yarn plant in Whitmire, South Carolina, was scheduled for
closing. In addition to these closings, a reduction in the workforce of the
remaining finishing and fabricating facilities at the Rosemary complex was
announced on February 5, 2001. These plant closings will enable the Company to
consolidate its manufacturing in locations that allow the most efficient work
flow.

The cost of the manufacturing rationalization and
certain overhead reduction costs were reflected in a restructuring and
impairment charge of $109.2 million, before taxes, in 2000 and a restructuring
and impairment charge of $5.0 million, before taxes, in 2001. The components of
the restructuring and impairment charge in 2000 included $66.8 million for the
impairment of fixed assets, $23.7 million for the impairment of goodwill and
other assets and $18.7 million in reserves to cover cash expenses related to
severance benefits of $14.7 million and other exit costs, including lease
terminations, of $4.0 million. The components of the restructuring and
impairment charge in 2001 included $7.0 million in reserves to cover cash
expenses related to severance benefits and a reduction in reserves for other
exit costs of $2.0 million.

For the period since the adoption of the Eight-Point Plan
through the fourth quarter of 2001, the Company terminated and agreed to pay
severance (including continuing termination benefits) to approximately 1,700
employees. The restructuring charge approved in 2000 was completed
in the fourth quarter of 2001. Given the disruptive nature of the restructuring
activity that included significant machinery relocation and realignment in 2000
and 2001, the Company did not see any significant benefit from the restructuring
plan until 2002. During 2002 the Company experienced lower cost of sales in part
due to increased manufacturing efficiencies as a result of the restructuring
plan.

The following is a summary of the restructuring and impairment
activity in the related reserves (in millions):



|                                          |                |           |   | Employee    |     | Other |     |       
|----------------------------------------- | -------------- | --------- | - | ----------- | --- | ----- | --- | ------
|                                          |                | Writedown |   | Termination |     | Exit  |     | Total 
|                                          |                | Assets    |   | Benefits    |     | Costs |     | Charge
|                                          |                |           |   |             |     |       |     |       
|2000 Restructuring and Impairment Charge: |                |           |   |             |     |       |     |       
|                                          | Second Quarter |           | $ | 87.9        |     | $     | 4.6 |       
|                                          | Third Quarter  |           | - |             | 5.8 |       | 0.3 |       
|                                          | Fourth Quarter |           |   | 2.6         |     |       | 4.3 |       
|                                          |                |           |   |             |     |       |     |       
|Total 2000 Charge                         |                | 90.5      |   | 14.7        |     | 4.0   |     | 109.2 
|                                          |                |           |   |             |     |       |     |       
|2001 Restructuring and Impairment Charge: |                |           |   |             |     |       |     |       
|                                          | First Quarter  |           | - |             | 5.0 |       | -   |       
|                                          | Fourth Quarter |           |   | -           |     |       | 2.0 |       
|                                          |                |           |   |             |     |       |     |       
|Total 2001 Charge                         |                | -         |   | 7.0         |     | (2.0) |     | 5.0   
|                                          |                |           |   |             |     |       |     |       
|Writedown Assets to Net Recoverable Value |                | (90.5)    |   | -           |     | -     |     | (90.5)
|2000 Cash Payments                        |                | -         |   | (4.7)       |     | (0.3) |     | (5.0) 
|2001 Cash Payments                        |                | -         |   | (15.0)      |     | (0.1) |     | (15.1)
|2002 Cash Payments                        |                |           | - |             |     | (1.7) |     |       
|2003 Cash Payments                        |                |           | - |             |     | (0.3) |     |       
|                                          |                |           |   |             |     |       |     |       
|Balance at December 31, 2003              |                | $         | - |             | $   | -     |     | $     
|                                          |                |           |   |             |     |       |     |       
|                                          |                |           |   |             |     |       |     |       
|                                          |                |           |   |             |     |       |     |       



17

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Item 7.   Management's Discussion and Analysis
of Financial Condition and Results of Operations--Continued

Restructuring, Impairment, and Other
Charges--Continued

During 2000, other costs of the Eight-Point Plan and other
charges of $94.0 million, before taxes, were recognized including inventory
writedowns of $74.2 million; claims of $5.0 million; other expenses of $6.1
million consisting primarily of $2.2 million for the relocation of machinery,
$2.4 million of related unabsorbed overhead and other expenses of $1.5 million,
all reflected in cost of goods sold; and other costs of $8.7 million consisting
primarily of $5.7 million of unusual contractual severance and other expenses of
$3.0 million reflected in Other expense-net. During 2001, other costs of the Eight-Point Plan of $13.7 million, before taxes, were
recognized consisting primarily of $10.0 million for the relocation of
machinery, $3.0 million of related unabsorbed overhead and other expenses of
$0.7 million all reflected in cost of goods sold.



|
|







On September 20, 2002, the Company announced that its Board of
Directors had approved additional restructuring initiatives to increase asset
utilization, lower manufacturing costs and increase cash flow and profitability
through reallocation of production assets from bath products to basic bedding
products and through rationalization of its retail stores division. The Company
initially expected the restructuring initiatives to result in a $36.5 million
pretax charge for restructuring, impairment and other charges, with
approximately $20 million of the pretax charge expected to be non-cash items. As
a result of modifications to the initial restructuring initiatives, the Company
now expects the restructuring initiatives to result in a $47.7 million pretax
charge for restructuring, impairment and other charges, with approximately $31.7
million of the pretax charge expected to be non-cash items. All charges have
been recorded in accordance with Statement of Financial Accounting Standard No.
146, Accounting for Costs Associated with Exit or Disposal Activities.
The charges for the restructuring initiatives began in the third quarter of 2002
and will continue through the second quarter of 2004.

As a result of the restructuring initiatives begun in 2002, the
Company announced the closure of its Rosemary (NC) towel finishing facility, the
conversion of its Rosemary (NC) towel fabrication and distribution facilities to
basic bedding facilities and the closure of its Dalton (GA) basic bedding
facility. The Company announced on April 25, 2003, that the Rosemary (NC) towel
fabrication and distribution facilities that were previously disclosed as being
converted to basic bedding facilities would now be closed. The Company also
announced the closure of twenty-two retail stores and the closure of its
WestPoint Stevens (Europe) Ltd. foreign subsidiary.

The cost of the manufacturing and retail store rationalization
and certain overhead reduction costs were reflected in a restructuring and
impairment charge of $6.6 million, before taxes, in 2002 and a restructuring and
impairment charge of $12.6 million, before taxes, in 2003. The components of the
restructuring and impairment charge in 2002 included $4.4 million for the
impairment of fixed assets and $2.2 million in reserves to cover cash expenses
related primarily to severance benefits. The components of the restructuring and
impairment charge in 2003 included $7.0 million for the impairment of fixed
assets and $5.6 million in reserves to cover cash expenses related to severance
benefits of $5.2 million and other exit costs.

During 2002 and 2003 as a result of restructuring initiatives,
the Company terminated and agreed to pay severance (including termination
benefits) to approximately 500 employees.



18

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Item 7.   Management's Discussion and Analysis
of Financial Condition and Results of Operations--Continued

Restructuring, Impairment, and Other
Charges--Continued

The following is a summary of the restructuring and impairment
activity in the related reserves (in millions):



|                                          |                |           |     | Employee    |   | Other |       |       
|----------------------------------------- | -------------- | --------- | --- | ----------- | - | ----- | ----- | ------
|                                          |                | Writedown |     | Termination |   | Exit  |       | Total 
|                                          |                | Assets    |     | Benefits    |   | Costs |       | Charge
|                                          |                |           |     |             |   |       |       |       
|2002 Restructuring and Impairment Charge: |                |           |     |             |   |       |       |       
|                                          | Third Quarter  |           | $   | 4.3         |   | $     | 1.6   |       
|                                          | Fourth Quarter |           |     | 0.1         |   |       | 0.5   |       
|                                          |                |           |     |             |   |       |       |       
|Total 2002 Charge                         |                | 4.4       |     | 2.1         |   | 0.1   |       | 6.6   
|                                          |                |           |     |             |   |       |       |       
|2003 Restructuring and Impairment Charge: |                |           |     |             |   |       |       |       
|                                          | First Quarter  |           |     | 0.2         |   |       | 0.8   |       
|                                          | Second Quarter |           |     | 6.8         |   |       | 4.3   |       
|                                          | Third Quarter  |           |     | 0.8         |   |       | 0.2   |       
|                                          | Fourth Quarter |           |     | (0.8)       |   |       | (0.1) |       
|                                          |                |           |     |             |   |       |       |       
|Total 2003 Charge                         |                |           | 7.0 |             |   | 5.2   |       |       
|                                          |                |           |     |             |   |       |       |       
|Writedown Assets to Net Recoverable Value |                | (11.4)    |     | -           |   | -     |       | (11.4)
|2002 Cash Payments                        |                |           | -   |             |   | (1.5) |       |       
|2003 Cash Payments                        |                |           | -   |             |   | (4.6) |       |       
|                                          |                |           |     |             |   |       |       |       
|Balance at December 31, 2003              |                | $         | -   |             | $ | 1.2   |       | $     
|                                          |                |           |     |             |   |       |       |       
|                                          |                |           |     |             |   |       |       |       
|                                          |                |           |     |             |   |       |       |       



During 2002, other costs of the restructuring initiatives of
$11.6 million, before taxes, were recognized consisting of inventory writedowns
of $10.5 million primarily related to the rationalization of its retail stores
division and other expense of $1.1 million, consisting primarily of related
unabsorbed overhead, all reflected in cost of goods sold. During 2003, other
costs of the restructuring initiatives of $16.0 million, before taxes, were
recognized consisting of inventory writedowns of $8.4 million primarily related
to the closure of its foreign subsidiary and the rationalization of its retail
stores division, accounts receivable writedowns for claims of $1.4 million
related to the closure of its foreign subsidiary and other expenses of $6.2
million, consisting primarily of $4.1 million of related unabsorbed overhead,
$1.2 million for the relocation of machinery and other expenses of $0.9 million,
all reflected in cost of goods sold.





During the third quarter of 2003, the Company's Board of
Directors approved further restructuring initiatives to increase asset
utilization, lower manufacturing costs and increase cash flow and profitability
through a further realignment of manufacturing capacity. The Company expects the
restructuring initiatives to result in an $84.3 million pretax charge for
restructuring, impairment and other charges. Approximately $55.6 million of the
pretax charge is expected to be non-cash items. All charges have been recorded
in accordance with Statement of Financial Accounting Standard No. 146,
Accounting for Costs Associated with Exit or Disposal Activities. The
charges for the restructuring initiatives began in the fourth quarter of 2003
and will continue throughout 2004.

As a result of the restructuring initiatives begun in 2003, the
Company announced the closure of its Dunson (GA) sheeting facility, its Dixie
(GA) towel facility, its Coushatta (LA) utility bedding facility and its Fairfax
(AL) towel greige facility. The Company also announced the conversion of its
Lanier (AL) sheeting facility to towel production and the conversion of its
Greenville (AL) blanket facility to a utility bedding facility. These plant
closings and conversions provide the Company with greater production efficiency
and better-aligned capacity to compete more effectively in a global economy.

The cost of the manufacturing rationalization was reflected in
a restructuring and impairment charge of $37.0 million, before taxes, in 2003.
The restructuring and impairment charge in 2003 reflected the impairment of
fixed assets.





19

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Item 7.   Management's Discussion and Analysis
of Financial Condition and Results of Operations--Continued

Restructuring, Impairment, and Other
Charges--Continued

The following is a summary of the restructuring and impairment
activity in the related reserves (in millions):



|                                          |                |           |   | Employee    |   | Other |   |       
|----------------------------------------- | -------------- | --------- | - | ----------- | - | ----- | - | ------
|                                          |                | Writedown |   | Termination |   | Exit  |   | Total 
|                                          |                | Assets    |   | Benefits    |   | Costs |   | Charge
|                                          |                |           |   |             |   |       |   |       
|2003 Restructuring and Impairment Charge: |                |           |   |             |   |       |   |       
|                                          | Fourth Quarter |           | $ | 37.0        |   | $     | - |       
|                                          |                |           |   |             |   |       |   |       
|Writedown Assets to Net Recoverable Value |                | (37.0)    |   | -           |   | -     |   | (37.0)
|                                          |                |           |   |             |   |       |   |       
|Balance at December 31, 2003              |                | $         | - |             | $ | -     |   | $     
|                                          |                |           |   |             |   |       |   |       
|                                          |                |           |   |             |   |       |   |       
|                                          |                |           |   |             |   |       |   |       

During 2003, other costs of the restructuring initiatives of
$1.4 million, before taxes, were recognized consisting of inventory writedowns
of $1.0 million and other expenses of $0.4 million, consisting of related
unabsorbed overhead.

Executive Summary

Overview

The Company operates exclusively in the home fashions industry
and recognizes revenue primarily through the sale of Home Fashions products to a
variety of retail and institutional customers. The Company also operates 37
retail outlets that sell home fashion products including, but not limited to,
WestPoint Stevens' home fashion products. In addition, the Company receives a
small portion of its revenues through the licensing of its trade names. For a
more detailed description of the Company see "Item 1. Business."

Industry and Company
Profile

Cyclicality

The home fashion textile industry has traditionally been a
cyclical industry. The latest down cycle began in 2000 and is reported to be
showing signs of a turn upward. The practical effect of a down cycle on
manufacturing companies, including the Company, is stress on any balance sheet
which has a large debt load and pressure on profitability caused by under
utilization of plant and equipment.

Growth of Imports

The easing of trade restrictions over time has led to growing
competition from low priced imported product. This issue will be amplified by
the projected lifting of import quotas in the year 2005. Imported sheets and
towels have captured 43% and 52% respectively of the U S market according to US
Census data. Domestic suppliers, including the Company, have contributed to the
import total by buying product overseas for resale domestically. Approximately
22% of the Company's 2003 sales were of imported goods. The Company has recently
closed four domestic manufacturing facilities in favor of importing those
products.

Retail Consolidation

Retailers of consumer goods have become fewer and more powerful
over time. As buying power has become more concentrated, pricing pressure on
vendors has grown. With the ability to buy imported product directly from the
foreign source, this pricing leverage has increased. The result has been a
negative effect on unit pricing and margins earned on domestically produced
products. To combat this trend, domestic producers, such as the Company, are
aggressively importing competitively priced goods and utilizing domestic
distribution capabilities and the ability to deliver large volumes on short
notice to maintain their value to the retail customers.



20

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External Events

Sales and availability of consumer goods are directly impacted
by external events. The attacks of 9/11 severely impacted retail sales and
vendor shipments nationwide. The west coast dock strike kept imported goods from
reaching their destinations and was an advantage for domestic suppliers.  Snowstorms in 2004 slowed retail sales and closed production facilities.

Raw Material Pricing and
Availability

Textile profitability is affected more by raw material pricing
than any other single variable. A one cent per pound change in cotton pricing can have an
enormous effect on product profitability. Over the past three years the price of
cotton has varied by as much as twenty cents per pound, both up and down. The Company
employs a hedging strategy to smooth the volatility of the cotton market and to
reduce uncertainty in costing. Other raw materials are down and feathers for
pillows and comforters and also polyester for sheeting and pillows. Down and
feathers are generally imported from China. Pricing is subject to vacillations
in supply caused by any number of things. Polyester prices vary with the price
of petroleum.

Working Capital
Management

Inventory management is the most critical variable to the
success of a textile company. Inventory is produced prospectively based on
customer provided forecasts in order to be ready to ship on a quick response
basis. Growing sophistication of retail systems has provided the customer with
the ability to recognize trends rapidly and to change forecasts on much shorter
notice than in the past. This ability presents unique challenges to the
manufacturer who produces inventory in advance of anticipated orders. To manage
inventory balances, the Company has moved to smaller lot sizes in some cases,
but most importantly, the Company has chosen to curtail production where
necessary in order not to create unwanted inventory. Curtailment has a negative
effect on profitability but preserves cash that would have otherwise been
invested in inventory.







21

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Item 7.   Management's Discussion and Analysis
of Financial Condition and Results of Operations--Continued

Results of Operations

The table below is a summary of the Company's operating results
for the years ended December 31, 2003, 2002 and 2001 (in millions of dollars and
as percentages of net sales).

|                                    |  | Year Ended December 31,
|----------------------------------- |  | -----------------------
|                                    |  |                        
|                                    |  | 2003                   
|                                    |  |                        
|Net sales                           |  | $                      
|Gross earnings                      |  | $                      
|Restructuring and impairment charge |  | $                      
|Goodwill impairment charge          |  | $                      
|Operating earnings (loss)           |  | $                      
|Interest expense                    |  | $                      
|Other expense-net                   |  | $                      
|Chapter 11 expenses                 |  | $                      
|Loss from operations before taxes   |  | $                      
|Net loss                            |  | $                      
|Gross margin                        |  | 17.2%                  
|Operating margin                    |  | (2.6%)                 



2003 Compared with 2002

Net Sales.   Net sales for the year ended
December 31, 2003, decreased $165.2 million, or 9.1%, to $1,646.2 million
compared with net sales of $1,811.4 million for the year ended December 31,
2002. The decrease reflected the difficult retail environment, especially in the
first half of 2003, such that sales declined in all major product categories. On
a customer basis Kmart Corporation's restructuring and subsequent stores
closings and negative comparable sales growth accounted for roughly half of the
overall net sales decline. Finally, net sales were also impacted by the
Company's restructuring of its retail stores division, which resulted in the
acceleration of store closings in the fourth quarter of 2003 and lower overall
sales.

For the year ended December 31, 2003, bed products sales were
$955.5 million compared with $1,053.0 million in 2002, bath products sales were
$535.1 million compared with $549.0 million in 2002 and other sales (consisting
primarily of sales from the Company's retail stores and foreign operations) were
$155.6 million compared with $209.3 million in 2002.

Gross Earnings/Margin.  Gross earnings for
the year ended December 31, 2003, of $283.9 million decreased $109.7 million, or
27.9%, compared with $393.6 million for 2002 and reflect gross margins of 17.2%
in 2003 and 21.7% in 2002. Included in gross earnings for the years ended
December 31, 2003, and 2002 were costs related to restructuring initiatives of
$17.4 million and $11.6 million, respectively. For 2003 the majority of these
charges reflect costs for unabsorbed overhead at affected facilities and
inventory write-offs primarily related to the closure of the Company's European
operations and rationalization of the retail stores division, as previously
discussed. For 2002 these charges consisted primarily of inventory adjustments
for planned retail store closings. Gross earnings and margins deteriorated in
2003 due to lower sales, a less profitable mix of revenues, higher raw material
costs, primarily cotton, increased promotional activity, increased royalties,
increased pension expense and under-absorbed overhead due to production
curtailment.

Goodwill Impairment Charge. The Company recognized a
$46.3 million goodwill impairment charge in 2003 that resulted from certain
triggering events that occurred during the period including the Company's
chapter 11 filing.



22

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Item 7.   Management's Discussion and Analysis
of Financial Condition and Results of Operations--Continued

Results of Operations--Continued

2003 Compared with 2002--Continued

Operating Earnings/Margins.  Selling, general
and administrative expenses decreased $33.1 million, or 12.5%, in 2003 compared
with 2002, and as a percentage of net sales represent 14.1% in 2003 and 14.6% in
2002. The decrease in selling, general and administrative expenses in 2003 was
due to the Company's efforts to reduce overhead expenses, lower bad debt
expense, lower selling expense including lower expense for the Company's retail
stores due to fewer stores, and reduced expenses associated with the Trade
Receivables Program which was terminated early in the third quarter of 2003.
Selling, general and administrative expenses included additional bad debt
expense for Kmart Corporation accounts receivable of $10.4 million in 2002.
Restructuring and impairment charges of $49.6 million and $6.6 million were
incurred in 2003 and 2002, respectively, as previously discussed.

Operating earnings for the year ended December 31, 2003, were a
loss of $43.6 million, or (2.6%) of sales, and decreased $165.8 million,
compared with operating earnings of $122.3 million, or 6.8% of sales, for 2002.
Included in operating earnings for the years ended December 31, 2003, and 2002
were costs related to restructuring initiatives of $67.1 million and $18.2
million, respectively, and a goodwill impairment charge of $46.3 million, as
previously discussed. The decrease in operating earnings in 2003 also resulted
from lower sales levels, a less profitable mix of revenues, higher raw material
costs, primarily cotton, increased promotional activity, increased royalties,
increased pension expense and under-absorbed overhead due to production
curtailment, that more than offset reduced overhead expenses, lower bad debt
expense, lower selling expense including lower expense for the Company's retail
stores due to fewer stores, and reduced expenses associated with the Trade
Receivables Program which was terminated early in the third quarter of
2003.

Interest Expense. Interest expense
for the year ended December 31, 2003, of $102.0 million decreased $33.5 million
compared with interest expense for the year ended December 31, 2002. Effective
with the Company's chapter 11 filing, interest is no longer accrued on the
Senior Notes due 2005 and 2008, the impact of which was $46.3 million for 2003.
The decrease in interest expenses was offset by higher interest rates on the
Company's variable rate bank debt compared with corresponding 2002 average
interest rates.

Other Expense-Net.  Other expense-net
increased $11.0 million for the year ended December 31, 2003, to $17.6 million
from $6.6 million for the year ended December 31, 2002. Charges in 2003
primarily included $4.9 million in transaction costs associated with an
unsuccessful acquisition effort and the amortization of deferred financing fees
of $12.3 million compared with other expense-net in 2002 of $6.6 million that
included amortization of deferred financing fees of $9.6 million that were
offset by miscellaneous income items including $1.8 million from an
unconsolidated subsidiary, and $1.2 million from gain on sale of
assets.

Chapter 11 Expenses. The Company recognized $31.5
million in bankruptcy reorganization related expenses for 2003 consisting
primarily of $4.9 million related to the early termination of the Company's
Trade Receivables Program, $3.6 related to amortization of fees associated with
the DIP Credit agreement, $1.3 million in severance associated with the
resignation of the Company's former Chairman and Chief Executive Officer, $7.6
million for performance bonuses under a court approved key employee retention
program and $14.1 million related to fees payable to professionals retained to
assist with the chapter 11 case.

Income Tax Expense
(Benefit).  In 2003 and 2002, the Company recorded a tax
benefit of $61.3 million and $7.1 million, respectively. The Company's effective
tax rate was 31.5% in 2003 and 36% in 2002. The decrease in the effective tax
rate was due primarily to non-deductible items related to the Company's chapter
11 expenses and goodwill impairment charge.

Net Loss.  Net loss for fiscal year 2003 was
$133.3 million, or a loss of $2.67 per share diluted, and net loss for 2002 was
$12.7 million, or a loss of $0.25 per share diluted. Included in net loss for
the years ended December 31, 2003, and 2002 were costs related to restructuring
initiatives, net of taxes, of $42.9 million and $11.7 million, respectively, as
previously discussed, in addition to charges for chapter 11 expenses and the
goodwill impairment charge, also previously discussed.

Diluted per share amounts are based on 49.9 million and 49.7
million average shares outstanding for 2003 and 2002, respectively.





23

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Item 7.   Management's Discussion and Analysis
of Financial Condition and Results of Operations--Continued

Results of Operations--Continued



Net Sales.   Net sales for the year ended
December 31, 2002, increased $46.3 million, or 2.6%, to $1,811.4 million
compared with net sales of $1,765.1 million for the year ended December 31,
2001. The increase was due to management's focus on expanding sales with key
retailers that resulted in growth in all major product categories except sheets.

For the year ended December 31, 2002, bed products sales were
$1,053.0 million compared with $1,024.3 million in 2001, bath products sales
were $549.0 million compared with $524.0 million in 2001 and other sales
(consisting primarily of sales from the Company's mill stores and foreign
operations) were $209.3 million compared with $216.9 million in 2001.

Gross Earnings/Margin.  Gross earnings for
the year ended December 31, 2002, of $393.6 million increased $15.3 million, or
4.0%, compared with $378.3 million for 2001 and reflect gross margins of 21.7%
in 2002 and 21.4% in 2001. Included in gross earnings for the years ended
December 31, 2002, and 2001 were costs related to restructuring initiatives of
$11.6 million and $13.7 million, respectively, as previously discussed. Gross
earnings and margins improved in 2002 due to increased sales and lower raw
material costs, primarily cotton, and lower costs related to restructuring
initiatives, that more than offset increased promotional activity, increased
royalties, increased pension expense and under-absorbed overhead due to
production curtailment.

Operating Earnings/Margins.  Selling, general
and administrative expenses increased $6.6 million, or 2.6%, in 2002 compared
with 2001, and as a percentage of net sales represent 14.6% in 2002 and 2001.
The increase in selling, general and administrative expenses in 2002 was
primarily due to increased sales levels. Selling, general and administrative
expenses included additional bad debt expense for Kmart Corporation accounts
receivable of $10.4 million and $11.0 million in 2002 and 2001, respectively.
Restructuring and impairment charges of $6.6 million and $5.0 million were
incurred in 2002 and 2001, respectively, related to the Company's Eight-Point
Plan, as previously discussed.

Operating earnings for the year ended December 31, 2002, were
$122.3 million, or 6.8% of sales, and increased $7.0 million, or 6.1%, compared
with operating earnings of $115.3 million, or 6.5% of sales, for 2001. Included
in operating earnings for the years ended December 31, 2002, and 2001 were costs
related to restructuring initiatives of $18.2 million and $18.7 million,
respectively, as previously discussed. The increase in operating earnings in
2002 resulted from higher sales levels and reduced raw material costs that more
than offset increased promotional activity, increased royalties, increased
pension expense and under-absorbed overhead due to production curtailment, as
well as increased selling, general and administrative expenses.

Interest Expense.  Interest expense for the
year ended December 31, 2002, of $135.5 million decreased $6.1 million compared
with interest expense for the year ended December 31, 2001. The decrease in
interest expense was due primarily to lower average debt levels and lower
average interest rates on the Company's variable rate bank debt.

Other Expense-Net.  Other expense-net
decreased $9.7 million for the year ended December 31, 2002, to $6.6 million
from $16.3 million for the year ended December 31, 2001. Charges in 2002
included amortization of deferred financing fees of $9.6 million that were
offset by miscellaneous income items including $1.8 million from an
unconsolidated subsidiary, and $1.2 million from gain on sale of assets. The
decline in 2002 reflects the absence of charges from 2001 including a $7.5
million non-cash charge to adjust to market value its basis in an unconsolidated
limited liability corporation, $2.3 million in charges for cotton derivatives in
accordance with Statement of Financial Accounting Standard No. 133,
Accounting for Derivative Instruments and Hedging Activities, and also
included the amortization of deferred financing fees of $6.9 million, less
certain miscellaneous items.

Income Tax Expense (Benefit).  In 2002 and
2001, the Company recorded a tax benefit of $7.1 million and $15.2 million,
respectively. The Company's effective tax rate was 36% in both 2002 and 2001.

Net Loss.  Net loss for fiscal year 2002 was
$12.7 million, or a loss of $0.25 per share diluted, and net loss for 2001 was
$27.3 million, or a loss of $0.55 per share diluted. Included in net loss for
the years ended December 31, 2002, and 2001 were costs related to restructuring
initiatives, net of taxes, of $11.7 million and $11.9 million, respectively, as
previously discussed.





24

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Item 7.   Management's Discussion and Analysis
of Financial Condition and Results of Operations--Continued

Results of Operations--Continued

2002 Compared with 2001--Continued

Diluted per share amounts are based on 49.7 million and 49.6
million average shares outstanding for 2002 and 2001, respectively.

Critical Accounting Policies and Estimates

These policies are considered "critical" because they have the
potential to have a material impact on the Company's financial statements and
because they require judgments and estimation due to the uncertainty involved in
measuring, at a specific point in time, events which are continuous in
nature.

The Company's Consolidated Financial Statements are prepared in
accordance with accounting principles generally accepted in the United States,
which require the Company to make estimates and assumptions. See Note 1. Summary
of Significant Accounting Policies in the Notes to Consolidated
Financial Statements. Management believes that the following are some of the
more critical judgment areas in the application of the Company's accounting
policies that currently affect financial condition and results of
operations.

Basis of Presentation.  The Company's
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States on a going concern
basis. Except as otherwise disclosed, these principles assume that assets will
be realized and liabilities will be discharged in the ordinary course of
business. The Company is currently operating as a debtor in possession under
chapter 11 of the Bankruptcy Code, and its continuation as a going concern is
contingent upon, among other things, confirmation by the Bankruptcy Court of a
chapter 11 plan of reorganization and its ability to comply with the DIP Credit
Agreement, return to profitability, generate sufficient cash flows from
operations and obtain financing sources to meet future obligations. There is no
assurance that the Company will be able to achieve any of these results. The
Company's consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might result from the outcome
of these uncertainties.

The Company's consolidated financial statements included
elsewhere in this Annual Report are presented in accordance with AICPA Statement
of Position 90-7 ("Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code") ("SOP 90-7"). In the chapter 11 case, substantially all
unsecured liabilities as of the Petition Date are subject to compromise or other
treatment under a plan of reorganization which must be confirmed by the
Bankruptcy Court after submission to any required vote by affected parties. For
financial reporting purposes, the categories of liabilities and obligations
whose treatment and satisfaction are dependent on the outcome of the chapter 11
case and classified as Liabilities Subject to Compromise in the consolidated
balance sheet under SOP 90-7 are identified below (in thousands):



| |                                 | December 31, 2003              
| | ------------------------------- | -------------------------------
| |                                 |                                
| |                                 |                                
| | Senior Notes due 2005 and 2008: |                                
| |                                 | Senior Notes outstanding       
| |                                 | Related accrued interest       
| |                                 | Related deferred financing fees
| |                                 |                                
| |                                 |                                
| |                                 | Total                          
| | Accounts payable                |                                
| | Pension liabilities             |                                
| | Accrued liabilities             |                                
| |                                 |                                
| | Total                           | $                              
| |                                 |                                
| |                                 |                                
| |                                 |                                
| |                                 |                                



25

|
|

Item 7.   Management's Discussion and Analysis
of Financial Condition and Results of Operations--Continued

Critical Accounting Policies and Estimates--Continued

The ultimate amount of and settlement terms for the Company's
pre-bankruptcy liabilities are subject to the ultimate outcome of its chapter 11
case and, accordingly, are not presently determinable. Pursuant to SOP 90-7,
professional fees associated with the chapter 11 case are expensed as incurred
and reported as reorganization costs (chapter 11 expenses). Also, interest
expense will be reported only to the extent that it will be paid during the
pendency of the chapter 11 case or that it is probable that it will be an
allowed claim. During 2003, the Company recognized charges of $31.5 million for
chapter 11 expenses, consisting of $4.9 million related to the early termination
of the Company's Trade Receivables Program, $1.3 million in severance associated
with the resignation of the Company's former Chairman and Chief Executive
Officer, $7.6 million for performance bonuses under a court approved Key
Employee Retention Program, $3.6 million related to the amortization of fees
associated with the DIP Credit Agreement and $14.1 million related to fees
payable to professionals retained to assist with the chapter 11 case.

Accounts Receivable.  The Company maintains
returns and allowances reserves as well as reserves for doubtful accounts for
estimated losses resulting from the inability of its customers to make required
payments. The estimation process requires management to make
assumptions based on historical results, future expectations, the economic and
competitive environment, changes in credit worthiness of customers, and other
relevant factors. Changes in these key assumptions can have a significant impact
on ultimate cash collections.

The Company believes that the accounting estimate related to
the establishment of the allowance for doubtful accounts and the associated
provisions in the results of operations is a "critical accounting estimate"
because: (1) it requires Company management to make assumptions about the future
collectibility of current balances due, as well as the future economic viability
of the Company's customer base; and (2) the impact of changes in actual
collections versus these estimates could have a material impact on the Company's
financial statements. In selecting these assumptions, the Company uses
historical trending of write-offs, returns and allowances, overdue status and
credit ratings of its customers, estimates of ultimate recoverability from
customers in bankruptcy, and other current market indicators about general
economic conditions that might impact the collectibility of accounts.

During 2001, the Company recorded $11.0 million of bad debt
expense to increase its allowance for doubtful accounts as a result of the
January 22, 2002, bankruptcy filing of Kmart. As a result of the further
deterioration of Kmart's financial condition during 2002, the Company recorded
additional bad debt expense of $10.4 million related to its Kmart pre-petition
receivables. During 2003, the Company sold its Kmart pre-petition receivables
and determined that its related receivables reserves were adequate to cover the
amounts not collected.

Management believes that its estimates are conservative;
however, if the financial condition of the Company's customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.

Inventories.The Company maintains market
reserves for estimated obsolete, excess, aged or off-quality inventories in
order to properly state inventories at lower of cost or market (net realizable
value). Differences between the cost of inventory and the estimated market value
are based upon assumptions about future demand, channels of distribution, and
market conditions. Changes in these market assumptions can have a significant
impact on the estimated net realizable value of inventories.

The Company believes that the accounting estimates related to
the establishment of inventory market reserves and the associated provisions in
the results of operations is a "critical accounting estimate" because: (1) it
requires Company management to make assumptions about future product demand and
overall sales prices; and (2) the impact of changes in realized sales prices
versus these estimates could have a material impact on the Company's financial
statements. In selecting these assumptions, the Company uses historical trending
of write-downs and other current market indicators about general economic
conditions that might impact the realizability of inventories. As a result of
our consideration of these factors, during 2003 and 2002, the Company recorded
$8.4 million and $10.5 million, respectively, of inventory write-downs primarily
related to the rationalization of its retail stores division and the closure of
its WestPoint Stevens (Europe) Ltd. foreign subsidiary, resulting from
restructuring initiatives and adverse economic conditions.



26

|
|

Item 7.   Management's Discussion and Analysis
of Financial Condition and Results of Operations--Continued

Critical Accounting Policies and Estimates--Continued

Management believes that its estimates are conservative;
however, if market conditions were to deteriorate, resulting in a markdown of
sales prices, additional reserves may be required.

Long-lived Asset Recovery.  A significant portion
of the Company's total assets consists of long-lived assets, consisting
primarily of property, plant and equipment ("PP&E"). Changes in the
Company's intended use of these assets, as well as changes in broad economic or
industry factors, may cause the estimated period of use or the value of these
assets to change.  As a part of the bankruptcy process, the Company continues to review its domestic manufacturing capacities which could result in future plant rationalizations.

PP&E are evaluated for impairment whenever indicators of
impairment exist. Accounting standards require that if an impairment indicator
is present, the Company must assess whether the carrying amount of the asset is
unrecoverable by estimating the sum of the future cash flows expected to result
from the asset, undiscounted and without interest charges. If the carrying
amount is less than the recoverable amount, an impairment charge must be
recognized, based on the fair value of the asset.

The Company believes that the accounting estimate related to
asset impairment is a "critical accounting estimate" because: (1) it requires
Company management to make assumptions about future revenues and costs of sales
over the life of the asset; and (2) the impact of recognizing an impairment
could be material to the Company's financial statements. Management's
assumptions about future revenues and cost of sales require significant judgment
and could differ from actual results due to changing market conditions and
overall product demand.

During 2003 and 2002, the Company identified certain PP&E
that became impaired as a result of restructuring initiatives and related plant
closures. The writedown of PP&E during 2003 and 2002 resulted in a total of
$44.0 million and $4.4 million of PP&E being impaired, respectively.

Goodwill.  Goodwill is reviewed at least annually
for impairment, or more frequently if indicators of impairment exist. Goodwill
impairment is tested by comparing the net book value of the reporting unit to
fair value. The Company believes that the accounting estimate related to
goodwill is a "critical accounting estimate" because: (1) it requires Company
management to make assumptions about fair values, and (2) the impact of
recognizing an impairment could be material to the financial statements.

Management completed an impairment analysis of goodwill in the
fourth quarter of 2002. This test was performed internally, and entity fair
value was estimated using quoted market prices of the Company's equity and debt
securities. As of December 31, 2002, no impairment existed.

As a result of certain triggering events that occurred
during the second quarter of 2003, including the Company filing a petition for
reorganization under chapter 11 of the Bankruptcy Code (see Note 2 where the
chronology of the circumstances that led to such filing is discussed), the
Company performed an interim test of the carrying amount of its goodwill in
accordance with Statement No. 142. Based on a valuation of the Company's
enterprise value using quoted market prices of the Company's debt and equity
securities and the identification of qualifying intangibles, the Company's
goodwill was deemed to be impaired and was subsequently written off. The
unamortized balance of the goodwill that was written off during the quarter
ended June 30, 2003, amounted to $46.3 million and is classified separately in
the accompanying consolidated statements of operations.

Customer Incentives   The Company maintains
reserves for accommodations and incentives that are frequently granted to
customers under its sales programs. The estimation process requires management
to make assumptions regarding potential credits to be taken by customers based
on historical experience and contracted amounts. Changes in these key
assumptions could have a significant impact on ultimate credits granted.

The Company believes that the accounting estimates related to
the establishment of the reserves for customer accommodations and incentives and
the associated provisions in the results of operations is a "critical accounting
estimate" because: (1) it requires the Company to make assumptions regarding the
customer incentives to be taken and (2) the impact of actual incentives taken
versus these estimates could have a material impact on the Company's financial
statements.





27

|
|

Item 7.   Management's Discussion and Analysis
of Financial Condition and Results of Operations--Continued

Critical Accounting Policies and Estimates--Continued

Legal Reserves. We are a party to legal
proceedings with respect to a variety of matters in the ordinary course of
business. Except as described in Note 10 to the consolidated financial
statements included herein, the Company does not believe that any legal
proceedings to which it is a party would have a material adverse impact on its
business or prospects.

In accordance with Statement of Financial Accounting Standards
No. 5, Accounting for Contingencies, the Company accrues legal costs that
are expected to be incurred to defend against certain litigation. Estimates of
legal reserves are determined in consultation with outside counsel. The Company
believes that the accounting estimate related to legal reserves is a "critical
accounting estimate" because: (1) it requires management to make estimates of
the ultimate legal liability to defend a case, and (2) changes in the estimated
amount or timing of legal costs can significantly impact results of operations.
Outside of foreseeable legal costs, if it is not currently possible to estimate
the impact, if any, that the ultimate resolution of legal proceedings will have
on our financial statements, no accrual is made, consistent with Statement
5.

Employee Benefit Plan Assumptions.  Retirement
benefits are a significant cost of doing business for the Company and represent
obligations that will be settled far in the future. Retirement benefit
accounting is intended to reflect the recognition of the future benefit costs
over the employee's approximate service period based on the terms of the plans
and the investment and funding decisions made by the Company. The accounting
requires that management make assumptions regarding such variables as the return
on assets, the discount rate and future health care costs. Changes in these key
assumptions can have a significant impact on the projected benefit obligation
and periodic benefit cost incurred by the Company.

The Company believes that the accounting estimate
related to retirement benefit accounting is a "critical accounting estimate"
because: (1) it requires Company management to make assumptions about discount
rates, future health care costs, and future return on assets funding the
obligation; and (2) the impact of changes in actual performance versus these
estimates would have on the projected benefit obligation reported on our balance
sheet and the benefit cost could be material. The method of determining pension
obligations requires assumptions concerning market performance. Market
performance has fluctuated in the recent past and could have continued
volatility in the future. In selecting these assumptions, the Company uses
historical experience as well as objective indices as benchmarks, and tests the
benchmarks against historical industry data on these assumptions provided by an
independent actuary.

An increase in the discount rate and in the expected return on
assets would reduce the reported benefit obligations and benefit costs. In
contrast, if the discount rate in 2003 were 25 basis points lower, it would
generate a $12.3 million increase in the projected benefit obligations and a
$1.9 million increase in the benefit costs. Similarly, if the expected return on
assets assumption were 25 basis points lower, it would generate a $0.6 million
increase in the benefit costs. Reasonable changes in the estimate of health care
cost assumptions would not materially affect the benefit obligations or related
benefit costs for a single year.

Effects of Inflation

The Company believes that the relatively moderate rate of
inflation over the past few years has not had a significant impact on its sales
or profitability.

Liquidity and Capital Resources

So long as the Company remains under the protection of chapter
11 of the Bankruptcy Code, its principal sources of liquidity are expected to be
cash generated from its operations and funds available under the DIP Credit
Agreement. The maximum commitment under the DIP Credit Agreement is $300
million. At January 31, 2004, borrowing availability under the DIP Credit
Agreement was $138.3 million and consisted of a calculated borrowing base of
$277.2 million less outstanding loans of $87.0 million, outstanding letters of
credit of $46.9 million and other reserves of $5.0 million. For additional
information about the DIP Credit Agreement, see "- DIP Credit Agreement"
above.



28

|
|

Item 7.   Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Continued

Liquidity and Capital Resources--Continued

During the pendency of its chapter 11 case, the Company's
principal uses of cash will be administrative expenses of the chapter 11 case,
operating expenses, capital expenditures and debt service (including both
interest payments under the DIP Credit Agreement and whatever payments may be
made in respect of pre-petition debt in accordance with orders of the Bankruptcy
Court).

There can be no assurance, however, that the Company will be
able to comply with the debt covenants or that, if it fails to do so, it will be
able to obtain amendments to or waivers of such covenants. Failure of the
Company to comply with covenants contained in its DIP Credit Agreement, if not
waived, or to adequately service debt obligations, could result in a default
under the DIP Credit Agreement. Any default under the Company's DIP Credit
Agreement, particularly any default that results in acceleration of indebtedness
or foreclosure on collateral, could have a material adverse effect on the
Company. At December 31, 2003, the Company was in compliance with its covenants
under the DIP Credit Agreement.

At December 31, 2003, the Company's major contractual
obligations were as follows (in millions of dollars):



|                       |          |              |         |         |          |         | Later  
|---------------------- | -------- | ------------ | ------- | ------- | -------- | ------- | -------
|                       | Total    | 2004         | 2005    | 2006    | 2007     | 2008    | Periods
|                       |          |              |         |         |          |         |        
|                       |          |              |         |         |          |        
|Senior Notes (1)       | $1,000.0 | $          - | $ 525.0 | $     - | $      - | $ 475.0 | $     -
|Senior Credit Facility | 490.7    | 490.7        | -       | -       | -        | -       | -      
|Second-Lien Facility   | 165.0    | -            | 165.0   | -       | -        | -       | -      
|DIP Credit Agreement   | 89.0     | 89.0         | -       | -       | -        | -       | -      
|Operating Leases       | 46.0     | 13.9         | 12.7    | 6.8     | 5.2      | 3.3     | 4.1    
|Inventory Contracts    | 55.7     | 55.7         | -       | -       | -        | -       | -      
|Pension Contributions  | 24.9     | 24.9         | -       | -       | -        | -       | -      
|                       |          |              |         |         |          |         |        
|                       | $1,871.3 | $  674.2     | $ 702.7 | $ 6.8   | $  5.2   | $ 478.3 | $ 4.1  
|                       |          |              |         |         |          |         |        
|                       |          |              |         |         |          |         |        
|                       |          |              |         |         |          |         |        



(1) Classified as Liabilities Subject to
Compromise.

Capital expenditures in 2004 are expected to total $35
million.

Purchase orders or contracts for the purchase of certain
inventory and other goods and services are not included in the table above. The
Company is not able to determine the aggregate amount of such purchase orders
that represent contractual obligations, as purchase orders may represent
authorizations to purchase rather than binding agreements. Purchase orders are
based on the Company's current needs and are fulfilled by vendors within short
time horizons. The Company does not have significant agreements for the purchase
of inventory or other goods specifying minimum quantities or set prices that
exceed expected requirements other than included in the above table.

Adequacy of Capital Resources

As a result of the uncertainty surrounding the Company's
current circumstances, it is difficult to predict the Company's actual liquidity
needs and sources at this time. However, based on current and anticipated levels
of operations and efforts to effectively manage working capital, the Company
anticipates that its cash flows from operations, together with cash on hand,
cash generated from asset sales, and amounts available under the DIP Credit
Agreement, will be adequate to meet its anticipated cash requirements during the
pendency of the chapter 11 case.

In the event that cash flows and available borrowings under the
DIP Credit Agreement are not sufficient to meet future cash requirements, the
Company may be required to reduce planned capital expenditures, sell assets or
seek additional financing. The Company can provide no assurances that reductions
in planned capital expenditures or proceeds from asset sales would be sufficient
to cover shortfalls in available cash or that additional financing would be
available or, if available, offered on acceptable terms.



29

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|

Item 7.   Management's Discussion and Analysis
of Financial Condition and Results of Operations--Continued

Adequacy of Capital Resources--Continued

As a result of the chapter 11 case, the Company's access to
additional financing is, and for the foreseeable future will likely continue to
be, very limited. The Company's long-term liquidity requirements and the
adequacy of the Company's capital resources are difficult to predict at this
time, and ultimately cannot be determined until a plan of reorganization has
been developed and confirmed by the Bankruptcy Court in connection with the
chapter 11 case.



New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (the
"FASB") released Interpretation No. 46, Consolidation of Variable Interest
Entities ("FIN 46"). FIN 46 requires that all primary beneficiaries of
Variable Interest Entities (VIE) consolidate that entity. FIN 46 is effective
immediately for VIEs created after January 31, 2003, and to VIEs to which an
enterprise obtains an interest after that date. It applies in the first fiscal
year or interim period beginning after June 15, 2003, to VIEs in which an
enterprise holds a variable interest it acquired before February 1, 2003. In
December 2003, the FASB published a revision to FIN 46 ("FIN 46R") to clarify
some of the provisions of the interpretation and defer to the effective date of
implementation for certain entities. Under the guidance of FIN 46R, entities
that do not have interests in structures that are commonly referred to as
special purpose entities are required to apply the provisions of the
interpretation in financial statements for periods ending after March 14, 2004.
The Company has not identified any interests in special purpose entities and
will apply the provisions of FIN 46R with our first quarter 2004 financial
statements.

Item 7A.   Quantitative and
Qualitative Disclosures About Market Risk

The Company is exposed to various market risks, including
changes in certain commodity prices and interest rates. These exposures
primarily relate to the acquisition of raw materials and changes in interest
rates.

Commodities Risk.The Company selectively uses
commodity futures contracts, forward purchase commodity contracts and option
contracts primarily to manage its exposure to cotton commodity price risk. The
Company does not hold or issue derivative instruments for trading purposes.

At December 31, 2003, and 2002, the Company, in its normal
course of business, had entered into various commodity futures contracts and
forward purchase commodity contracts. Based on year-end forward cotton prices,
the Company's futures contracts and forward purchase contracts at December 31,
2003, (which covered a portion of its 2004 needs) had a net deferred gain of
approximately $1.2 million. At December 31, 2002, the net deferred gain was
approximately $4.0 million. During the first and second quarters of 2001, the
fair value of certain cotton options then outstanding which did not qualify for
hedge accounting in the amount of $2.3 million was classified as Other
expense-net.

Based on a sensitivity analysis for commodities that assumes a
decrease of 10% in such commodity prices, the hypothetical net deferred loss for
the combined commodity positions at December 31, 2003, is estimated to be
approximately $4.4 million ($3.7 million at December 31, 2002). Actual commodity
price volatility is dependent on many varied factors impacting supply and demand
that are impossible to forecast. Therefore, actual changes in fair value over
time could differ substantially from the hypothetical change disclosed above.

Interest Rate Risk. At December 31, 2003, and 2002, the
Company's floating interest rate debt outstanding was $744.7 million (of which
$165.0 million was the Second-Lien Facility) and $612.8 million (of which $165.0
million was the Second-Lien Facility), respectively. A 100 basis point increase
in market rates would increase interest expense and decrease income before
income taxes by approximately $5.8 million and $4.5 million for the years ended
December 31, 2003, and 2002, respectively. The amount was determined by
calculating the effect of the hypothetical interest rate change on the Company's
floating interest rate debt excluding the Second-Lien Facility. Based on market
rates at December 31, 2003, and 2002, a 100 basis point increase in market rates
would not increase the minimum interest rate under the Second-Lien Facility.





30

|
|

Item 8.   Financial Statements
and Supplementary Data



|Consolidated Financial Statements for the years ended December 31,
      2003, 2002 and 2001 |        
|-------------------------------------------------------------------------------------------- | -------
|Report of Ernst & Young LLP, Independent Auditors                                            | 32     
|Consolidated Balance Sheets                                                                  | 33 - 34
|Consolidated Statements of Operations                                                        | 35     
|Consolidated Statements of Stockholders' Equity (Deficit)                                    | 36     
|Consolidated Statements of Cash Flows                                                        | 37     
|Notes to Consolidated Financial Statements                                                   | 38 - 67





31

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|

Report of Ernst & Young LLP,
Independent Auditors

Board of Directors and Stockholders

WestPoint Stevens Inc.

We have audited the accompanying consolidated balance sheets of
WestPoint Stevens Inc. and subsidiaries as of December 31, 2003 and 2002, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for each of the three years in the period ended
December 31, 2003. Our audits also included the financial statement schedule
listed in the index at Item 15. These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of WestPoint Stevens Inc. and subsidiaries at December 31, 20031 and
20020, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 20031, in conformity
with accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.

The accompanying financial statements have been prepared
assuming that WestPoint Stevens Inc. will continue as a going concern. As
discussed in Note 2 to the financial statements, on June 1, 2003, the Company
filed a voluntary petition for relief under chapter 11 of the United States
Bankruptcy Code ("chapter 11"). The Company is currently operating its business
under the jurisdiction of chapter 11 and the United States Bankruptcy Court in
the Southern District of New York (the "Bankruptcy Court"), and continuation of
the Company is contingent upon, among other things, the ability to formulate a
plan of reorganization which will be approved by the requisite parties under the
United States Bankruptcy Code and be confirmed by the Bankruptcy Court, the
ability to comply with its debtor in possession financing facility, obtain
adequate financing sources, and the Company's ability to generate sufficient
cash flows from operations to meet its future obligations. In addition, the
Company has experienced recurring net losses and has maintained a net capital
deficiency in 2003, 2002, and 2001. These matters raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The accompanying financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that may result from the outcome of this uncertainty.

As discussed in Note 1 to the financial statements, in 2002 the
Company changed its method of accounting for goodwill to conform to Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. Also, as
discussed in Notes 1 and 8 to the financial statements, in 2001 the Company
changed its method of accounting for derivative instruments and hedging
activities to conform to Statement of Financial Accounting Standards No. 133,
Derivative Instruments and Hedging Activities.



| | /s/Ernst & Young
LLP
| | --------------------

Atlanta, Georgia
February 9, 2004





32

|
|

WESTPOINT STEVENS INC.



CONSOLIDATED BALANCE
SHEETS
(In thousands, except share data)



|                              |                                                        |                                   | December 31,
|----------------------------- | ------------------------------------------------------ | --------------------------------- | ------------
|                              |                                                        |                                   |             
|                              |                                                        |                                   | 2003        
|                              |                                                        |                                   |             
|Assets                        |                                                        |                                   |             
|Current Assets                |                                                        |                                   |             
|                              | Cash and cash equivalents                              | $                                 | 3,660       
|                              | Accounts receivable (less allowances of $17,624        |                                   |             
|                              | and $40,847, respectively)                             |                                   | 243,507     
|                              | Inventories                                            |                                   | 368,620     
|                              | Prepaid expenses and other current assets              |                                   | 32,996      
|                              |                                                        |                                   |             
|                              |                                                        |                                   |             
|                              |                                                        | Total current assets              |             
|                              |                                                        |                                   |             
|                              |                                                        |                                   |             
|                              |                                                        |                                   |             
|                              |                                                        |                                   |             
|                              |                                                        |                                   |             
|Property, Plant and Equipment |                                                        |                                   |             
|                              | Land                                                   |                                   | 6,746       
|                              | Buildings and improvements                             |                                   | 343,441     
|                              | Machinery and equipment                                |                                   | 1,009,367   
|                              | Leasehold improvements                                 |                                   | 11,581      
|                              |                                                        |                                   |             
|                              |                                                        |                                   | 1,371,135   
|                              | Less accumulated depreciation and amortization         |                                   | (754,713)   
|                              |                                                        |                                   |             
|                              |                                                        |                                   |             
|                              |                                                        | Net property, plant and equipment |             
|                              |                                                        |                                   |             
|                              |                                                        |                                   |             
|                              |                                                        |                                   |             
|                              |                                                        |                                   |             
|                              |                                                        |                                   |             
|Other Assets                  |                                                        |                                   |             
|                              | Deferred financing fees (less accumulated amortization |                                   |             
|                              | of $25,522 and $24,237, respectively)                  |                                   | 12,837      
|                              | Other assets                                           |                                   | 1,737       
|                              | Goodwill (less accumulated amortization of             |                                   |             
|                              | $4,488 in 2002)                                        |                                   | -           
|                              |                                                        |                                   |             
|                              |                                                        |                                   |             
|                              |                                                        | Total other assets                |             
|                              |                                                        |                                   |             
|                              |                                                        |                                   |             
|                              |                                                        |                                   | $           
|                              |                                                        |                                   |             
|                              |                                                        |                                   |             
|                              |                                                        |                                   |             



See accompanying notes.





33

|
|

WESTPOINT STEVENS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)



|                                                     |                                                                              |                                                                    | December 31,
|---------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------------------ | ------------
|                                                     |                                                                              |                                                                    |             
|                                                     |                                                                              |                                                                    | 2003        
|                                                     |                                                                              |                                                                    |             
|Liabilities and Stockholders' Equity
      (Deficit) |                                                                              |                                                                    |             
|Current Liabilities                                  |                                                                              |                                                                    |             
|                                                     | Senior Credit Facility                                                       | $                                                                  | 490,689     
|                                                     | DIP Credit Agreement                                                         |                                                                    | 89,017      
|                                                     | Long-term debt classified as current                                         |                                                                    | 165,000     
|                                                     | Accrued interest payable                                                     |                                                                    | 295         
|                                                     | Accounts payable                                                             |                                                                    | 56,198      
|                                                     | Accrued employee compensation                                                |                                                                    | 20,719      
|                                                     | Pension liabilities                                                          |                                                                    | 24,912      
|                                                     | Accrued customer incentives                                                  |                                                                    | 33,047      
|                                                     | Other accrued liabilities                                                    |                                                                    | 33,053      
|                                                     |                                                                              |                                                                    |             
|                                                     |                                                                              |                                                                    |             
|                                                     |                                                                              | Total current liabilities                                          |             
|                                                     |                                                                              |                                                                    |             
|                                                     |                                                                              |                                                                    |             
|Noncurrent Liabilities                               |                                                                              |                                                                    |             
|                                                     | Deferred income taxes                                                        |                                                                    | 87,179      
|                                                     | Pension liabilities                                                          |                                                                    | 96,879      
|                                                     | Other liabilities                                                            |                                                                    | 45,057      
|                                                     |                                                                              |                                                                    |             
|                                                     |                                                                              |                                                                    |             
|                                                     |                                                                              | Total noncurrent liabilities                                       |             
|                                                     |                                                                              |                                                                    |             
|                                                     |                                                                              |                                                                    |             
|Liabilities Subject to Comprise                      |                                                                              | 1,086,869                                                          |             
|                                                     |                                                                              |                                                                    |             
|                                                     |                                                                              |                                                                    |             
|Stockholders' Equity (Deficit)                       |                                                                              |                                                                    |             
|                                                     | Common Stock and capital in excess of par
      value:                       |                                                                    |             
|                                                     |                                                                              | Common Stock, $.01 par value; 200,000,000 shares
      authorized; |             
|                                                     |                                                                              | 71,099,649 shares issued                                           |             
|                                                     | Accumulated deficit                                                          |                                                                    | (827,042)   
|                                                     | Treasury stock; 21,202,240 and 21,448,992 shares at cost,
      respectively |                                                                    | (416,133)   
|                                                     | Accumulated other comprehensive income (loss)                                |                                                                    | (110,359)   
|                                                     | Unearned compensation.                                                       |                                                                    | -           
|                                                     |                                                                              |                                                                    |             
|                                                     |                                                                              |                                                                    |             
|                                                     |                                                                              | Total stockholders' equity (deficit)                               |             
|                                                     |                                                                              |                                                                    |             
|                                                     |                                                                              |                                                                    |             
|                                                     |                                                                              |                                                                    | $           
|                                                     |                                                                              |                                                                    |             
|                                                     |                                                                              |                                                                    |             
|                                                     |                                                                              |                                                                    |             



See accompanying notes.



34

|
|

WESTPOINT STEVENS INC.CONSOLIDATED STATEMENTS OF
OPERATIONS
(In thousands, except per share data)



|                                                       | Year Ended December 31,                       
|------------------------------------------------------ | ----------------------------------------------
|                                                       |                                               
|                                                       | 2003                                          
|                                                       |                                               
|                                                       |                                               
|Net sales                                              | $                                             
|Cost of goods sold                                     |                                               
|                                                       |                                               
|                                                       |                                               
|                                                       | Gross earnings                                
|                                                       |                                               
|Selling, general and administrative expenses           | 231,536                                       
|Restructuring and impairment charge                    |                                               
|Goodwill impairment charge                             |                                               
|                                                       |                                               
|                                                       |                                               
|                                                       | Operating earnings (loss)                     
|                                                       |                                               
|Interest expense (contractual interest of $148,270 for |                                               
|the year ended December 31, 2003)                      | 101,972                                       
|Other expense-net                                      |                                               
|Chapter 11 expense                                     |                                               
|                                                       |                                               
|                                                       |                                               
|                                                       | Loss from operations before income tax benefit
|                                                       |                                               
|Income tax benefit                                     |                                               
|                                                       |                                               
|                                                       |                                               
|                                                       | Net loss                                      
|                                                       |                                               
|                                                       |                                               
|                                                       |                                               
|                                                       |                                               
|                                                       |                                               
|                                                       |                                               
|                                                       |                                               
|                                                       |                                               
|Basic and diluted net loss per common share            | $                                             
|                                                       |                                               
|                                                       |                                               
|                                                       |                                               
|                                                       |                                               
|                                                       |                                               
|                                                       |                                               
|Basic and diluted average common shares outstanding    |                                               
|                                                       |                                               
|                                                       |                                               
|                                                       |                                               



See accompanying notes



35

|
|

WESTPOINT STEVENS INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIT)
(In thousands)

|                           |                                              |                                              |                                             |        |          |     | Common     |    |                |         |             |       |                 |          |               |          |              |          |      
|-------------------------- | -------------------------------------------- | -------------------------------------------- | ------------------------------------------- | ------ | -------- | --- | ---------- | -- | -------------- | ------- | ----------- | ----- | --------------- | -------- | ------------- | -------- | ------------ | -------- | -----
|                           |                                              |                                              |                                             |        |          |     | Stock and  |    |                |         |             |       |                 |          | Accumulated   |          |              |          |      
|                           |                                              |                                              |                                             |        |          |     | Capital in |    |                |         |             |       |                 |          | Other         |          |              |          |      
|                           |                                              |                                              |                                             |        | Common   |     | Excess of  |    | Treasury Stock |         | Accumulated |       | Comprehensive   |          | Unearned      |          |             
|                           |                                              |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |          |             
|                           |                                              |                                              |                                             |        | Shares   |     | Par Value  |    | Shares         |         | Amount      |       | Deficit         |          | Income (loss) |          | Compensation |          | Total
|                           |                                              |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |          |              |          |      
|                           |                                              |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |          |              |          |      
|                           |                                              |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |          |              |          |      
|Balance, January 1, 2001   | 71,100                                       |                                              | $367,515                                    |        | (21,686) |     | $(420,421) |    | $(650,943)     |         | $(1,774)    |       | $(7,198)        |          | $(712,821)   
|                           |                                              |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |          |              |          |      
|                           | Comprehensive income (loss)                  |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |         
|                           |                                              | Net loss                                     | -                                           |        | -        |     | -          |    | -              |         | (27,348)    |       | -               |          | -             |          | (27,348)    
|                           |                                              | Minimum pension liability adjustment,        |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |          |             
|                           |                                              | net of tax of $37,494                        | -                                           |        | -        |     | -          |    | -              |         | -           |       | (66,655)        |          | -             |          | (66,655)    
|                           |                                              | Foreign currency translation adjustment      | -                                           |        | -        |     | -          |    | -              |         | -           |       | (60)            |          | -             |          | (60)        
|                           | Cash flow hedges:                            |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |         
|                           | Cumulative effect of change in               |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |         
|                           | accounting, net of tax of $544               |                                              |                                             | -      |          | -   |            | -  |                | -       |             | (968) |                 | -        |               | (968)   
|                           | Net derivative gains, net of tax of $38      |                                              |                                             | -      |          | -   |            | -  |                | -       |             | 71    |                 | -        |               | 71      
|                           | Comprehensive income (loss)                  |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               | (94,960)
|                           | Issuance of stock pursuant to Stock Bonus    |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |         
|                           |                                              | Plan including tax expense                   | -                                           |        | 1,589    |     | 146        |    | 1,565          |         | -           |       | -               |          | -             |          | 3,154       
|                           | Issuance of Restricted Stock                 | -                                            |                                             | (19)   |          | 11  |            | 75 |                | -       |             | -     |                 | (76)     |               | (20)    
|                           | Amortization of compensation                 | -                                            |                                             | -      |          | -   |            | -  |                | -       |             | -     |                 | 1,960    |               | 1,960   
|                           | Net operating loss benefit                   | -                                            |                                             | 26,818 |          | -   |            | -  |                | -       |             | -     |                 | -        |               | 26,818  
|                           | Cash dividends                               | -                                            |                                             | -      |          | -   |            | -  |                | (2,015) |             | -     |                 | -        |               | (2,015) 
|                           | Stock dividends pursuant to Stock Bonus Plan | -                                            |                                             | -      |          | -   |            | -  |                | (483)   |             | -     |                 | -        |               | (483)   
|                           |                                              |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |         
|                           |                                              |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |          |              |          |      
|Balance, December 31, 2001 | 71,100                                       |                                              | 395,903                                     |        | (21,529) |     | (418,781)  |    | (680,789)      |         | (69,386)    |       | (5,314)         |          | (778,367)    
|                           |                                              |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |          |              |          |      
|                           | Comprehensive income (loss)                  |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |         
|                           |                                              | Net loss                                     | -                                           |        | -        |     | -          |    | -              |         | (12,659)    |       | -               |          | -             |          | (12,659)    
|                           |                                              | Minimum pension liability adjustment,        |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |          |             
|                           |                                              |                                              | net of tax of $16,773                       | -      |          | -   |            | -  |                | -       |             | -     |                 | (29,820) |               | -        |              | (29,820)
|                           |                                              | Foreign currency translation adjustment      | -                                           |        | -        |     | -          |    | -              |         | -           |       | (2,765)         |          | -             |          | (2,765)     
|                           |                                              | Cash flow hedges:                            |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |          |             
|                           |                                              |                                              | Net derivative gains, net of tax of $1,346  | -      |          | -   |            | -  |                | -       |             | -     |                 | 2,390    |               | -        |              | 2,390   
|                           |                                              | Comprehensive income (loss)                  |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |          | (42,854)    
|                           |                                              | Issuance of stock pursuant to Stock Bonus    |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |          |             
|                           |                                              |                                              | Plan including tax expense                  | -      |          | 822 |            | 72 |                | 765     |             | -     |                 | -        |               | -        |              | 1,587   
|                           |                                              | Issuance of Restricted Stock                 | -                                           |        | (34)     |     | 8          |    | 52             |         | -           |       | -               |          | (18)          |          | -           
|                           |                                              | Amortization of compensation                 | -                                           |        | -        |     | -          |    | -              |         | -           |       | -               |          | 1,891         |          | 1,891       
|                           |                                              | Net operating loss benefit.                  | -                                           |        | 12,300   |     | -          |    | -              |         | -           |       | -               |          | -             |          | 12,300      
|                           |                                              | Stock dividends pursuant to Stock Bonus Plan | -                                           |        | -        |     | -          |    | -              |         | (204)       |       | -               |          | -             |          | (204)       
|                           |                                              |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |         
|                           |                                              |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |          |              |          |      
|Balance, December 31, 2002 | 71,100                                       |                                              | 408,991                                     |        | (21,449) |     | (417,964)  |    | (693,652)      |         | (99,581)    |       | (3,441)         |          | (805,647)    
|                           |                                              |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |          |              |          |      
|                           | Comprehensive income (loss):                 |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |         
|                           |                                              | Net loss                                     | -                                           |        | -        |     | -          |    | -              |         | (133,284)   |       | -               |          | -             |          | (133,284)   
|                           |                                              | Minimum pension liability adjustment         |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |          |             
|                           |                                              |                                              | net of tax of $3,063                        | -      |          | -   |            | -  |                | -       |             | -     |                 | (5,446)  |               | -        |              | (5,446) 
|                           |                                              | Foreign currency translation adjustment      | -                                           |        | -        |     | -          |    | -              |         | -           |       | (1,591)         |          | -             |          | (1,591)     
|                           |                                              | Cash flow hedges:                            |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |          |             
|                           |                                              |                                              | Net derivative losses, net of tax of $2,104 | -      |          | -   |            | -  |                | -       |             | -     |                 | (3,741)  |               | -        |              | (3,741) 
|                           |                                              | Comprehensive income (loss)                  |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |          | (144,062)   
|                           |                                              | Issuance of stock pursuant to Stock Bonus    |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |          |             
|                           |                                              |                                              | Plan including tax expense                  | -      |          | 446 |            | 39 |                | 413     |             | -     |                 | -        |               | -        |              | 859     
|                           |                                              | Issuance of stock pursuant to pension plan   | -                                           |        | (1,254)  |     | 202        |    | 1,381          |         | -           |       | -               |          | -             |          | 127         
|                           |                                              | Issuance of Restricted Stock, net            | -                                           |        | (3,784)  |     | 6          |    | 37             |         | -           |       | -               |          | 2,185         |          | (1,562)     
|                           |                                              | Amortization of compensation                 | -                                           |        | -        |     | -          |    | -              |         | -           |       | -               |          | 1,256         |          | 1,256       
|                           |                                              | Stock dividends pursuant to Stock Bonus Plan | -                                           |        | -        |     | -          |    | -              |         | (106)       |       | -               |          | -             |          | (106)       
|                           |                                              |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |         
|                           |                                              |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |          |              |          |      
|Balance, December 31, 2003 | 71,100                                       |                                              | $404,399                                    |        | (21,202) |     | $(416,133) |    | $(827,042)     |         | $(110,359)  |       | $             - |          | $(949,135)   
|                           |                                              |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |         
|                           |                                              |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |              
|                           |                                              |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |               |         
|                           |                                              |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |              
|                           |                                              |                                              |                                             |        |          |     |            |    |                |         |             |       |                 |          |              

See accompanying notes.



36

|
|

WESTPOINT STEVENS INC.

CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands)

|                                                     | Year Ended December 31,                                          
|---------------------------------------------------- | -----------------------------------------------------------------
|                                                     |                                                                  
|                                                     | 2003                                                             
|                                                     |                                                                  
|Cash flows from operating activities:                |                                                                  
|                                                     | Net loss                                                         
|                                                     | Adjustments to reconcile net loss to net                         
|                                                     | cash provided by (used for) operating activities:                
|                                                     | Depreciation and other amortization                              
|                                                     | Deferred income taxes                                            
|                                                     | Non-cash component of restructuring and impairment charge        
|                                                     | Goodwill impairment charge                                       
|                                                     | Changes in assets and liabilities excluding the effect of        
|                                                     | acquisitions, dispositions and the Trade Receivables
    Program:
|                                                     | Accounts receivable                                              
|                                                     | Inventories                                                      
|                                                     | Prepaid expenses and other current assets                        
|                                                     | Accrued interest payable                                         
|                                                     | Accounts payable and other accrued liabilities                   
|                                                     | Other-net                                                        
|                                                     |                                                                  
|                                                     |                                                                  
|                                                     | Total adjustments                                                
|                                                     |                                                                  
|                                                     |                                                                  
|Net cash provided by operating activities            |                                                                  
|                                                     |                                                                  
|                                                     |                                                                  
|Cash flows from investing activities:                |                                                                  
|                                                     | Capital expenditures                                             
|                                                     | Net proceeds from sale of assets                                 
|                                                     | Purchase of business                                             
|                                                     |                                                                  
|Net cash used for investing activities               |                                                                  
|                                                     |                                                                  
|                                                     |                                                                  
|Cash flows from financing activities:                |                                                                  
|                                                     | Senior Credit Facility:                                          
|                                                     | Borrowings                                                       
|                                                     | Repayments                                                       
|                                                     | DIP Credit Agreement:                                            
|                                                     | Borrowings                                                       
|                                                     | Repayments                                                       
|                                                     | Fees associated with DIP Agreement                               
|                                                     | Trade Receivables Program                                        
|                                                     | Cash dividends paid                                              
|                                                     | Proceeds from Second-Lien Facility                               
|                                                     | Fees associated with refinancing                                 
|                                                     |                                                                  
|                                                     |                                                                  
|Net cash (used for) provided by financing activities |                                                                  
|                                                     |                                                                  
|                                                     |                                                                  
|Net increase (decrease) in cash and cash equivalents | 2,564                                                            
|Cash and cash equivalents at beginning of period     |                                                                  
|                                                     |                                                                  
|                                                     |                                                                  
|Cash and cash equivalents at end of period           | $                                                                
|                                                     |                                                                  
|                                                     |                                                                  
|                                                     |                                                                  



See accompanying notes.



37

|
|

WESTPOINT STEVENS INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Summary of Significant Accounting Policies

Business.

Basis of Presentation.  The Company's
consolidated financial statements are prepared on a "going concern" basis. See
Note 2. Chapter 11 Case for a further discussion.

Principles of Consolidation.  The
consolidated financial statements of the Company include the accounts of the
Company and all of its subsidiaries. All material intercompany accounts and
transactions have been eliminated.

Use of Estimates.  The preparation of the
financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

Reclassifications.Certain amounts in
the prior year financial statements have been reclassified to conform to the
current year presentation.

Concentrations of Credit Risk   Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash investments and trade accounts
receivable.

The Company maintains cash and cash equivalents and certain
other financial instruments with various financial institutions. The Company
performs periodic evaluations of the relative credit standing of those financial
institutions that are considered in the Company's investment strategy.

Concentrations of credit risk with respect to trade accounts
receivable are limited due to the large number of entities comprising the
Company's customer base, however, as of December 31, 2003, substantially all
of the Company's receivables were from companies in the retail industry. The
Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral.

Cash and Cash Equivalents.  The Company
considers all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents. Short-term investments (consisting
primarily of commercial paper and certificates of deposit) totaling
approximately $1.1 million are included in cash and cash equivalents at
December 31, 2002. These investments are carried at cost, which approximates
market value.

Inventories.  Inventory costs include
material, labor and factory overhead. Inventories are stated at the lower of
cost or market (net realizable value). At December 31, 2003, and 2002,
approximately 92.8% and 87.4%, respectively, of the Company's inventories are
valued at the lower of cost or market using the "dollar value" last-in,
first-out ("LIFO") method. The remaining inventories (approximately $26.6
million and $46.3 million at December 31, 2003, and 2002, respectively) are
valued at the lower of cost or market using the first-in, first-out method.

Inventories consisted of the following (in thousands of
dollars):



|                           | December 31,
|-------------------------- | ------------
|                           |             
|                           | 2003        
|                           |             
|Finished goods             | $           
|Work in process            | 176,062     
|Raw materials and supplies |             
|LIFO reserve               |             
|                           |             
|                           | $           
|                           |             
|                           |             
|                           |             
|                           |             







38

|
|

WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1.  Summary of Significant Accounting
Policies--Continued

Property, Plant and Equipment.

Depreciation is computed over estimated useful lives using the
straight-line method for financial reporting purposes and accelerated methods
for income tax reporting. Depreciation expense was approximately $69.4 million,
$79.2 million and $82.6 million in the years ended December 31, 2003, 2002 and 2001, respectively.

Estimated useful lives for property, plant and equipment are as
follows:



|Buildings and improvements | 10 to 40 Years
|-------------------------- | --------------
|Machinery and equipment    | 3 to 18 Years 
|Leasehold improvements     | Lease Terms   

Derivatives.

Income Taxes.  The Company accounts for
income taxes under Statement No. 109, Accounting for Income Taxes. Under
Statement 109, deferred income taxes are provided at the enacted marginal rates
on the differences between the financial statement and income tax bases of
assets and liabilities. See Note 6. Income Taxes.

Pension Plans.  The Company has
defined benefit pension plans covering essentially all employees. The benefits
are based on years of service and compensation. The Company's practice is to
fund amounts that are required by the Employee Retirement Income Security Act of
1974. See Note 4. Employee Benefit Plans.

The Company also sponsors an employee savings plan covering
eligible employees who elect to participate. Participants in this plan make
contributions as a percent of earnings. The Company matches certain amounts of
employee contributions. See Note 4 . Employee Benefit Plans -- Retirement
Savings Plan.

Other Employee Benefits.  The Company
accounts for post-retirement and post-employment benefits in accordance with
Statement No. 106, Employer's Accounting for Post Retirement Benefits Other
Than Pensions and Statement No. 112, Employer's Accounting for
Postemployment Benefits. See Note 4. Employee Benefit
Plans -- Other Post-Retirement Benefit Plans.

Stock-Based
Compensation.The Company grants stock options for a fixed
number of shares in accordance with certain of its benefit plans. The Company
accounts for stock option grants in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees, and, accordingly, recognizes no
compensation expense for the stock option grants if the exercise price is equal
to or more than the fair value of the shares at the date of grant. Pro forma
information regarding net income and earnings per share, as calculated under the
provisions of Statement No. 123, Accounting for Stock-Based Compensation,
as amended by Statement 148, are disclosed in Note 7. Stockholders' Equity
(Deficit).



39

|
|

WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1.  Summary of Significant Accounting
Policies--Continued

Fair Value Disclosures.  Cash and
cash equivalents: The carrying amounts reported in the balance sheets for
cash and cash equivalents approximate its fair value.

Accounts receivable and accounts payable:  The
carrying amounts reported in the balance sheets for accounts receivable and
accounts payable approximate their fair value.

Long-term and short-term debt:  The fair value of
the Company's outstanding debt is estimated based on the quoted market prices
for the same issues where available or based on estimates. The fair value of the
$1,744.7 million and $1,612.8 million of outstanding debt at December
31, 2003, and 2002 was approximately $813.1 million and $848.0 million, respectively.

Goodwill and Other Intangible
Assets.  Effective January 1, 2002, the Company adopted the
requirements of Statement of Financial Accounting Standards No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets,
effective for fiscal years beginning after December 15, 2001. Statement 141
includes guidance on the initial recognition and measurement of goodwill and
other intangible assets arising from business combinations completed after June
30, 2001. Statement 142 prohibits the amortization of goodwill and intangible
assets with indefinite useful lives. Goodwill (and intangible assets deemed to
have indefinite lives) are no longer amortized but are subject to annual
impairment tests in accordance with the Statement. Other intangible assets will
continue to be amortized over their remaining useful lives.

The Company applied Statement 142 beginning in the first
quarter of 2002. The Company is required to test goodwill for impairment using
the two-step process prescribed in Statement 142. The first step is a screen for
potential impairment, while the second step measures the amount of the
impairment, if any. In accordance with Statement 142, the Company was required
to perform the first step of the required January 1, 2002, impairment test of
goodwill by June 30, 2002. The Company completed the transitional goodwill
impairment test required and determined that there was no impairment of its
recorded goodwill balances at that time. The Company performed the first
required annual goodwill impairment test during the fourth quarter of 2002 and
further determined that there was no impairment to its recorded goodwill
balances at that time.

As a result of certain triggering events that occurred during
the second quarter of 2003, including the Company filing a petition for
reorganization under chapter 11 of the Bankruptcy Code (see Note 2 where the
chronology of the circumstances that led to such filing is discussed), the
Company performed an interim test of the carrying amount of its goodwill in
accordance with Statement No. 142. Based on a valuation of the Company's
enterprise value using quoted market prices of the Company's debt and equity
securities and the identification of qualifying intangibles, the Company's
goodwill was deemed to be impaired and was subsequently written off. The
unamortized balance of the goodwill that was written off during the quarter
ended June 30, 2003, amounted to $46.3 million and is classified separately in
the accompanying consolidated statement of operations.

The changes in the carrying amount of goodwill for the years
ended 2003, 2002 and 2001 are summarized as follows (in thousands):



| | Balance at January 1, 2001                                    | $ | 46,166  
| | ------------------------------------------------------------- | - | --------
| | Business acquired                                             |   | 2,417   
| | Amortization expense                                          |   | (1,295) 
| |                                                               |   |         
| | Balance at December 31, 2001                                  |   | 47,288  
| | Contingent consideration received for
      business acquired |   | (990)   
| |                                                               |   |         
| | Balance at December 31, 2002                                  |   | 46,298  
| | Goodwill impairment charge                                    |   | (46,298)
| |                                                               |   |         
| | Balance at December 31, 2003                                  | $ | -       
| |                                                               |   |         
| |                                                               |   |         
| |                                                               |   |         
| |                                                               |   |         



40

|
|

WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1.  Summary of Significant Accounting
Policies--Continued





|                                         | Year Ended December 31,             
|---------------------------------------- | ------------------------------------
|                                         |                                     
|                                         | 2003                                
|                                         |                                     
|Net loss                                 | $                                   
|Amortization of goodwill, net of tax     |                                     
|                                         |                                     
|Adjusted net loss                        | $                                   
|                                         |                                     
|                                         |                                     
|                                         |                                     
|                                         |                                     
|Basic and diluted loss per common share: |                                     
|                                         | Net loss                            
|                                         | Amortization of goodwill, net of tax
|                                         |                                     
|                                         | Adjusted loss per common share      
|                                         |                                     
|                                         |                                     
|                                         |                                     
|                                         |                                     

Impairment of Long-Lived Assets.

Revenue Recognition.  The Company recognizes
revenue when title to the goods sold passes to the buyer, which is based on
contractual terms.

Customer Incentives.  Incentives are provided
to customers primarily for new sales programs. These incentives begin to accrue
when a commitment has been made to the customer and are recorded as a reduction
to sales.

Earnings Per Common Share.  Basic and diluted
earnings per share are calculated in accordance with Statement No. 128,
Earnings per Share. Basic earnings per share is based on the weighted
average number of common shares outstanding, and diluted earnings per share
includes any dilutive effects of stock options and the Company's stock bonus
plan.

Segment Information.  The Company is in one
business segment, the consumer home fashions business, and follows the
requirements of Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information.

Advertising Costs.  Advertising costs are
expensed as incurred and were $11.1 million, $15.0 million and $17.0 million in
2003, 2002 and 2001, respectively.

Environmental and Legal Matters.  
Liabilities for environmental remediation and legal indemnification and defense
costs are recognized when it is probable a liability has been incurred and the
amount can be reasonably estimated. The liabilities are developed based on
currently available information and reflect the participation of other
potentially responsible parties, depending on the parties' financial condition
and probable contribution. The accruals are recorded at undiscounted amounts and
are reflected as liabilities on the accompanying consolidated balance
sheets.

New Accounting Pronouncements.  In January
2003, the Financial Accounting Standards Board (the "FASB") released
Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN
46"). FIN 46 requires that all primary beneficiaries of Variable Interest
Entities ("VIE") consolidate that entity. FIN 46 is effective immediately for
VIEs created after January 31, 2003, and to VIEs to which an enterprise obtains
an interest after that date. It applies in the first fiscal year or interim
period beginning after June 15, 2003, to VIEs in which an enterprise holds a
variable interest it acquired before February 1, 2003. In December 2003, the
FASB published a revision to FIN 46 ("FIN 46R") to clarify some of the
provisions of the interpretation and defer to the effective date of
implementation for certain entities. Under the guidance of FIN 46R, entities



41

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|

WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1.  Summary of Significant Accounting
Policies--Continued

New Accounting Pronouncements--Continued

that do not have interests in structures that are commonly
referred to as special purpose entities are required to apply the provisions of
the interpretation in financial statements for periods ending after March 14,
2004. The Company has not identified any interests in special purpose entities
applicable to the provisions of this statement and will apply the provisions of
FIN 46R in the first quarter 2004 financial statements.

2.  Chapter 11 Filing

On June 1, 2003 (the "Petition Date"), the
Company and several of its subsidiaries (together with the Company, the
"Debtors") each commenced a voluntary case under chapter 11 of the Bankruptcy
Code in the Bankruptcy Court. The Debtors are authorized to operate their
businesses and manage their properties as debtors in possession pursuant to
section 1107(a) and 1108 of the Bankruptcy Code. A brief chronology of the
circumstances that led to such filing is set forth below.

Despite the restructuring initiatives which
the Company undertook in 2000 through 2002, during 2003 the Company continued to
experience financial difficulty related primarily to restrictive covenants under
its Senior Credit Facility and its debt structure. The Company therefore entered
into negotiations with its Senior Credit Facility lenders to amend the Senior
Credit Facility to permit certain restructuring, impairment and other charges
and to revise certain financial ratios and minimum EBITDA covenants in its
Senior Credit Facility. The Company and such lenders were unable to agree to
amend the Senior Credit Facility and the Company continued to experience
financial difficulties which led to a default under its Senior Credit Facility
and Second-Lien Facility. Effective March 31, 2003, the Senior Credit Facility
lenders and Second-Lien Facility lenders agreed to refrain from exercising any
rights or remedies with respect to the Company's failure to comply with
financial and other covenants until June 10, 2003. As the June 10 deadline
approached, the Company's Board of Directors determined that, in order to be
able to operate successfully in today's market environment and compete with
increasing foreign competition, it would be necessary for the Company to reduce
its debt burden and de-lever its balance sheet. Thus, on May 16, 2003, the Board
of Directors approved the retention of an independent financial advisor to
evaluate alternatives aimed at reducing the existing debt structure and
strengthening the balance sheet. After negotiations with its Senior Lenders
regarding various alternatives, the Company concluded it would be in the best
interests of its creditors to effect a consensual restructuring under chapter 11
of the Bankruptcy Code and filed its chapter 11 petition on June 1, 2003.

On or about the Petition Date, the Company
announced that it had reached an agreement in principle with the holders of
approximately 52% of the aggregate principal amount of its Senior Notes on the
terms of a financial restructuring to be implemented through the chapter 11
process. The agreement in principle was subject to numerous conditions and
further agreements, including the entry of an order confirming the plan of
reorganization contemplated by the proposal as required by the Bankruptcy
Code. On October 17, 2003, the Company announced that it had determined not
to implement the previously announced agreement in principle. Instead, the
Company intends to negotiate new terms for a chapter 11 plan of reorganization
with all of its major creditor constituencies.

On June 2, 2003, the Bankruptcy Court entered a number of
orders enabling the Company to continue regular operations throughout the
reorganization proceeding. These orders authorized, among other things, normal
payment of employee salaries, wages and benefits; continued participation in
workers' compensation insurance programs; payment to vendors for post-petition
delivery of goods and services; payment of certain pre-petition obligations to
customers; and continued payment of utilities. The Bankruptcy Court also
approved, under interim order, access to $175 million indebtor in
possession financingand subsequently approved, under final order, access to $300 million of
debtor in possession financing for use by the Company, pursuant to a
Post-Petition Credit Agreement, dated as of June 2, 2003, among WestPoint
Stevens Inc. and certain of its subsidiaries, the financial institutions named
therein and Bank of America, N.A. and Wachovia Bank, National Association (the
"DIP Credit Agreement").

The DIP Credit Agreement consists of revolving credit loans of
up to $300 million (with a sublimit of $75 million for letters of credit) with a
term of one year and a maturity date of June 2, 2004. At its option, the Company
may extend the term for up to two successive periods of six months each.



42

|
|



WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2.  Chapter 11 Filing--Continued



The DIP Credit Agreement contains a number of covenants,
including among others, affirmative and negative covenants with respect to
certain financial tests and other indebtedness, as well as restrictions against
the declaration or payment of dividends, the making of certain intercompany
advances and the disposition of assets without consent. The DIP Credit Agreement
also contains Events of Default (as defined in the DIP Credit Agreement)
including among others, a failure to pay the principal and interest of the
obligations when due, default with respect to any Debt (as defined in the DIP
Credit Agreement) and a failure by the Company to comply with any provisions of
the Financing Orders (as defined in the DIP Credit Agreement).

During the third quarter of 2003, the Company's DIP Credit
Agreement was amended primarily to modify the minimum EBITDA covenant, add a
minimum availability covenant, permit certain restructuring, impairment and
other charges and modify other miscellaneous provisions. At December 31, 2003,
the Company was in compliance with its covenants under the DIP Agreement.

There can be no assurance, however, that the Company will be
able to comply with the debt covenants or that, if it fails to do so, it will be
able to obtain amendments to or waivers of such covenants. Failure of the
Company to comply with covenants contained in its DIP Credit Agreement, if not
waived, or to adequately service debt obligations, could result in a default
under the DIP Credit Agreement. Any default under the Company's DIP Credit
Agreement, particularly any default that results in acceleration of indebtedness
or foreclosure on collateral, could have a material adverse effect on the
Company.

The Debtors are currently operating their businesses as debtors
in possession pursuant to the Bankruptcy Code. Pre-bankruptcy obligations of the
Debtors, including obligations under debt instruments, generally may not be
enforced against the Debtors, and any actions to collect such indebtedness are
automatically stayed, unless relief from the automatic stay is granted by the
Bankruptcy Court. The rights of and ultimate payments by the Company under
pre-bankruptcy obligations may be substantially altered. This could result in
claims being liquidated in the chapter 11 case at less (and possibly
substantially less) than 100% of their face value. The Debtors cannot presently
determine or reasonably estimate the ultimate liability that may result from
rejecting contracts or leases or from the filing of claims for any rejected
contracts or leases, and no provisions have yet been made for these items. The
amount of the claims to be filed by the creditors could be significantly
different than the amount of the liabilities recorded by the Company.

Since the Petition Date, the Debtors have conducted business in
the ordinary course. Management is in the process of stabilizing the business of
the Debtors and evaluating their operations as part of the development of a
chapter 11 plan of reorganization. The Debtors intend to seek the requisite
acceptance of a plan of reorganization by security holders and confirmation of
the plan by the Bankruptcy Court, all in accordance with the applicable
provisions of the Bankruptcy Code. During the pendency of the chapter 11 case,
the Debtors may, with Bankruptcy Court approval, sell assets and settle
liabilities, including for amounts other than those reflected in the financial
statements. The administrative and reorganization expenses resulting from the
chapter 11 case will unfavorably affect the Debtors' results of operations.
Future results of operations may also be adversely affected by other factors
related to the chapter 11 case.

On August 28, 2003, one of the Company's foreign subsidiaries,
WestPoint Stevens (Europe) Ltd., commenced an insolvency proceeding in the
United Kingdom and is in the process of being closed and liquidated. The losses
associated with the closure of the foreign subsidiary are estimated to total
approximately $5.3 million consisting of inventory writedowns of $3.9 million
and accounts receivable writedowns for claims of $1.4 million. These charges are
reflected in restructuring, impairment and other charges as discussed in Note
12.



43

|
|

WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2.  Chapter 11 Filing--Continued

Basis of Presentation

The Company's consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States applicable on a going concern basis. Except as otherwise
disclosed, these principles assume that assets will be realized and liabilities
will be discharged in the ordinary course of business. The Company is currently
operating as a debtor in possession under chapter 11 of the Bankruptcy Code, and
its continuation as a going concern is contingent upon, among other things,
confirmation by the Bankruptcy Court of a chapter 11 plan of reorganization and
its ability to comply with the DIP Credit Agreement, return to profitability,
generate sufficient cash flows from operations and obtain financing sources to
meet future obligations. There is no assurance that the Company will be able to
achieve any of these results. The Company's consolidated financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might result from the outcome of these uncertainties.

The Company's consolidated financial statements included
elsewhere in this Annual Report are presented in accordance with AICPA Statement
of Position 90-7 ("Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code") ("SOP 90-7"). In the chapter 11 case, substantially all
unsecured liabilities as of the Petition Date are subject to compromise or other
treatment under a plan of reorganization which must be confirmed by the
Bankruptcy Court after submission to any required vote by affected parties. For
financial reporting purposes, the categories of liabilities and obligations
whose treatment and satisfaction are dependent on the outcome of the chapter 11
case and classified as Liabilities Subject to Compromise in the consolidated
balance sheet under SOP 90-7 are identified below (in thousands):



| |                                 | December 31, 2003              
| | ------------------------------- | -------------------------------
| |                                 |                                
| |                                 |                                
| | Senior Notes due 2005 and 2008: |                                
| |                                 | Senior Notes outstanding       
| |                                 | Related accrued interest       
| |                                 | Related deferred financing fees
| |                                 |                                
| |                                 |                                
| |                                 | Total                          
| | Accounts payable                |                                
| | Pension liabilities             |                                
| | Other accrued liabilities       |                                
| |                                 |                                
| | Total                           | $                              
| |                                 |                                
| |                                 |                                
| |                                 |                                
| |                                 |                                

The ultimate amount of and settlement terms for the Company's
pre-bankruptcy liabilities are subject to the ultimate outcome of its chapter 11
case and, accordingly, are not presently determinable. Pursuant to SOP 90-7,
professional fees associated with the chapter 11 case are expensed as incurred
and reported as reorganization costs (chapter 11 expenses). Also, interest
expense will be reported only to the extent that it will be paid during the
pendency of the chapter 11 case or that it is probable that it will be an
allowed claim. During 2003, the Company recognized charges of $31.5 million for
chapter 11 expenses, consisting of $4.9 million related to the early termination
of the Company's Trade Receivables Program, $1.3 million in severance associated
with the resignation of the Company's former Chairman and Chief Executive
Officer, $7.6 million for performance bonuses under a court approved Key
Employee Retention Program, $3.6 million related to the amortization of fees
associated with the DIP Credit Agreement and $14.1 million related to fees
payable to professionals retained to assist with the chapter 11 case.

Assets of the Company's subsidiaries currently excluded from
the bankruptcy case total $9.8 million as of December 31, 2003, or 0.8% of the
Company's consolidated assets. Revenues of the subsidiaries totaled $34.6
million for the year ended December 31, 2003, or 2.1% of the Company's
consolidated revenues.



44

|
|

WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3.  Indebtedness and Financial Arrangements

Indebtedness is as follows (in thousands of dollars):



|                        | December 31,                
|----------------------- | ----------------------------
|                        |                             
|                        | 2003                        
|                        |                             
|Short-term indebtedness |                             
|                        | Senior Credit Facility      
|                        | DIP Credit Agreement        
|                        | Second-Lien Facility        
|                        | 7-7/8% Senior Notes due 2005
|                        | 7-7/8% Senior Notes due 2008
|                        |                             
|                        |                             
|                        | $                           
|                        |                             
|                        |                             
|                        |                             
|                        |                             





|Short-term indebtedness classified as Liabilities Subject to
      Compromise |                              |   |          
|----------------------------------------------------------------------------- | ---------------------------- | - | ---------
|                                                                              | 7-7/8% Senior Notes due 2005 | $ | 525,000  
|                                                                              | 7-7/8% Senior Notes due 2008 |   | 475,000  
|                                                                              |                              |   |          
|                                                                              |                              |   |          
|                                                                              |                              | $ | 1,000,000
|                                                                              |                              |   |          
|                                                                              |                              |   |          
|                                                                              |                              |   |          
|                                                                              |                              |   |          

The DIP Credit Agreement consists of revolving credit loans of
up to $300 million (with a sublimit of $75 million for letters of credit) with a
term of one year and a maturity date of June 2, 2004. At its option, the Company
may extend the term for up to two successive periods of six months each. At
December 31, 2003, borrowing availability under the DIP Credit Agreement was
$154.5 million and consisted of a calculated borrowing base of $289.8 million
less outstanding loans of $89.0 million, outstanding letters of credit of $41.3
million and other reserves of $5.0 million. (See Note 2 where the DIP Credit
Agreement is discussed further.)

During the third quarter of 2003, the Company's DIP Credit
Agreement was amended primarily to modify the minimum EBITDA covenant, add a
minimum availability covenant, permit certain restructuring, impairment and
other charges and modify other miscellaneous provisions. At December 31, 2003,
the Company was in compliance with its covenants under the DIP Agreement.

At December 31, 2003, the Company's Senior Credit Facility with
certain lenders (collectively, the "Banks") consisted of a $617.1 million
revolving credit facility ("Revolver") subject to future scheduled commitment
reductions and interim facility limitations, with a Revolver maturity date of
November 30, 2004. Effective with the chapter 11 filing, additional borrowings
under the Senior Credit Facility are no longer available to the Company. During
2003 the revolver commitment decreased $75.0 million as a result of scheduled
commitment reductions. The Senior Credit Facility provides for a $17.5 million
reduction in the revolver commitment on February 1, 2004, at which time the
revolver commitment will be $599.6 million, subject to adjustments related to
the Trade Receivables Program and asset dispositions. Under the Senior Credit Facility, there was approximately
$4.8 million of outstanding letters of credit at December 31, 2003.



In the third quarter of 2002, the Company's Senior Credit
Facility and Second-Lien Facility were amended primarily to permit certain
restructuring, impairment and other charges, and to modify certain financial
ratios and the minimum EBITDA covenant.

Effective March 31, 2003, the Senior Credit Facility was
amended primarily to provide for an interim facility limitation and to add an
unused commitment fee. Under the interim facility limitation, the Company's
outstanding borrowings and letters of credit under the Senior Credit Facility
were limited to the following amounts for the periods indicated: $546.0 million
for the



45

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|

WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3.  Indebtedness and Financial Arrangements--Continued

period April 1, 2003, through April 26, 2003; $530.0 million
for the period April 27, 2003, through May 17, 2003; and $525.0 million for the
period May 18, 2003, through June 10, 2003.

At the option of the Company and effective with the last
amendment to the Senior Credit Facility, interest under the Senior Credit
Facility was payable monthly, either at the prime rate plus 5.25% or LIBOR plus
7.00%, compared to prime rate plus 2.75%, or LIBOR plus 4.50% in effect at
December 31, 2002. Effective with the chapter 11 filing, loans under the Senior
Credit Facility are no longer available to the Company. Prior to the chapter 11
filing, the Company was obligated to pay a facility fee in an amount equal to
0.50% of each Bank's commitment under the Revolver, and an unused commitment fee
in an amount equal to 1.00% of the difference between the revolver commitment
and the daily outstanding loans and letters of credit.
Effective with the chapter 11 filing, the Company is no longer obligated to pay
a facility fee or an unused commitment fee for the Senior Credit Facility. The
loans under the Senior Credit Facility are secured by the pledge of all the
stock of the Company's material subsidiaries and a first priority lien on
substantially all of the assets of the Company.

During 2001, the Company entered into a $165.0 million
Second-Lien Senior Credit Facility ("Second-Lien Facility") with a maturity date
of February 28, 2005. Net proceeds from the transaction, after payment of
approximately $16.3 million of related transaction fees and expenses, were used
to reduce outstanding borrowings under the Senior Credit Facility as well as
provide additional liquidity for working capital and general corporate purposes.
Effective with the Company's chapter 11 filing, interest under the Second-Lien
Facility is payable monthly, as opposed to quarterly prior to the filing, at an
interest rate of prime plus 8% increasing each quarter after June 30, 2002, by
..375% but in no event less than 15%. Loans under the Second-Lien Facility are
secured by a second priority lien on the assets securing the existing Senior
Credit Facility. The $16.3 million of related transaction fees and expenses were
capitalized as deferred financing fees and are being amortized over the
remaining term of the facility.

The 7-7/8% Senior Notes due 2005 and 7-7/8% Senior Notes due
2008 (together, the "Senior Notes") are general unsecured obligations of the
Company and rank pari passu in right of payment with all existing or future
unsecured and unsubordinated indebtedness of the Company and senior in right of
payment to all subordinated indebtedness of the Company. The Senior Notes bear
interest at the rate of 7-7/8% per annum, and prior to the Company's chapter 11
filing were payable semi-annually on June 15 and December 15 of each year.
Effective with the Company's chapter 11 filing, interest on the Senior Notes is
no longer paid or accrued. The Senior Notes are redeemable, in whole or in part,
at any time at the option of the Company at 100% of the principal amount thereof
plus the Make-Whole Premium (as defined) plus accrued and unpaid interest, if
any, to the date of purchase. In addition, in the event of a Change of Control
(as defined), the Company will be required to make an offer to purchase the
notes at a price equal to 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase. Neither the redemption option
nor the Change of Control provisions are relevant in the Company's chapter 11
case.

The Company's credit agreements contain a number of customary
covenants including, among others, restrictions on the incurrence of
indebtedness, transactions with affiliates, and certain asset dispositions as
well as limitations on restricted debt and equity payments and capital
expenditures. Certain provisions require the Company to maintain certain
financial ratios, a minimum interest coverage ratio, a minimum debt to EBITDA
ratio, a minimum EBITDA, a minimum consolidated net worth (as defined) and a
minimum availability. The Company can no longer make restricted debt and equity
payments. At December 31, 2003, the Company was in compliance with its covenants
under the DIP Credit Agreement but was not in compliance with the covenants
under its various other credit agreements, primarily as a result of the chapter
11 filing and failure to meet certain financial covenants.

At March 31, 2003, and prior to the petition date, the Company
was not in compliance with certain of its covenants under the Senior Credit
Facility and Second-Lien Facility during which time the Company engaged in
active discussions with its senior lenders to obtain an amendment or waiver of
such non-compliance (See Note 2 where the chronology of the circumstances
causing the Company to file voluntary petitions for reorganization under chapter
11 of the U.S. Bankruptcy Code is discussed). At December 31, 2003, and 2002,
the Company classified all of its outstanding debt under its Senior Credit
Facility, Second-Lien Facility and Senior Notes as current liabilities as a
result of the potential for the acceleration of the loans outstanding under the
related agreements.



46

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|

WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3.  Indebtedness and Financial Arrangements--Continued

The Company, through a wholly owned "bankruptcy remote"
receivables subsidiary, had a Trade Receivables Program that provided for the
sale of accounts receivable on a revolving basis. The receivables subsidiary,
WPS Receivables Corporation ("WPSRC") (which is not a Debtor in the Company's
chapter 11 case), is a qualified special purpose entity and meets the
requirements of SFAS 140. In January 2002, the Company amended and extended the
maturity date of its existing Trade Receivables Program with an independent
issuer of receivables backed commercial paper until January 2003.

The independent issuer of receivables backed commercial paper
under the Company's Trade Receivables Program at December 31, 2002, indicated
that it would not extend the maturity date of its current agreement with the
Company for another year but indicated a willingness to work with the Company to
effect an orderly transition to another securitization provider. On January 15
and February 10, 2003, the Company announced amendments to the maturity dates of
its Trade Receivables Program, extending it to February 17 and March 31, 2003,
respectively. On March 28, 2003, WPSRC and the Company entered into a loan and
security agreement (the "Receivables Loan Agreement") with Congress Financial
Corporation (Southern), as Agent ("Congress"), pursuant to which the lenders
thereunder agreed to provide receivables backed loans as part of the Company's
Trade Receivables Program. Under the terms of the Trade Receivables Program, the
Company agreed to sell on an ongoing basis, and without recourse for credit loss
on the receivables, its accounts receivable portfolio to WPSRC, and WPSRC used
the receivables as collateral for loans pursuant to the Receivables Loan
Agreement. Proceeds from the loans and collections on receivables were used by
WPSRC to purchase receivables from the Company. The Company maintained the
balance in the designated pool of accounts receivable sold by selling its new
receivables on a revolving basis as they were created. The Receivables Loan
Agreement permitted outstanding loans of up to $160.0 million against the
accounts receivable portfolio. The interest payable by WPSRC on the loans under
the Receivables Loan Agreement was a 2-month LIBOR rate plus 2.50%. On June 4,
2003, Congress notified WPSRC that, as a result of the Company's chapter 11
filing, Congress was terminating the Receivables Loan Agreement and that no
further loans would be made thereunder. Congress continued to apply proceeds of
receivables pledged to it to reduce the obligations of WPSRC to Congress under
the Receivables Loan Agreement. As of July 8, 2003, all outstanding loans under
the Receivables Loan Agreement were paid in full from such proceeds. The Company
is currently financing its accounts receivable through borrowings under the DIP
Credit Agreement and expects to continue to do so during the pendency of its
chapter 11 case. The cost of the Trade Receivables Program was charged to
selling expense in the accompanying Consolidated Statements of Operations and
amounted to $2.5 million in 2003, $4.7 million in 2002 and $6.5 million in 2001.
At December 31, 2002, $154.8 million of accounts receivable had been sold
pursuant to the Trade Receivables Program and the sale was reflected as a
reduction of accounts receivable in the accompanying Consolidated Balance
Sheets.

As of December 31, 2003, the maturity of long-term debt
excluding the DIP Credit Agreement was as follows:  $490.7 million in
2004, $690.0 million in 2005, zero in 2006 and 2007, and $475.0 million in 2008.

4.  Employee Benefit Plans

Pension Plans

The Company has defined benefit pension plans covering
essentially all employees. Benefits are based on years of service and
compensation, and the Company's practice is to fund amounts that are required by
the Employee Retirement Income Security Act of 1974. The Company uses December
31 as the measurement date of its defined benefit pension plans.





47

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|

WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4.  Employee Benefit Plans--Continued

Pension Plans--Continued

The following tables set forth data for the Company's pension plans and amounts recognized in the accompanying Consolidated Balance Sheets at December 31, 2003, and 2002 (in thousands of dollars):

|                                            | Year Ended December 31,                          
|------------------------------------------- | -------------------------------------------------
|                                            |                                                  
|                                            | 2003                                             
|                                            |                                                  
|Change in benefit obligation:               |                                                  
|                                            | Projected benefit obligation at beginning of year
|                                            | Service cost                                     
|                                            | Interest cost                                    
|                                            | Plan amendments                                  
|                                            | Actuarial losses                                 
|                                            | Benefit payments                                 
|                                            | Settlements                                      
|                                            |                                                  
|Projected benefit obligation at end of year | $                                                
|                                            |                                                  
|                                            |                                                  
|                                            |                                                  
|                                            |                                                  

|                                         | Year Ended December 31,                       
|---------------------------------------- | ----------------------------------------------
|                                         |                                               
|                                         | 2003                                          
|                                         |                                               
|Change in plan assets:                   |                                               
|                                         | Fair value of plan assets at beginning of year
|                                         | Actual return on plan assets                  
|                                         | Employer contributions                        
|                                         | Benefit payments                              
|                                         |                                               
|Fair value of plan assets at end of year | $                                             
|                                         |                                               
|                                         |                                               
|                                         |                                               
|                                         |                                               

|                                                       | December 31,                                           
|------------------------------------------------------ | -------------------------------------------------------
|                                                       |                                                        
|                                                       | 2003                                                   
|                                                       |                                                        
|Funded status:                                         |                                                        
|                                                       | Projected benefit obligation                           
|                                                       | Fair value of assets                                   
|                                                       |                                                        
|                                                       | Funded status                                          
|                                                       |                                                        
|                                                       | Unrecognized amounts:                                  
|                                                       | Prior service cost                                     
|                                                       | Net actuarial losses                                   
|                                                       |                                                        
|                                                       | Total unrecognized                                     
|                                                       |                                                        
|Prepaid pension cost at year-end                       | $                                                      
|                                                       |                                                        
|                                                       |                                                        
|                                                       |                                                        
|                                                       |                                                        
|                                                       |                                                        
|Amounts recognized in the Consolidated Balance Sheets: |                                                        
|                                                       | Accrued liability (December 31, 2003 amount includes   
|                                                       | $8,394 classified as Liabilities Subject to Compromise)
|                                                       | Intangible asset                                       
|                                                       | Accumulated other comprehensive income                 
|                                                       |                                                        
|Net amount recognized                                  | $                                                      
|                                                       |                                                        
|                                                       |                                                        
|                                                       |                                                        
|                                                       |                                                        









































48

|
|

WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4.  Employee Benefit Plans--Continued

Pension Plans--Continued

The accumulated benefit obligations and the fair value of
assets for pension plans with accumulated benefit obligations in excess of plan
assets were $381.1 million and $251.1 million, respectively, as of
December 31, 2003, and $347.8 million and $246.4 million, respectively, as of
December 31, 2002.

The following assumptions were used for the pension plans to
determine the projected benefit obligation and the net periodic pension cost for
the fiscal year:

|                                                | December 31,                  
|----------------------------------------------- | ------------------------------
|                                                |                               
|                                                | 2003                          
|                                                |                               
|Weighted average assumptions as of December 31: |                               
|                                                | Discount rate                 
|                                                | Expected return on plan assets
|                                                | Rate of compensation increase 



In determining its expected long-term return on plan assets,
the Company considered historical experience, its asset allocation, expected
long-term rates of return for each major asset class and an assumed long-term
inflation rate. The expected long-term return on plan assets is adjusted when
there are fundamental changes in expected returns on the plan investments.



|                                                   | Year Ended December 31,                      
|-------------------------------------------------- | ---------------------------------------------
|                                                   |                                              
|                                                   | 2003                                         
|                                                   |                                              
|Components of net periodic pension cost (benefit): |                                              
|                                                   | Service cost                                 
|                                                   | Interest cost                                
|                                                   | Expected return on plan assets               
|                                                   | Net amortization                             
|                                                   |                                              
|                                                   |                                              
|Net periodic pension expense                       |                                              
|                                                   | One-time credit due to settlement            
|                                                   | Additional pension expense due to curtailment
|                                                   |                                              
|                                                   |                                              
|Total periodic pension expense                     | $                                            
|                                                   |                                              
|                                                   |                                              
|                                                   |                                              
|                                                   |                                              

Plan assets are primarily invested in United States Government
and corporate debt securities and equity securities. At December 31, 2003, and
2002, the Company's pension plans held 705,558 shares of the Company's Common
Stock with an aggregate cost of $20.0 million and market values of $0.0 million
and $0.4 million, respectively. The percentage of fair value to total assets by
asset category for the Company's pension plans as of the measurement date are as
follows:



|                | December 31,           
|--------------- | -----------------------
|                |                        
|                | 2003                   
|                |                        
|Asset category: |                        
|                | Equity funds           
|                | Equity securities      
|                | Fixed income funds     
|                | Alternative investments
|                | Cash                   
|                |                        
|                |                        
|Total           |                        
|                |                        
|                |                        
|                |                        
|                |                        



49

|
|

WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4.  Employee Benefit Plans--Continued

Pension Plans--Continued

Based on actuarial information available at December 31, 2003,
the Company estimates that contributions to its pension plans in 2004 will total
approximately $24.9 million, reflecting both quarterly and annually required
contributions.

The Company's investment strategy for its pension plans is to
obtain an optimum rate of investment return on the total investment portfolio
consistent with the assumption of a reasonable level of risk. To achieve these
investment objectives, assets are invested among asset classes and investment
management styles to produce a prudent level of diversification and investment
return over long-term time periods. Cash balances are expected to arise from
residual uninvested funds and from liquidity requirements to fund benefits
within a short period of time. Certain plan obligations accrued prior to 1985
are secured under a participating annuity contract.

Target allocations for 2004 are 52% equity funds, 40% fixed
income funds and 8% alternative investments. The target asset allocation has
been selected as the plan's long-term strategy asset allocation based on a
strategic asset-liability study, which evaluated the plan's liability structure,
expected cash flows and funded status under a variety of capital market
environments.

Assets are managed by qualified investment managers on a
discretionary basis, but subject to risk management policies set forth by the
Company. Risk management policies include supervision and monitoring of
investment managers through the use of investment guidelines and restrictions
and performance measurement standards. The Company also applies a disciplined
rebalancing policy to control risk. The use of leverage is prohibited.
Derivatives shall not be used for speculative purposes and no leverage shall be
introduced through the use of derivatives.

Retirement Savings Plan

The Company matches 50% of each employee's before-tax
contributions up to 2% of the employee's compensation. Company contributions may
be made either in cash or in shares of Common Stock of the Company. During
2003, 2002 and 2001, the Company charged $1.9 million, $2.0 million
and $2.1 million, respectively, to expense in connection with the Retirement
Savings Plan.

Other Post-Retirement Benefit Plans

In addition to sponsoring defined benefit pension plans, the
Company sponsors various defined benefit post-retirement plans that provide
health care and life insurance benefits to certain current and future retirees.
All such post-retirement benefit plans are unfunded. The Company uses December
31 as the measurement date of its defined benefit post-retirement plans. The
following table presents the status of post-retirement plans (in thousands of
dollars):



|                                                                          | December 31,            
|------------------------------------------------------------------------- | ------------------------
|                                                                          |                         
|                                                                          | 2003                    
|                                                                          |                         
|Accumulated post-retirement benefit obligation at
      beginning of year | $                       
|                                                                          | Interest cost           
|                                                                          | Actuarial (gains) losses
|                                                                          | Benefit payments        
|                                                                          |                         
|Accumulated post-retirement benefit obligation at end of
      year       | $                       
|                                                                          |                         
|                                                                          |                         
|                                                                          |                         
|                                                                          |                         
|Underfunded status                                                        | $                       
|Unrecognized net gains                                                    |                         
|                                                                          |                         
|Accrued benefit cost                                                      | $                       
|                                                                          |                         
|                                                                          |                         
|                                                                          |                         
|                                                                          |                         





50

|
|



WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4.  Employee Benefit Plans--Continued

Other Post-Retirement Benefit Plans--Continued

Net periodic post-retirement benefit plans expense is not
material during the three-year period ended December 31, 2003.

As of December 31, 2003, the actuarial assumptions include a
discount rate of 6.25% and a medical care trend rate of 10.0% for 2004,
grading down to 6.0% by 2012. These trend rates reflect the Company's prior
experience and management's expectation of future rates. Changing the assumed
health care cost trend rates by one percentage point in each year would change
the accumulated post-retirement benefit plans obligations as of December 31,
2003, by approximately $0.4 million, and the aggregate service and interest
cost components of net periodic post-retirement benefit cost for the year ended
December 31, 2003, by an immaterial amount.

5.  Deferred Financing Fees

Amendment fees and transaction fees related to the
Company's various credit agreements are capitalized in the period incurred and
amortized over the remaining term of the facility.Included in Other
expense-net in the accompanying Consolidated Statements of Operations for each
of the years ended December 31, 2003, 2002 and
2001, is the amortization of deferred financing fees of $12.3 million,
$9.6 million and $6.9 million, respectively, related to the Company's
credit facilities other than the DIP Credit Agreement. Deferred financing fees
related to the DIP Credit Agreement are included in chapter 11 expenses and
totaled $3.6 million for the year ended December 31, 2003.

6.  Income Taxes

The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109; accordingly, deferred
income taxes are provided at the enacted marginal rates on the difference
between the financial statement and income tax bases of assets and liabilities.
Deferred income tax provisions or benefits are based on the change in the
deferred tax assets and liabilities from period to period.

The total provision (benefit) for income taxes consisted of the
following (in thousands of dollars):





|         | Year Ended December 31,
|-------- | -----------------------
|         |                        
|         | 2003                   
|         |                        
|Current  |                        
|         | Federal                
|         | State                  
|         | Foreign                
|Deferred |                        
|         | Federal                
|         | State                  
|         | Foreign                
|         |                        
|         |                        
|         |                        
|         |                        
|         |                        
|         |                        
|         |                        





51

|
|

WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6.  Income Taxes--Continued

Income tax expense (benefit) differs from the statutory federal
income tax rate of 35% for the following reasons (in thousands of dollars):



|                                                         | Year Ended December 31,
|-------------------------------------------------------- | -----------------------
|                                                         |                        
|                                                         | 2003                   
|                                                         |                        
|Income tax benefit at federal statutory income tax rate  | $                      
|State income taxes (net of effect of federal income tax) |                        
|Goodwill impairment                                      |                        
|Bankruptcy expenses                                      |                        
|Other-net                                                |                        
|                                                         |                        
|                                                         |                        
|Income tax benefit                                       | $                      
|                                                         |                        
|                                                         |                        
|                                                         |                        
|                                                         |                        

Components of the net deferred income tax liability are as
follows (in thousands of dollars):





|                                                                    | December 31,                                                             
|------------------------------------------------------------------- | -------------------------------------------------------------------------
|                                                                    |                                                                          
|                                                                    | 2003                                                                     
|                                                                    |                                                                          
|Deferred tax liabilities:                                           |                                                                          
|                                                                    | Basis differences resulting from reorganization                          
|                                                                    | Basis differences resulting from fixed assets                            
|                                                                    | Income taxes related to prior years, including interest                  
|                                                                    | Nondeductible expenses                                                   
|                                                                    |                                                                          
|Deferred tax assets:                                                |                                                                          
|                                                                    | Reserves for litigation, environmental, employee benefits
      and other
|                                                                    | Net operating loss carryforward                                          
|                                                                    | Other                                                                    
|                                                                    |                                                                          
|                                                                    | Net deferred income tax liability                                        
|                                                                    |                                                                          
|                                                                    |                                                                          
|                                                                    |                                                                          
|                                                                    |                                                                          
|                                                                    |                                                                          
|Current deferred tax asset (included in other current
      assets) | $                                                                        
|Long-term deferred tax liability                                    |                                                                          
|                                                                    |                                                                          
|                                                                    |                                                                          
|                                                                    | Net deferred income tax liability                                        
|                                                                    |                                                                          
|                                                                    |                                                                          
|                                                                    |                                                                          
|                                                                    |                                                                          

At December 31, 2003, the Company has estimated net operating
loss carryforwards ("NOLs") of approximately $414.9 million available to
reduce future federal taxable income, of which approximately $168.3 million
expires after 2006-2008 and approximately $246.6 million expires after
2020-2023. The utilization of these NOLs is subject to the ownership change limitations of
Internal Revenue Code Section 382. Based on these rules, the Company had an
ownership change on September 16, 1992, as a result of a reorganization.  The Company also had a second ownership change on December 11, 2002. Because of the
complex tax rules related to these carryforwards and the uncertainty of
ultimately realizing benefit from the losses, the Company has not recorded
full benefit for these NOLs. In addition, some portion or all of the NOLs may
not be available to reduce future federal taxable income as a result of the
Company's bankruptcy filing.



52

|
|

WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6.  Income Taxes--Continued

During the second quarters of 2002 and 2001, certain federal
and state contingencies related to the NOLs were resolved and the Company
reevaluated its position on the tax benefits associated with these
items. As a result, the Company has recorded a
$12.3 million benefit and a $26.8 million benefit in the second quarters of 2002
and 2001, respectively. Because the
NOLs involved were generated prior to emergence from bankruptcy, the accounting
rules of Statement of Position 90-7, Financial Reporting by Entities in
Reorganization under the Bankruptcy Code, required that the benefit be
recorded in equity rather than in the statements of operations.





7. Stockholders' Equity (Deficit)

Comprehensive Income

Statement No. 130, Reporting Comprehensive Income,
requires presentation of comprehensive income (loss) that consisted of the
following (in thousands of dollars):



|                                                         | Year Ended December 31,                    
|-------------------------------------------------------- | -------------------------------------------
|                                                         |                                            
|                                                         | 2003                                       
|                                                         |                                            
|Net loss                                                 | $                                          
|Minimum pension liability adjustment, net of tax         |                                            
|Foreign currency translation adjustment                  |                                            
|Gain (loss) on derivative instruments, net of
      tax: |                                            
|                                                         | Cumulative effect of adopting Statement 133
|                                                         | Net changes in fair value of derivatives   
|                                                         | Net (gains) losses reclassified from other 
|                                                         | comprehensive income into earnings         
|                                                         |                                            
|                                                         |                                            
|Comprehensive income (loss)                              | $                                          
|                                                         |                                            
|                                                         |                                            
|                                                         |                                            
|                                                         |                                            



Components of accumulated other comprehensive income (loss)
consisted of the following (in thousands of dollars):



|                                                  | December 31,
|------------------------------------------------- | ------------
|                                                  |             
|                                                  | 2003        
|                                                  |             
|Foreign currency translation adjustment           | $           
|Minimum pension liability adjustment, net of tax  |             
|Gain (loss) on derivative instruments, net of tax |             
|                                                  |             
|                                                  |             
|Accumulated other comprehensive income (loss)     | $           
|                                                  |             
|                                                  |             
|                                                  |             
|                                                  |             

Stock Options and Restricted Stock

The Company has granted stock options under various stock plans
to key employees and to non-employee directors. Also the Company granted certain
contractual stock options thatwhich were not granted pursuant to any plan.
During the pendency of the Company's chapter 11 case, the Company does not
expect to issue additional stock options. The Omnibus Stock Incentive Plan (the
"Omnibus Stock Plan"), an amendment and restatement of the 1993 Management Stock
Option Plan, covers approximately 7.3 million shares of Common Stock, and also
replaced the 1994 Non-Employee Directors Stock Option Plan after the 300,000
shares of Common Stock authorized under that plan had been granted. The Omnibus
Stock Plan allows for six categories of incentive awards: options, stock
appreciation rights, restricted shares, deferred shares, performance shares and
performance units. Key employees are granted options under the various plans at
terms (purchase price, expiration date and vesting schedule) established by a
committee of the Board of Directors. Options granted either in accordance

53

|
|

WESTPOINT STEVENS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

7. Stockholders' Equity (Deficit)--Continued

Stock Options and Restricted Stock--Continued

with contractual arrangements or pursuant to the various plans
have been at a price which is equal to fair market value on the date of grant as
determined by the closing price of the shares on the date the options were
issued. No
option may be exercised more than ten years from the date of grant. The
Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Statement No. 123, Accounting for Stock-Based Compensation, as amended
by Statement 148, requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals or exceeds the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.

Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the method established in Statement
of Financial Accounting Standards No. 148 and described in Note 1, the Company's
net loss and loss per common share would have been increased to the pro forma
amounts indicated below (in thousands, except per share data):





|                                                      | 2003                                         |           | 2002   |   | 2001    
|----------------------------------------------------- | -------------------------------------------- | --------- | ------ | - | --------
|                                                      |                                              |           |        |   |         
|Net loss as reported                                  | $                                            | (133,284) |        | $ | (12,659)
|Deduct:  Total stock-based compensation
      expense |                                              |           |        |   |         
|                                                      | determined under fair-value based method
for |           |        |   |         
|                                                      | all awards, net of tax                       |           | 2,174  |   |         
|                                                      |                                              |           |        |   |         
|Pro forma net loss                                    | $                                            | (135,458) |        | $ | (17,582)
|                                                      |                                              |           |        |   |         
|Basic and diluted loss per common share:              |                                              |           |        |   |         
|                                                      | As reported                                  | $         | (2.67) |   | $       
|                                                      | Pro forma                                    | $         | (2.72) |   | $       



There were no options granted in 2003. The total value of
options granted in 2002 and 2001 was $181,000 and $6,771,760, respectively. The
weighted average value of the options on the date of grant in 2002 and 2001 was
$2.19 and $4.70, respectively. The fair value of each option grant was estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions:





|                                |  |  | 2002 |      | 2001
|------------------------------- |  |  | ---- | ---- | ----
|                                |  |  |      |      |     
|Expected life (years)           |  |  |      | 8%   |     
|Dividend yield                  |  |  |      | 0%   |     
|Expected stock price volatility |  |  |      | 115% |     
|Risk-free interest rate         |  |  |      | 4.2% |     



The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.



54

|
|

WESTPOINT STEVENS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

7.  Stockholders' Equity (Deficit)--Continued

Stock Options and Restricted
Stock--Continued



|                                         | Number of Shares |       | Weighted-Average
|---------------------------------------- | ---------------- | ----- | ----------------
|                                         | (in thousands)   |       | Option Price    
|                                         |                  |       |                 
|                                         | Qualified Plans  |       | Contractual     
|                                         |                  |       |                 
|                                         |                  |       |                 
|Options outstanding at January 1, 2001   | 6,669            |       | 20              
|                                         | Granted          | 864   |                 
|                                         | Exercised        | -     |                 
|                                         | Terminated       |       | (1,499)         
|                                         |                  |       |                 
|                                         |                  |       |                 
|Options outstanding at December 31, 2001 | 6,034            |       | 20              
|                                         | Granted          | 75    |                 
|                                         | Exercised        | -     |                 
|                                         | Terminated       |       | (281)           
|                                         |                  |       |                 
|                                         |                  |       |                 
|Options outstanding at December 31, 2002 | 5,828            |       | 20              
|                                         | Granted          | -     |                 
|                                         | Exercised        | -     |                 
|                                         | Terminated       |       | (2,657)         
|                                         |                  |       |                 
|                                         |                  |       |                 
|Options outstanding at December 31, 2003 |                  | 3,171 |                 
|                                         |                  |       |                 
|                                         |                  |       |                 
|                                         |                  |       |                 
|                                         |                  |       |                 

At December 31, 2003, options for 2,697,382 shares were exercisable at prices
ranging from $1.13 to $36.81 per share.

The following table summarizes information about stock options at December
31, 2003, (shares in thousands):



|                  |  | Outstanding Stock Options |                  | Exercisable Stock Options
|----------------- |  | ------------------------- | ---------------- | -------------------------
|                  |  |                           |                  |                          
|                  |  |                           | Weighted-Average |                          
|Range of          |  |                           | Remaining        |                          
|Exercise Prices   |  | Shares                    |                  | Contractual Life         
|                  |  |                           |                  |                          
|                  |  |                           |                  |                          
|$  1.13 to $10.00 |  | 1,514                     |                  | 7.01 years               
|$10.01 to $20.00  |  | 451                       |                  | 4.63 years               
|$20.01 to $30.00  |  | 546                       |                  | 3.89 years               
|$30.01 to $36.81  |  | 680                       |                  | 5.22 years               
|                  |  |                           |                  |                          
|                  |  |                           |                  |                          
|$  1.13 to $36.81 |  | 3,191                     |                  | 5.76 years               
|                  |  |                           |                  |                          
|                  |  |                           |                  |                          
|                  |  |                           |                  |                          
|                  |  |                           |                  |                          

During 2001 and 2002 the Company awarded 25,000 and 15,000
restricted shares, respectively, to certain key employees. No restricted shares
were awarded in 2003. During the pendency of the chapter 11 case, the Company
does not expect to issue any additional restricted shares. The awards are
subject to certain vesting requirements and 23,822 restricted shares were
actually issued. The value of such stock was established by the market price on
the date of grant and was recorded as unearned compensation. The unearned
compensation is shown as a reduction of stockholders' equity in the

55

|
|

WESTPOINT STEVENS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

7.  Stockholders' Equity (Deficit)--Continued

Stock Options and Restricted Stock--Continued

accompanying Consolidated Balance Sheets and is being amortized
ratably over the applicable restricted stock vesting period. During 2003, 2002
and 2001, $1.3 million, $1.9 million and $2.0 million, respectively, was charged
to expense related to restricted shares. Certain amounts related to restricted
shares previously awarded to the Company's former Chairman and Chief Executive
Officer that did not vest were reversed in 2003.

Stockholder Rights Plan

On May 9, 2001, the Company's Board of Directors adopted a
Stockholder Rights Plan ("Rights Plan") designed to protect Company
stockholders' interests in the event of a takeover attempt. The Board of
Directors did not adopt the Rights Plan in response to any specific takeover
threat.

In adopting the Rights Plan, the Board declared a dividend
distribution of one Common Stock purchase right for each outstanding share of
Common Stock of the Company, payable to stockholders of record at the close of
business on May 21, 2001. The rights will become exercisable only in the event,
with certain exceptions, a person or group of affiliated or associated persons
acquires 15% or more of the Company's voting stock, or a person or group of
affiliated or associated persons commences a tender or exchange offer that, if
successfully consummated, would result in such person or group owning 15% or
more of the Company's voting stock. A stockholder who owns 15% or more of the
Company's voting stock as of May 9, 2001, will not trigger this provision unless
the stockholder thereafter acquires an additional one percent or more of the
outstanding stock. The rights will expire on May 9, 2011.

Upon the occurrence of certain events, holders of the rights
(other than rights owned by an acquiring person or group) would be entitled to
purchase either the Company's Common Stock or shares in an "acquiring entity" at
approximately half of market value. Further, at any time after a person or group
acquires 15% or more (but less than 50%) of the Company's outstanding voting
stock, subject to certain exceptions, the Board of Directors may, at its option,
exchange part or all of the rights (other than rights held by an acquiring
person or group) for shares of the Company's Common Stock having a fair market
value on the date of such acquisition equal to the excess of (i) the fair market
value of Common Stock issuable upon exercise of the rights over (ii) the
exercise price of the rights.

The Company generally will be entitled to redeem the rights at
$0.001 per right at any time prior to the close of business on the tenth day
after there has been a public announcement of the beneficial ownership by any
person or group of 15% or more of the Company's voting stock, subject to certain
exceptions.

Stock Bonus Plan

The Company sponsors an employee benefit plan, the WestPoint
Stevens Inc. 1995 Key Employee Stock Bonus Plan, as amended, (the "Stock Bonus
Plan"), covering 2,000,000 shares of the Company's Common Stock. Under the Stock
Bonus Plan, the Company may grant bonus awards of shares of Common Stock to key
employees based on the Company's achievement of targeted earnings levels during
the Company's fiscal year. As a result of the Company's chapter 11 filing, Stock
Bonus Plan targets were not established for 2003. For 2002 and 2001, bonus
awards were not earned.  For
performance years 1999 and later the Stock Bonus Plan provided for vesting of
the bonus awards, if earned, of 10% on January 1 of the year following the year
of award and 10% in each of the next nine years if the employee continues
employment with the Company, and for performance years prior to 1999 the Stock
Bonus Plan provided for the vesting of the bonus awards of 20% on January 1 of
the year following the year of award and 20% in each of the next four years if
the employee continues employment with the Company. Effective with the chapter
11 filing, the Company can no longer issue shares pursuant to the Stock Bonus
Plan. The Company recognized $1.2 million and $2.7 million of expense in
2002 and 2001, respectively, in connection with the Stock Bonus Plan.



56

|
|

WESTPOINT STEVENS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8.  Derivatives

As discussed in Note 1, effective January 1, 2001, the Company
adopted the Statement 133. The adoption of
Statement 133 resulted in the Company recording transition adjustments in
2001 to recognize its derivative instruments at fair value and to recognize the
ineffective portion of the change in fair value of its derivatives. The
cumulative effect of these transition adjustments was an after-tax net decrease
to OCI approximating $968,000.

The Company uses derivative financial instruments primarily to
reduce exposure to adverse fluctuations in cotton prices. When entered into, the
Company formally designates and documents the financial instrument as a hedge of
a specific underlying exposure, as well as the risk management objectives and
strategies for undertaking the hedge transaction. Because of the high degree of
effectiveness between the hedging instrument and the underlying exposure being hedged, fluctuations in the value of the
derivative instruments are generally offset by changes in the value or cash
flows of the underlying exposures being hedged. Derivatives are recorded in the
Consolidated Balance Sheet at fair value in Prepaid expenses and other current
assets or Other accrued liabilities, depending on whether the amount is an asset
or liability. The fair values of derivatives used to hedge or modify the
Company's risks fluctuate over time. These fair value amounts should not be
viewed in isolation, but rather in relation to the fair values or cash flows of
the underlying hedged transactions and other exposures and to the overall
reduction in Company risk relating to adverse fluctuations in commodity prices
and other market factors. In addition, the earnings impact resulting from the
effective portion of the Company's derivative instruments is recorded in the
same line item within the Consolidated Statement of Operations as the underlying
exposure being hedged. The Company also formally assesses, both at the inception
and at least quarterly thereafter, whether the financial instruments that are
used in hedging transactions are effective at offsetting changes in either the
fair value or cash flows of the related underlying exposures. Any material
ineffective portion of a financial instrument's change in fair value is
immediately recognized in earnings.

At December 31, 2003, and 2002, the Company had only entered
into cash flow hedges.

Cash Flow Hedging Strategy

Management has been authorized to manage the Company's exposure
to price fluctuations relevant to the forecasted purchase of cotton through the
use of a variety of derivative nonfinancial instruments. At December 31, 2003,
and 2002, these instruments covered a portion of the Company's 2004 and 2003
cotton needs and include exchange traded cotton futures contracts and
options.

The fair values of exchange traded cotton futures contracts and
options are estimated by obtaining quotes from brokers. At December 31, 2003,
and 2002, the Company's cotton futures and options contracts, qualified for
hedge accounting. The fair value related to cotton futures contracts at December
31, 2003, and 2002, was a liability of $4.4 million and an asset of $2.3
million, respectively, for which the Company has received or paid cash margins.
The fair value of the cotton options contracts was an asset of $0.6 million at
December 31, 2003. During the first and second quarters of 2001, the fair value
of certain cotton options then outstanding which did not qualify for hedge
accounting in the amount of $2.3 million was classified as Other expense-net in
the accompanying Consolidated Statement of Operations. The fair values of the
Company's cotton futures contracts have been recorded as a component of OCI, net
of tax. At December 31, 2003, the Company expects to reclassify all net gains or
losses on derivative instruments from OCI to earnings during the next twelve
months, and during 2003, the Company reclassified all December 31, 2002, net
gains or losses on derivative instruments from OCI to earnings.

The Company did not discontinue any cash flow hedge
relationships during the years ended December 31, 2003, and 2002.







57

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|

WESTPOINT STEVENS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

9.  Lease Commitments

The Company's operating leases consist of land, sales offices,
manufacturing equipment, warehouses and data processing equipment with
expiration dates at various times during the next eleven years. Some of
the operating leases stipulate that the Company can (a) purchase the properties
at their then fair market values or (b) renew the leases at their then fair
rental values.

The following is a schedule, by year, of future minimum lease
payments as of December 31, 2003, under operating leases that have initial or
remaining noncancelable lease terms in excess of one year (in thousands of
dollars):







|Year Ending December 31, |                             
|------------------------ | ----------------------------
|                         |                             
|                         | 2004                        
|                         | 2005                        
|                         | 2006                        
|                         | 2007                        
|                         | 2008                        
|                         | Years subsequent to 2008    
|                         |                             
|                         | Total minimum lease payments
|                         |                             
|                         |                             
|                         |                             
|                         |                             

The following schedule shows the composition of total rental
expense for all operating leases, except those with terms of one month or less
that were not renewed (in thousands of dollars):



|                       | Year Ended December 31,
|---------------------- | -----------------------
|                       |                        
|                       | 2003                   
|                       |                        
|Minimum lease payments | $                      
|Less sublease rentals  |                        
|                       |                        
|Rent expense           | $                      
|                       |                        
|                       |                        
|                       |                        
|                       |                        

10.  Litigation and Contingent Liabilities

Except as stated below, as of the Petition Date, the following
actions in which the Company is a defendant have been enjoined from further
proceedings pursuant to section 362 of the Bankruptcy Code. To the extent
parties have filed timely proofs of claim, the Bankruptcy Court will determine
the amount of their pre-bankruptcy claims against the Company. In certain
instances, the Bankruptcy Court may permit actions to proceed to judgment for
the purpose of determining the amount of the pre-bankruptcy claim against the
Company. Lawsuits based on facts arising solely after the commencement of the
Company's chapter 11 case are not stayed by section 362 of the Bankruptcy
Code.

On October 5, 2001, a purported stockholder class action suit,
entitled Norman Geller v. WestPoint Stevens Inc., et al.(the
"Geller action"), was filed against the Company and certain of its former
officers and directors in the United States District Court for the Northern
District of Georgia. (A subsequent and functionally identical complaint was also
filed.) The actions were consolidated by Order dated January 25, 2002.
Plaintiffs served a Consolidated Amended Complaint (the "Amended Complaint") on
March 29, 2002. The Amended Complaint asserts claims against all Defendants
under section 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder
and against the Company and Defendant Holcombe T. Green, Jr. as "controlling
persons" under section 20(a) of the Exchange Act. The Amended Complaint alleges that,
during the putative class period (i.e., February 10, 1999, to October 10, 2000),
the Company and certain of its officers and directors caused false and
misleading statements to be issued regarding, inter alia, alleged overcapacity
and excessive inventories of the Company's towel-related products and customer
demand for such products and that certain Individual Defendants wrongfully sold
or pledged Company stock at inflated prices for their benefit. The Amended
Complaint refers to the Company's press releases and quarterly and annual
reports on Securities Exchange Commission Forms 10-Q and 10-K, which discuss the
Company's results and forecasts for the fiscal years 1999 and 2000. Plaintiffs
allege that these press releases and public filings were false and misleading
because they failed to disclose that the Company allegedly "knew sales would be
adversely affected in future

58

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|

WESTPOINT STEVENS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

10.  Litigation and Contingent
Liabilities--Continued

quarters and years." Plaintiffs also allege in general terms
that the Company materially overstated revenues by making premature shipments of
products.

On June 6, 2002, Defendants filed Motions to Dismiss
Plaintiffs' Amended Complaint. On February 3, 2003, the court denied Defendants'
Motions to Dismiss.  The Company has been informed by counsel that its insurance
carrier has reached an agreement in principle to settle the action at no cost to
the Company, subject to definitive documentation and approvals of the court and
the Bankruptcy Court.

On March 11, 2002, a shareholder derivative action, entitled
Gordon Clark v. Holcombe T. Green, Jr., et al.(the "Clark
action"), was filed against certain of the Company's former directors and
officers in the Superior Court of Fulton County, Georgia. The Complaint alleges
that the named individuals breached their fiduciary duties by acting in bad
faith and wasting corporate assets. The Complaint also asserts claims under
Georgia Code Ann. sections 14-2-740 to 14-2-747 and 14-2-831. The claims are based on
the same or similar facts as are alleged in the Geller action.

On July 1, 2002, a shareholder derivative action, entitled
John Hemmer v. Holcombe T. Green, Jr., et al.(the "Hemmer
action"), was filed against Mr. Green and certain of the Company's other
current and former directors including Messrs. Hugh M. Chapman, John F. Sorte
and Ms. M. Katherine Dwyer in the Court of Chancery in the State of Delaware in
and for New Castle County. The Complaint alleges that the named individuals
breached their fiduciary duties and knowingly or recklessly failed to exercise
oversight responsibilities to ensure the integrity of the Company's financial
reporting. The Complaint also asserts that certain of the named individuals used
proprietary Company information in selling or pledging Company stock at inflated
prices for their benefit. The claims are based on the same or similar facts as
are alleged in the Geller action.

By agreements between the parties, the Clark and
Hemmer actions were both stayed pending entry of final judgment by the
court in the Geller action. As with the Geller action, the
Clark and Hemmer actions were also stayed due to the Company's
bankruptcy filing.

The Company believes that the allegations in all of the actions
are without merit and intends to contest the actions vigorously on behalf of its
current and former officers and directors.

The Company has been informed by its counsel that its insurance
carrier is engaged in negotiations to settle the Clark and Hemmer
actions.

On March 21, 2002, an Adversary Complaint of Debtors and
Debtors in Possession Against WestPoint Stevens Inc. was filed by Pillowtex,
Inc., a Delaware corporation, et al.,and Pillowtex Corporation, et
al., against the Company in the United States Bankruptcy Court for the
District of Delaware. Pillowtex Corporation and its related and affiliated
companies ("Pillowtex") as Debtors and Debtors in Possession allege breach of a
postpetition contract (the "Sale Agreement") dated January 31, 2001, among
Pillowtex, Ralph Lauren Home Collection, Inc. ("RLH") and Polo Ralph Lauren
Corporation ("PRLC") collectively referred to as "Ralph Lauren" and the Company.
Pillowtex alleges that the Company refused to perform its purchase obligation
under the Sales Agreement and is liable to it for $4,800,000 plus potentially
significant other consequential damages. The Company believes that the complaint
is without merit and intends to contest the action vigorously. The case is
currently stayed due to the Company's bankruptcy filing.

The Company has been named as a defendant in three separate
purported class action suits seeking reparation for the historic enslavement of
African Americans in the United States. Eddlee Bankhead v. Lloyd's of
London, et al. (the "Bankheadaction") was filed on September
3, 2002, in the United States District Court for the Southern District of New
York. Timothy Hurdle and Chester Hurdle v. FleetBoston Financial
Corporation, et al. was initially filed in the California Superior
Court for San Francisco County on September 10, 2002, but has since been removed
to the United States District Court for the Northern District of California San
Francisco. Julie Mae Wyatt-Kerwin v. J.P. Morgan Chase was filed January
21, 2003, in the United States District Court for the Southern District of
Texas. All three cases have been consolidated with related cases in the U.S.
District Court for the Northern District of Illinois. The factual basis for all
three suits is the claim that the defendants profited from the slave labor of
the plaintiff classes' ancestors prior to 1865 and, specifically, that Pepperell
Manufacturing, predecessor to WestPoint Stevens Inc., utilized cotton from
southern planters who in turn purchased finished





59

|
|

WESTPOINT STEVENS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

10.  Litigation and Contingent
Liabilities--Continued

product to clothe their slaves. The California suit alleges
that such practices amount to an "unfair business practice" in violation of the
California Business and Professional Code.

The purported class includes all descendants of African
American slaves. The relief sought includes an accounting, the appointment of an
independent historical commission, imposition of a constructive trust,
restitution of the value of slave labor and defendants' unjust enrichment,
disgorgement of illicit profits and compensatory and punitive damages.

The consolidated cases are currently stayed, as to the Company,
due to the Company's bankruptcy filing, and on January 26, 2004, the District
Court granted defendants' motion to dismiss without prejudice.

The Company is subject to various federal, state and local
environmental laws and regulations governing, among other things, the discharge,
storage, handling and disposal of a variety of hazardous and nonhazardous
substances and wastes used in or resulting from its operations and potential
remediation obligations thereunder. Certain of the Company's facilities
(including certain facilities no longer owned or utilized by the Company) have
been cited or are being investigated with respect to alleged violations of such
laws and regulations. The Company is cooperating fully with relevant parties and
authorities in all such matters. The Company believes that it has adequately
provided in its financial statements for any expenses and liabilities that may
result from such matters. The Company also is insured with respect to certain of
such matters. The Company's operations are governed by laws and regulations
relating to employee safety and health which, among other things, establish
exposure limitations for cotton dust, formaldehyde, asbestos and noise, and
regulate chemical and ergonomic hazards in the workplace.

Although the Company does not expect that compliance with any
of such laws and regulations will adversely affect the Company's operations,
there can be no assurance such regulatory requirements will not become more
stringent in the future or that the Company will not incur significant costs in
the future to comply with such requirements.

The Company and its subsidiaries are involved in various other
legal proceedings, both as plaintiff and as defendant, which are normal to its
business. It is the opinion of management that the aforementioned actions and
claims, if determined adversely to the Company, will not have a material adverse
effect on the financial condition or operations of the Company taken as a
whole.

11.  Cash Flow Information





|                                                         | Year Ended December 31,     
|-------------------------------------------------------- | ----------------------------
|                                                         |                             
|                                                         | 2003                        
|                                                         |                             
|(In thousands of dollars)                                |                             
|                                                         |                             
|Supplemental disclosures of cash flow
      information: |                             
|                                                         | Cash paid during the period:
|                                                         | Interest                    
|                                                         |                             
|                                                         |                             
|                                                         |                             
|                                                         |                             
|                                                         | Income taxes                
|                                                         |                             
|                                                         |                             
|                                                         |                             
|                                                         |                             

Included in the above 2003, 2002 and 2001 interest paid
is $0.4 million, $0.2 million and $0.6 million, respectively, of
capitalized interest related to capital expenditure projects.



60

|
|

WESTPOINT STEVENS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

12.  Restructuring, Impairment and Other
Charges

In 2000, the Company announced that its Board of
Directors had approved the new Eight-Point Plan, which was created to be the
guiding discipline for the Company in a global economy. The Board also approved
a $222.0 million pretax charge for restructuring, impairment and other charges
to cover the cost of implementing the Eight-Point Plan that is designed to
streamline operations and improve profitability. The Eight-Point Plan addresses
the following points: 1) expand brands; 2) explore new licensing opportunities;
3) rationalize manufacturing; 4) reduce overhead; 5) increase global sourcing;
6) improve inventory utilization; 7) enhance supply chain and logistics; and 8)
improve capital structure.

During 2000, the Company conducted an intense evaluation of its
manufacturing process flow and capacity and how they relate to market demand.
The Company adopted a plan to close certain manufacturing plants and consolidate
manufacturing operations in an arrangement that will reduce costs and enable
more efficient production. The Company also evaluated its internal support and
administrative functions and adopted a plan to consolidate as well as outsource
certain internal support and administrative functions.

As a result of the manufacturing rationalization, the Company
announced the closure of its Rosemary (NC) terry greige facility, its Union (SC)
pillow and mattress pad facility, its Seneca (SC) sheeting facility and its
Whitmire (SC) yarn facility. The manufacturing rationalization also included
capacity reductions at its Rosemary (NC) terry finishing and fabrication
facilities and the conversion of its Carter (AL) sheeting facility to a terry
facility. These plant closings enable the Company to consolidate its
manufacturing in locations that allow the most efficient work flow.

The cost of the manufacturing rationalization and certain
overhead reduction costs were reflected in a restructuring and impairment charge
of $109.2 million, before taxes, in 2000 and a restructuring and impairment
charge of $5.0 million, before taxes, in 2001. The components of the
restructuring and impairment charge in 2000 included $66.8 million for the
impairment of fixed assets, $23.7 million for the impairment of goodwill and
other assets and $18.7 million in reserves to cover cash expenses related to
severance benefits of $14.7 million and other exit costs, including lease
terminations, of $4.0 million. The components of the restructuring and
impairment charge in 2001 included $7.0 million in reserves to cover cash
expenses related to severance benefits and a reduction in reserves for other
exit costs of $2.0 million.

The recorded charge of $66.8 million for the impairment of
fixed assets and $23.7 million for the impairment of goodwill and other assets
discussed in the preceding paragraph are associated with the Company's closure
and capacity reduction of certain facilities as discussed in the second
preceding paragraph. None of the impairment charges related to enterprise
goodwill. The Company did not record any impairment charges related to assets
transferred to other facilities. The Company decided to abandon all remaining
assets. Accordingly, an indication of impairment exists, as these assets will
not generate future cash flow. Furthermore, the Company believes that there is
no acceptable market for these assets as it is unwilling to sell the assets to a
competitor. Accordingly, the fair value of these assets was determined by the
Company to be minimal.

For the period since the adoption of the Eight-Point Plan
through the fourth quarter of 2001, the Company terminated and agreed to pay
severance (including continuing termination benefits) to approximately 1,700
employees. The restructuring charge approved in 2000 was completed in the fourth
quarter of 2001.





61

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|

WESTPOINT STEVENS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

12.  Restructuring, Impairment and Other
Charges--Continued

The following is a summary of the restructuring and impairment
activity in the related reserves (in millions):

|                                          |                |           |   | Employee    |     | Other |     |       
|----------------------------------------- | -------------- | --------- | - | ----------- | --- | ----- | --- | ------
|                                          |                | Writedown |   | Termination |     | Exit  |     | Total 
|                                          |                | Assets    |   | Benefits    |     | Costs |     | Charge
|                                          |                |           |   |             |     |       |     |       
|2000 Restructuring and Impairment Charge: |                |           |   |             |     |       |     |       
|                                          | Second Quarter |           | $ | 87.9        |     | $     | 4.6 |       
|                                          | Third Quarter  |           | - |             | 5.8 |       | 0.3 |       
|                                          | Fourth Quarter |           |   | 2.6         |     |       | 4.3 |       
|                                          |                |           |   |             |     |       |     |       
|Total 2000 Charge                         |                | 90.5      |   | 14.7        |     | 4.0   |     | 109.2 
|                                          |                |           |   |             |     |       |     |       
|2001 Restructuring and Impairment Charge: |                |           |   |             |     |       |     |       
|                                          | First Quarter  |           | - |             | 5.0 |       | -   |       
|                                          | Fourth Quarter |           |   | -           |     |       | 2.0 |       
|                                          |                |           |   |             |     |       |     |       
|Total 2001 Charge                         |                | -         |   | 7.0         |     | (2.0) |     | 5.0   
|                                          |                |           |   |             |     |       |     |       
|Writedown Assets to Net Recoverable Value |                | (90.5)    |   | -           |     | -     |     | (90.5)
|2000 Cash Payments                        |                | -         |   | (4.7)       |     | (0.3) |     | (5.0) 
|2001 Cash Payments                        |                | -         |   | (15.0)      |     | (0.1) |     | (15.1)
|2002 Cash Payments                        |                |           | - |             |     | (1.7) |     |       
|2003 Cash Payments                        |                |           | - |             |     | (0.3) |     |       
|                                          |                |           |   |             |     |       |     |       
|                                          |                |           |   |             |     |       |     |       
|Balance at December 31, 2003              |                | $         | - |             | $   | -     |     | $     
|                                          |                |           |   |             |     |       |     |       
|                                          |                |           |   |             |     |       |     |       
|                                          |                |           |   |             |     |       |     |       



During 2000, other costs of the Eight-Point Plan and other
charges of $94.0 million, before taxes, were recognized including inventory
writedowns of $74.2 million; claims of $5.0 million; and other expenses of $6.1
million, consisting primarily of $2.2 million for the relocation of machinery,
$2.4 million of related unabsorbed overhead and other expenses of $1.5 million,
all reflected in cost of goods sold; and other costs of $8.7 million consisting
primarily of $5.7 million of unusual contractual severance and other expenses of
$3.0 million reflected in Other expense-net. During 2001, other costs of the Eight-Point Plan of $13.7 million, before taxes, were
recognized consisting primarily of $10.0 million for the relocation of
machinery, $3.0 million of related unabsorbed overhead and other expenses of
$0.7 million, all reflected in cost of goods sold.



|
|



On September 20, 2002, the Company announced that its Board of
Directors had approved additional restructuring initiatives to increase asset
utilization, lower manufacturing costs and increase cash flow and profitability
through reallocation of production assets from bath products to basic bedding
products and through rationalization of its retail stores division. The Company
initially expected the restructuring initiatives to result in a $36.5 million
pretax charge for restructuring, impairment and other charges, with
approximately $20 million of the pretax charge expected to be non-cash items. As
a result of modifications to the initial restructuring initiatives, the Company
now expects the restructuring initiatives to result in a $47.7 million pretax
charge for restructuring, impairment and other charges, with approximately $31.7
million of the pretax charge expected to be non-cash items. All charges have
been recorded in accordance with Statement of Financial Accounting Standard No.
146, Accounting for Costs Associated with Exit or Disposal Activities.
The charges for the restructuring initiatives began in the third quarter of 2002
and will continue through the first quarter of 2004.





62

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|

WESTPOINT STEVENS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

12.  Restructuring, Impairment and Other
Charges--Continued

As a result of the restructuring initiatives begun
in 2002, the Company announced the closure of its Rosemary (NC) towel finishing
facility, the conversion of its Rosemary (NC) towel fabrication and distribution
facilities to basic bedding facilities and the closure of its Dalton (GA)
utility bedding facility. The Company announced on April 25, 2003 that the
Rosemary (NC) towel fabrication and distribution facilities that were previously
disclosed as being converted to basic bedding facilities would now be closed.
The Company also announced the closure of twenty-two retail stores and the
closure of its WestPoint Stevens (Europe) Ltd. foreign subsidiary.

The cost of the manufacturing and retail store rationalization
and certain overhead reduction costs were reflected in a restructuring and
impairment charge of $6.6 million, before taxes, in 2002 and a restructuring and
impairment charge of $12.6 million, before taxes, in 2003. The components of the
restructuring and impairment charge in 2002 included $4.4 million for the
impairment of fixed assets and $2.2 million in reserves to cover cash expenses
related primarily to severance benefits. The components of the restructuring and
impairment charge in 2003 included $7.0 million for the impairment of fixed
assets and $5.6 million in reserves to cover cash expenses related to severance
benefits of $5.2 million and other exit costs.

During 2002 and 2003 as a result of restructuring initiatives,
the Company has terminated and agreed to pay severance (including continuing
termination benefits) to approximately 500 employees.

The following is a summary of the restructuring and impairment
activity in the related reserves (in millions):



|                                          |                |           |     | Employee    |   | Other |       |       
|----------------------------------------- | -------------- | --------- | --- | ----------- | - | ----- | ----- | ------
|                                          |                | Writedown |     | Termination |   | Exit  |       | Total 
|                                          |                | Assets    |     | Benefits    |   | Costs |       | Charge
|                                          |                |           |     |             |   |       |       |       
|2002 Restructuring and Impairment Charge: |                |           |     |             |   |       |       |       
|                                          | Third Quarter  |           | $   | 4.3         |   | $     | 1.6   |       
|                                          | Fourth Quarter |           |     | 0.1         |   |       | 0.5   |       
|                                          |                |           |     |             |   |       |       |       
|Total 2002 Charge                         |                | 4.4       |     | 2.1         |   | 0.1   |       | 6.6   
|                                          |                |           |     |             |   |       |       |       
|2003 Restructuring and Impairment Charge: |                |           |     |             |   |       |       |       
|                                          | First Quarter  |           |     | 0.2         |   |       | 0.8   |       
|                                          | Second Quarter |           |     | 6.8         |   |       | 4.3   |       
|                                          | Third Quarter  |           |     | 0.8         |   |       | 0.2   |       
|                                          | Fourth Quarter |           |     | (0.8)       |   |       | (0.1) |       
|                                          |                |           |     |             |   |       |       |       
|Total 2003 Charge                         |                |           | 7.0 |             |   | 5.2   |       |       
|                                          |                |           |     |             |   |       |       |       
|Writedown Assets to Net Recoverable Value |                | (11.4)    |     | -           |   | -     |       | (11.4)
|2002 Cash Payments                        |                |           | -   |             |   | (1.5) |       |       
|2003 Cash Payments                        |                |           | -   |             |   | (4.6) |       |       
|                                          |                |           |     |             |   |       |       |       
|Balance at December 31, 2003              |                | $         | -   |             | $ | 1.2   |       | $     
|                                          |                |           |     |             |   |       |       |       
|                                          |                |           |     |             |   |       |       |       
|                                          |                |           |     |             |   |       |       |       
|                                          |                |           |     |             |   |       |       |       

During 2002, other costs of the restructuring initiatives of
$11.6 million, before taxes, were recognized consisting of inventory writedowns
of $10.5 million primarily related to the rationalization of its retail stores
division and other expenses of $1.1 million, consisting primarily of related
unabsorbed overhead, all reflected in cost of goods sold. During 2003, other
costs of the restructuring initiatives of $16.0 million, before taxes, were
recognized consisting of inventory writedowns of $8.4 million primarily related
to the closure of its foreign subsidiary and the rationalization of its retail
stores division, accounts receivable writedowns for claims of $1.4 million
related to the closure of its foreign subsidiary and other expenses of $6.2
million, consisting primarily of $4.1 million of related unabsorbed overhead,
$1.2 million for the relocation of machinery and other expenses of $0.9 million,
all reflected in cost of goods sold.



63

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WESTPOINT STEVENS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)





12.  Restructuring, Impairment and Other
Charges--Continued

During the third quarter of 2003, the Company's
Board of Directors approved further additional restructuring initiatives to
increase asset utilization, lower manufacturing costs and increase cash flow and
profitability through a further realignment of manufacturing capacity. The
Company expects the restructuring initiatives to result in an $84.3 million
pretax charge for restructuring, impairment and other charges. Approximately
$55.6 million of the pretax charge is expected to be non-cash items. All charges
have been recorded in accordance with Statement of Financial Accounting Standard
No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. The charges for the restructuring initiatives began in the
fourth quarter of 2003 and will continue throughout 2004.

As a result of the restructuring initiatives begun in 2003, the
Company announced the closure of its Dunson (GA) sheeting facility, its Dixie
(GA) towel facility, its Coushatta (LA) utility bedding facility and its Fairfax
(AL) towel greige facility. The Company also announced the conversion of its
Lanier (AL) sheeting facility to towel production and the conversion of its
Greenville (AL) blanket facility to a utility bedding facility. These plant
closings and conversions will provide the Company with greater production efficiency
and better-aligned capacity to compete more effectively in a global economy.

The cost of the manufacturing rationalization was reflected in
a restructuring and impairment charge of $37.0 million, before taxes, in 2003.
The restructuring and impairment charge in 2003 reflected the impairment of
fixed assets.

The following is a summary of the restructuring and impairment
activity in the related reserves (in millions):



|                                          |                |           |   | Employee    |   | Other |   |       
|----------------------------------------- | -------------- | --------- | - | ----------- | - | ----- | - | ------
|                                          |                | Writedown |   | Termination |   | Exit  |   | Total 
|                                          |                | Assets    |   | Benefits    |   | Costs |   | Charge
|                                          |                |           |   |             |   |       |   |       
|2003 Restructuring and Impairment Charge: |                |           |   |             |   |       |   |       
|                                          | Fourth Quarter |           | $ | 37.0        |   | $     | - |       
|                                          |                |           |   |             |   |       |   |       
|Writedown Assets to Net Recoverable Value |                | (37.0)    |   | -           |   | -     |   | (37.0)
|                                          |                |           |   |             |   |       |   |       
|Balance at December 31, 2003              |                | $         | - |             | $ | -     |   | $     
|                                          |                |           |   |             |   |       |   |       
|                                          |                |           |   |             |   |       |   |       
|                                          |                |           |   |             |   |       |   |       

During 2003, other costs of the restructuring initiatives of
$1.4 million, before taxes, were recognized consisting of inventory writedowns
of $1.0 million and other expenses of $0.4 million, consisting of related
unabsorbed overhead.

13.  Major Customer and Product Line
Information

The Company's consumer home fashions products are sold
primarily to domestic catalogs, chain stores, mass merchants, department stores,
specialty stores, warehouse clubs and its own retail stores. Sales to two
customers as a percent of net sales, amounted to approximately 14% and 11% each
for the year ended December 31, 2003. Sales to two customers, as a percent of
net sales, amounted to approximately 14% and 12% each for the year ended
December 31, 2002. Sales to two customers, as a percent of net sales, amounted
to approximately 15% and 14% each for the year ended December 31, 2001. During
2003, 2002 and 2001, the Company's six largest customers accounted for
approximately 52%, 51% and 54%, respectively, of the Company's net sales.





64

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|

WESTPOINT STEVENS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



13.  Major Customer and Product Line
Information--Continued

Net sales of bed products, bath products and other sales
(consisting primarily of sales from the Company's retail stores and foreign
operations) consisted of the following (in thousands of dollars):



|                | Year Ended December 31,
|--------------- | -----------------------
|                | 2003                   
|                |                        
|Bed products    | $                      
|Bath products   |                        
|Other sales     |                        
|                |                        
|                |                        
|Total net sales | $                      
|                |                        
|                |                        
|                |                        
|                |                        

14.  Quarterly Financial Summary (Unaudited)

|                                                         |  | Quarter
|-------------------------------------------------------- |  | -------
|                                                         |  |        
|                                                         |  | First  
|                                                         |  |        
|                                                         |  |        
|(In millions of dollars, except per share data)          |  |        
|                                                         |  |        
|Year ended December 31, 2003                             |  |        
|                                                         |  |        
|Net sales                                                |  | $      
|Gross earnings (1)                                       |  | 73.4   
|Operating earnings (2)                                   |  | 8.6    
|                                                         |  |        
|Net income (loss) (3)                                    |  | (16.9) 
|                                                         |  |        
|Basic and diluted net income (loss) per common share (4) |  | (.34)  
|                                                         |  |        
|                                                         |  |        
|                                                         |  |        
|Year ended December 31, 2002                             |  |        
|                                                         |  |        
|Net sales                                                |  | $      
|Gross earnings (1)                                       |  | 107.8  
|Operating earnings (2)                                   |  | 38.9   
|                                                         |  |        
|Net income (loss) (3)                                    |  | 2.0    
|                                                         |  |        
|Basic and diluted net income (loss) per common share (4) |  | .04    







65

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WESTPOINT STEVENS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

14.  Quarterly Financial Summary (Unaudited)--Continued

(1) Gross earnings for the first, second, third and fourth
quarter of 2003 include costs related to restructuring initiatives of $2.9
million, $4.7 million, $7.7 million and $2.2 million, respectively. Gross
earnings for the third and fourth quarter of 2002 include costs related to
restructuring initiatives of $10.2 million and $1.4 million, respectively.

(2) Operating earnings for the first, second, third and fourth
quarter of 2003 include restructuring and impairment charges of $1.4 million,
$11.9 million, $1.0 million and $35.3 million, respectively, and other costs
related to restructuring initiatives of $2.9 million, $4.7 million, $7.7 million
and $2.2 million, respectively, totaling $4.3 million, $16.6 million, $8.7
million and $37.5 million, respectively. Operating earnings for the third and
fourth quarter of 2002 include restructuring and impairment charges of $5.9
million and $0.8 million, respectively, and other costs related to restructuring
initiatives of $10.2 million and $1.4 million, respectively, totaling $16.1
million and $2.2 million, respectively.

(3) Net loss for the first, second, third and fourth quarter of
2003 includes restructuring and impairment charges of $1.4 million, $11.9
million, $1.0 million and $35.3 million, respectively, and other costs related
to restructuring initiatives of $2.9 million, $4.7 million, $7.7 million and
$2.2 million, respectively, before income tax benefit of $1.5 million, $6.0
million, $3.1 million and $13.5 million, respectively, for a net amount of $2.7
million, $10.6 million, $5.6 million and $24.0 million, respectively. Net loss
for the third and fourth quarter of 2002 includes restructuring and impairment
charges of $5.9 million and $0.8 million, respectively, and other costs related
to restructuring initiatives of $10.2 million and $1.4 million, respectively,
before income tax benefit of $5.8 million and $0.8 million, respectively, for a
net amount of $10.3 million and $1.4 million, respectively.

(4) Net income (loss) per common share
calculations for each of the quarters is based on the average common shares
outstanding for each period.

15.  Related Party Transactions

During 2000, the Company acquired an investment in a limited
liability corporation ("LLC") that was accounted for under the equity method.
The other member of the LLC was HTG Corp., which was a company controlled by
WestPoint Stevens Inc.'s former Chairman and Chief Executive Officer. Each
member of the LLC owns an equal amount of voting common interests, plus
non-voting preferred interests reflecting capital contributions made by each
member in excess of the amounts paid for the common interest less distributions
and other allocations to each member. The LLC owned and operated a jet aircraft,
which was used by the Company for business travel. During 2001, the Company
recorded approximately $3.0 million in cash expenses related to its ownership of
the aircraft.

During September 2001, the LLC sold the jet aircraft, which was
its primary asset, for less than its book value and generated $3.3 million in
cash. After analyzing the fair market value of the LLC's remaining assets, the
Company concluded that its investment was impaired and recorded a non-cash
charge approximating $7.5 million, including the Company's share of the loss on
the sale of the aircraft in the third quarter of 2001. This charge is classified
as Other expense-net in the accompanying December 31, 2001, Consolidated
Statement of Operations. Following the sale, HTG Corp. had a negative capital
account balance in the LLC of approximately $4.5 million.

On November 29, 2001, the Company entered into an agreement (the
"Letter Agreement") with HTG Corp., the other member of the LLC, pursuant to
which HTG Corp. agreed to restore the negative balance in its capital account in
the LLC. Under the Letter Agreement, HTG Corp. agreed to restore approximately
$4.5 million (the "Amount Due") in installments, with $1.0 million due on
November 29, 2002, $2.0 million due on November 29, 2003, and the balance due on
November 29, 2004. The Amount Due increased or decreased by one-half of the loss
or gain, respectively, upon the sale or disposition of the remaining assets of
the LLC. On March 8, 2002, the Amount Due increased by $750,000 to approximately
$5.25 million due to the distribution of hangar property to HTG Corp. and the
loss to the LLC related to such distribution. The only remaining asset of the
LLC was a contract for the purchase of a new Falcon 2000EX jet aircraft. The LLC
sold its interest in

66

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WESTPOINT STEVENS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

15.  Related Party Transactions--Continued

this contract for $500,000. Pursuant to the Letter Agreement,
the proceeds from the sale of the contract were paid to the Company and the
Amount Due was decreased by the amount of the proceeds paid to the Company. HTG
Corp. agreed to pay interest on the Amount Due at the prime rate of interest in
effect from time to time plus three and one-half percent per annum. The Letter
Agreement provided that any and all payments made by HTG Corp. to reduce the
Amount Due immediately be distributed to the Company. A company related to HTG
Corp. by common ownership guaranteed the Amount Due. Neither the obligation of
HTG Corp. nor the guarantee was collateralized or secured by any assets.
Accordingly, no amounts were recorded in the accompanying Consolidated Financial
Statements for the potential recovery of the Amount Due.

On November 29, 2002, HTG Corp. paid the first installment due
under the Letter Agreement of approximately $1.3 million including accrued
interest and the Company recognized a recovery in Other expense-net in the
accompanying December 31, 2002, Consolidated Statement of Operations. After the
payment on November 29, 2002, the remaining Amount Due under the Letter
Agreement was approximately $3.9 million.

Effective August 14, 2003, the Company entered into a
Separation and Settlement Agreement (the "Separation Agreement") with Mr. Green
with regard to Mr. Green's resignation from employment and from the Board of
Directors of the Company. Pursuant to the Separation Agreement Mr. Green
received a cash payment of $1 million on the effective date. Under the
Separation Agreement Mr. Green has agreed to make himself available to perform
consulting and other services for the Company for which he received $318,750 in
2003 and will receive $475,000 in each of the years 2004 and 2005.

In connection with the Separation Agreement Mr. Green's
employment agreement with the Company was terminated except for provisions
relating to restrictions on conduct including post-employment competition and
protection of the Company's confidential information and trade secrets. Under
the Separation Agreement the Company terminated the Letter Agreement with HTG
Corp. and the guaranty, both affiliates of Mr. Green, relating to obligations to
make certain payments to the Company in order to restore a negative capital
account balance in HTG Falcon LLC, of which the Company and HTG Corp. were the
only members.

Item 9.   Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure

None.

Item 9A.   Controls and
Procedures

(a)  The Company maintains disclosure controls and
procedures that are designed to ensure that information required to be disclosed
in its filings under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the periods specified in the rules and forms of
the Securities and Exchange Commission. Such information is accumulated and
communicated to the Company's management, including its principal executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure. The Company's management, including its
principal executive officer and principal financial officer, recognizes that any
set of controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control
objectives.

Within 90 days prior to the filing date of this Annual Report
on Form 10-K, we have carried out an evaluation, under the supervision and with
the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in assuring that all material information
relating to the Company is made known to them.

(b)  There have been no significant
changes in our internal controls or in other factors which could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Annual Report on Form 10-K.



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Item 10.   Directors and
Executive Officers of the Registrant

Board of Directors

The Board of Directors of the Company (the "Board of
Directors") currently consists of six members and is divided into three classes.
The terms of office of the members of each class of directors are staggered so
that the term of office of no more than one class expires in any one year.

The following table sets forth the name, age (as of March 1,
2004) and positions with the Company of each of the directors, the year in which
their term of office will expire and the month and year in which each director
was first elected.







|Name                    | Age | Term Expires | Positions with
the Company                                                     | Served as
Director Since
|----------------------- | --- | ------------ | ------------------------------------------------------------------------------ | ------------------------
|                        |     |              |                                                                                |                         
|                        |     |              |                                                                                |                         
|Class I                 |     |              |                                                                                |                         
|M. L. ("Chip") Fontenot | 60  | 2005         | Director, President, Chief    Executive Officer and Chief    Operating Officer | February	2002           
|Joseph R. Gladden, Jr.  | 61  | 2005         | Director                                                                       | May	2001                
|                        |     |              |                                                                                |                         
|Class II                |     |              |                                                                                |                         
|M. Katherine Dwyer      | 55  | 2003(1)      | Director                                                                       | October	1996            
|John F. Sorte           | 56  | 2003(1)      | Director                                                                       | January	1993            
|                        |     |              |                                                                                |                         
|Class III               |     |              |                                                                                |                         
|Hugh M. Chapman         | 71  | 2004         | Director                                                                       | August	1997             
|J. Hicks Lanier         | 63  | 2004         | Director                                                                       | May	2001                

(1)Pursuant to the Company's By-Laws each director
continues to hold office, after the expiration of the term, until his or her
successor is elected and qualified or until his or her death, resignation or
removal.

M. L. ("Chip") Fontenot has been President, Chief Executive
Officer and Chief Operating Officer of the Company since October 15, 2003, and
was President and Chief Operating Officer of the Company from January 2001 until
October 2003. On June 1, 2003, the Company filed a voluntary petition for relief
under chapter 11 of the Bankruptcy Code in the Bankruptcy Court. Prior to
joining the Company, Mr. Fontenot was employed as President and Chief Operating
Officer of Dyersburg Corporation, a manufacturer of knit apparel fabrics, from
July 1999 until December 2000, President of Marketing and a director of that
company from January 1998 until July 1999 (Dyersburg Corporation filed a
voluntary petition for relief under chapter 11 of the Bankruptcy Code on
September 25, 2000, in the United States Bankruptcy Court for the District of
Delaware). He served as President and Chief Executive Officer of Decorative Home
Accents, Inc., a manufacturer of home fashions products, from February 1996
until December 1997. Mr. Fontenot served as President and Chief Executive
Officer of Perfect Fit Industries Inc., a manufacturer of home fashions
products, from 1989 until 1996. He also served in various capacities at Springs
Industries, Inc., a manufacturer and marketer of home fashions products, during
a 20-plus-year tenure that included President of its Consumer Products Division
and corporate Executive Vice President until 1989.

Joseph R. Gladden, Jr. served as Executive Vice President
and General Counsel of The Coca-Cola Company, a manufacturer, marketer and
distributor of non-alcoholic beverages, concentrates and syrups, from January
2000 until his retirement in November 2001. He had been Senior Vice President
and General Counsel of The Coca-Cola Company since April 1991.

M. Katherine Dwyer has been Chairperson and Chief
Executive Officer of Skinklinic, Inc., a skin care/cosmetic dermatology company,
since April 2000. Until January 2000, she was Senior Vice President of Revlon,
Inc., a mass cosmetic company, and President of Revlon Consumer Products
USA.



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John F. Sorte

Hugh M. Chapman served as Chairman of NationsBank, National
Association (South), a commercial bank holding company, from January 1992 until
his retirement in June 1997. He is also a director of The Williams Companies
Inc., an energy services company, (and chairman of its audit committee and a
member of its executive committee and nominating and governance committee).

J. Hicks Lanier has been Chairman and Chief Executive
Officer of Oxford Industries, Inc., a consumer apparel products company, since
1981 and was also President of that company from 1977 to November 2003. He is a
director of Crawford & Company, a diversified insurance services company,
(and chairman of its compensation committee and member of its audit committee);
a director of Genuine Parts Company, a distributor of automotive and industrial
replacement parts and office products, (and chairman of its compensation
committee) and a director of SunTrust Banks, Inc. (and a member of its audit
committee).

Audit Committee

The Board of Directors has a standing Audit Committee
established in accordance with section 3(a)(58)(A) of the Exchange Act (15
U.S.C. 78c(a)(58)(A)). The members of the Audit Committee are J. Hicks Lanier,
Chairman, M. Katherine Dwyer and Joseph R. Gladden.

Audit Committee Financial Expert

The Board of Directors has determined that the Chairman of the
Audit Committee, Mr. J. Hicks Lanier, is an "audit committee financial expert,"
as that term is defined in Item 401(h) of Regulation S-K and "independent" for
purposes of the recently adopted New York Stock Exchange listing standards and
section 10A(m)(3) of the Securities Act of 1934.



We do not pay directors or other committee members who are
employees of the Company additional compensation for service as directors or
committee members. In 2003, non-employee directors received the following
compensation:

Directors' Compensation Table

The following table sets forth the type and amount of
compensation paid to the members of the Company's Board of Directors:



|Type of Compensation                            | Amount  
|----------------------------------------------- | --------
|                                                |         
|Annual Retainer                                 | $25,000 
|Annual Retainer for Committee Chair             | $  4,000
|Annual Retainer for Each Committee Membership   | $  3,000
|Board or Committee Attendance Fee (per meeting) | $  1,500







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Executive Officers

The following table sets forth the name, age (as of March 1,
2004) and positions of each of the executive officers of the Company:



|Name of Officer         | Age | Title                                                                              
|----------------------- | --- | -----------------------------------------------------------------------------------
|                        |     |                                                                                    
|M. L. ("Chip") Fontenot | 60  | Director, President, Chief Executive Officer and
           Chief Operating Officer
|Lester D. Sears         | 55  | Senior Vice President-Finance and       Chief
      Financial Officer              
|Arthur S. Birkins       | 47  | President-Basic Bedding                                                            
|Robert B. Dale          | 56  | President-Bed and Bath                                                             



For a discussion of the business experience of Mr. Fontenot,
see "Item 10. Board of Directors."

Lester D. Sears joined the Company on April 16, 2001, as
Senior Vice President-Finance and Chief Financial Officer. Prior to joining the
Company Mr. Sears was employed as Executive Vice President and Chief Financial
Officer for Glenoit Corporation, a textile manufacturing company, from 1996
(Glenoit Corporation filed a petition for relief under chapter 11 of the
Bankruptcy Code on August 8, 2000, in the United States Bankruptcy Court for the
District of Delaware.). Mr. Sears was Executive Vice President and Chief
Financial Officer for Perfect Fit Industries, Inc. where he was an Equity
Partner from 1989 until 1996. Mr. Sears served as Controller of the Consumer
Products Division of Springs Industries, Inc. from 1984 until 1989. Previously
he served as a Certified Public Accountant with the independent accounting firm
of Haskins & Sells (now Deloitte & Touche) for approximately three
years.

Arthur S. Birkins has been President-Basic Bedding Division
since October 20, 2001. Upon joining the Company on May 7, 2001, he was Senior
Vice President-Basic Bedding. Prior to joining the Company Mr. Birkins was Vice
President-Waverly Home Fashions, a division of F. Schumacher and Company, a
supplier of home fashions products. He began with Waverly as Vice
President-Sales, National Accounts for Waverly Lifestyle Group in 1999. From
1997 he served as President of The Rug Barn, Inc., while simultaneously heading
the Window Fashions Division of Home Innovations, Inc. from 1996. Both are
divisions of Decorative Home Accents, Inc.

Robert B. Dale has been President-Bed and Bath Division
since October 10, 2001. He joined the Company on April 16, 2001, as Senior Vice
President-Sales and Marketing. Prior to joining the Company Mr. Dale was Vice
President-Marketing and Sales of the Home Products Division of Thomaston Mills,
Inc., a manufacturer and marketer of home fashions products, from 1999 and was
President and Chief Operating Officer - Consumer Products with Glenoit
Corporation from 1996 until 1999.

Pending or Threatened Legal Proceedings Involving Officers and
Directors

Except as stated below, as of the Petition Date, the following
actions in which the Company is a defendant have been enjoined from further
proceedings pursuant to section 362 of the Bankruptcy Code. To the extent
parties have filed timely proofs of claim, the Bankruptcy Court will determine
the amount of their pre-bankruptcy claims against the Company. In certain
instances, the Bankruptcy Court may permit actions to proceed to judgment for
the purpose of determining the amount of the pre-bankruptcy claim against the
Company. Lawsuits based on facts arising solely after the commencement of the
Company's chapter 11 case are not stayed by section 362 of the Bankruptcy
Code.

On October 5, 2001, a purported stockholder class action suit,
entitled Norman Geller v. WestPoint Stevens Inc., et al.(the
"Geller action"), was filed against the Company and certain of its former
officers and directors in the United States District Court for the Northern
District of Georgia. (A subsequent and functionally identical complaint was also
filed.) The actions were consolidated by Order dated January 25, 2002.
Plaintiffs served a Consolidated Amended Complaint (the "Amended Complaint") on
March 29, 2002. The Amended Complaint asserts claims against all Defendants
under sections 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder
and against the Company and Defendant Holcombe T. Green, Jr. as "controlling
persons" under sections 20(a) of the Exchange Act. The Amended Complaint alleges that,
during the putative class period (i.e., February 10, 1999, to October 10, 2000),
the Company and certain of its officers and directors caused false and
misleading statements to be issued regarding, inter alia, alleged overcapacity
and excessive inventories of the Company's towel-related products and customer
demand for such products and that certain Individual Defendants wrongfully sold
or pledged Company stock at inflated prices for their benefit. The Amended
Complaint refers to the Company's press releases



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On June 6, 2002, Defendants filed Motions to Dismiss
Plaintiffs' Amended Complaint. On February 3, 2003, the court denied Defendants'
Motions to Dismiss.

The Company has been informed by counsel that its insurance
carrier has reached an agreement in principle to settle the action at no cost to
the Company, subject to definitive documentation and approvals of the court and
the Bankruptcy Court.

On March 11, 2002, a shareholder derivative action, entitled
Gordon Clark v. Holcombe T. Green, Jr., et al.(the "Clark
action"), was filed against certain of the Company's former directors and
officers in the Superior Court of Fulton County, Georgia. The Complaint alleges
that the named individuals breached their fiduciary duties by acting in bad
faith and wasting corporate assets. The Complaint also asserts claims under
Georgia Code Ann. sections 14-2-740 to 14-2-747 and 14-2-831. The claims are based on
the same or similar facts as are alleged in the Geller action.

On July 1, 2002, a shareholder derivative action, entitled
John Hemmer v. Holcombe T. Green, Jr., et al.(the "Hemmer
action"), was filed against Mr. Green and certain of the Company's other
current and former directors including Messrs. Hugh M. Chapman, John F. Sorte
and Ms. M. Katherine Dwyer in the Court of Chancery in the State of Delaware in
and for New Castle County. The Complaint alleges that the named individuals
breached their fiduciary duties and knowingly or recklessly failed to exercise
oversight responsibilities to ensure the integrity of the Company's financial
reporting. The Complaint also asserts that certain of the named individuals used
proprietary Company information in selling or pledging Company stock at inflated
prices for their benefit. The claims are based on the same or similar facts as
are alleged in the Geller action.

By agreements between the parties, the Clark and
Hemmer actions were both stayed pending entry of final judgment by the
Court in the Geller action. As with the Geller action, the
Clark and Hemmer actions were also stayed due to the Company's
bankruptcy filing.

The Company believes that the allegations in all of the actions
are without merit and intends to contest the actions vigorously on behalf of its
current and former officers and directors.

The Company has been informed by its counsel that its insurance
carrier is engaged in negotiations to settle the Clark and Hemmer
actions.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely upon its review of the copies of
Forms 3, 4 and 5 and amendments thereto or written representation received from
reporting persons, the Company believes that during 2003 all filing requirements
applicable to its officers, directors and beneficial owners of more than ten
percent of the Company's Common Stock under Section 16(a) of the Exchange Act
were met.

Code of Business Conduct and Ethics

The Company has adopted a Code of Business Conduct and
Ethics that applies to all directors, officers and employees, including our
principal executive officer, principal financial officer and principal
accounting officer. You can find our Code of Business Conduct and Ethics on our
website: http://www.westpointstevens.com/performance/corpgov.asp. We will post any amendments to or waivers
from, a provision of the Code of Business Conduct and Ethics, as well as any
waivers that are required to be disclosed by the rules of the Securities and
Exchange Commission, on our website.



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Item 11.   Executive
Compensation

Summary Compensation Table

The following table sets forth information concerning total
compensation earned by or paid to the two executive officers who held the
position of Chief Executive Officer during part of the last fiscal year and the
three other executive officers of the Company as of December 31, 2003, (the
"Named Executive Officers"), during the fiscal years indicated for services
rendered to the Company and its subsidiaries.



|Summary Compensation Table                                                                        
|--------------------------------------------------------------------------------------------------
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Name and Principal Position                                                                       
|                                                                                                  
|Holcombe T. Green, Jr.
  Chairman and Chief
     Executive Officer                                
|M. L. ("Chip") Fontenot
  President, Chief Executive      Officer and Chief
     Operating Officer
|Lester D. Sears
  Senior Vice President- 
     Finance and Chief
     Financial Officer           
|Robert B. Dale
  President-Bed & Bath                                                             
|Arthur S. Birkins
  President-Basic Bedding                                                       

|1 |  | A portion of bonus earned in fiscal year 2003 was paid in
      the first quarter of fiscal year 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2 |  | The Company has entered into an agreement with Mr. Green
      to provide certain payments in connection with his termination of
      employment and resignation from the Board of Directors. See "--Employment
      Agreements, Termination Provisions and Change in Control
      Arrangements."                                                                                                                                                                                                                                                                                                                                                                                                                                   
|3 |  | Includes $1,584, $1,584 and $990 for excess value of life
      insurance over premiums paid by Mr. Green for 2001, 2002 and 2003,
      respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|4 |  | Includes $655,121 in value realized by Mr. Green upon the
      surrender of his right to receive 818,902 shares of Common Stock under the
      Company's Supplemental Retirement Plan, $46,647 for personal use of
      Company airplane and $16,850 for automobile allowance.                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|5 |  | Includes $77,057 for personal use of Company
      airplane.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|6 |  | Includes amounts paid to Mr. Fontenot as reimbursement
      for expenses incurred for travel between New York, New York, and
      Charlotte, North Carolina, amounts for expenses incurred for meals in New
      York and automobile allowance and $79,920 and $79,320 for lodging in New
      York, New York, for 2003 and 2002, respectively. Also includes $81,950 and
      $87,535 for 2003 and 2002, respectively, paid to Mr. Fontenot to provide
      him on an after-tax basis with sufficient funds to discharge any federal,
      state or local income taxes imposed on such housing and travel
      reimbursements. See "--Employment Agreements, Termination Provisions and
      Change in Control Arrangements."



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|7  |  | Includes $2,260, $2,312 and $4,244 for excess value of
      life insurance over premiums paid by Mr. Fontenot for 2001, 2002 and 2003,
      respectively, and $2,000 in the Company's matching contributions under the
      Savings Plan for 2002 and 2003, respectively.                                                                                                                                                                                                                                                                                                   
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|8  |  | Includes $15,627 and $573,634 for relocation expenses
      (including reimbursement for loss on sale of personal residence and
      $264,159 to provide Mr. Sears, on an after-tax basis, with sufficient
      funds to discharge any federal, state or local income taxes imposed on
      such relocation and reimbursements) for 2001 and 2002, respectively;
      $5,435 for personal use of Company airplane for 2001 and $10,519 and
      $8,610 automobile allowance for 2002 and 2003,
  respectively.                                                            
|9  |  | Includes $251, $551 and $1,032 for excess value of life
      insurance over premiums paid by Mr. Sears for 2001, 2002 and 2003,
      respectively, and $2,000 in the Company's matching contributions under the
      Savings Plan for 2002 and 2003, respectively.                                                                                                                                                                                                                                                                                                          
|10 |  | The amount shown is compensation from April 16, 2001,
      date of hire, until December 31, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|11 |  | Mr. Sears was paid an $80,000 guaranteed minimum bonus
      for 2001 pursuant to his employment agreement. See "--Employment
      Agreements, Termination Provisions and Change in Control
      Arrangements."                                                                                                                                                                                                                                                                                                                                                              
|12 |  | On May 9, 2001, the Compensation Committee of the Board
      of Directors awarded 25,000 shares of restricted stock under the WestPoint
      Stevens Omnibus Stock Incentive Plan, which award vests equally over a
      five-year period. The dollar value is based upon the share price on the
      date of grant of the award. As of December 31, 2003, the aggregate
      unvested portion of the restricted stock consisted of 10,000 shares having
      a value of $200 based upon the closing price of the Company's Common Stock
      at the end of fiscal 2003.
|13 |  | Includes $251, $1,032 and $1,032 for excess value of life
      insurance over premiums paid by Mr. Dale for 2001, 2002 and 2003,
      respectively; and $520, $2,000 and $2,000 in the Company's matching
      contributions under the Savings Plan for 2001, 2002 and 2003,
      respectively.                                                                                                                                                                                                                                                                            
|14 |  | The amount shown is compensation from April 16, 2001,
      date of hire, until December 31, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|15 |  | Includes $124, $354 and $360 for excess value of life
      insurance over premiums paid by Mr. Birkins for 2001, 2002 and 2003,
      respectively; and $750, $2,000 and $2,000 in the Company's matching
      contributions under the Savings Plan for 2001, 2002 and 2003,
      respectively.                                                                                                                                                                                                                                                                             
|16 |  | The amount shown is compensation from May 7, 2001, date
      of hire, until December 31, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|17 |  | Mr. Birkins was paid a $67,500 guaranteed minimum bonus
      for 2001 pursuant to his employment letter. See "--Employment Agreements,
      Termination Provisions and Change in Control
  Arrangements."                                                                                                                                                                                                                                                                                                                                                                    



The purpose of the WestPoint Stevens Inc. Senior Management
Incentive Plan (the "MIP") is to provide additional compensation above base
salary to key employees if the Company meets or exceeds certain performance
goals established by the Compensation Committee. For fiscal year 2001, incentive
payments under the MIP for certain participants were based solely upon
predetermined annual operating profit goals of the Company. Other participants'
payments were based on the operating profit (as defined in the MIP) of the
Company and certain business units and/or divisions. Until fiscal year 2002, the
MIP provided that no participant would receive payments under the plan unless
the Company's actual annual operating profit equaled or exceeded 90% of the
predetermined operating profit goal.

On February 14, 2002, performance awards payable to the senior
management with respect to 2002 were determined based on the terms and
provisions of a revised MIP with new predetermined goals established by the
Compensation Committee. The new MIP goals were based solely upon predetermined
rates of return on the invested capital of the Company and its business units or
divisions. The return on invested capital was calculated as the quotient derived
by dividing the corporate or divisional operating income by the sum of a) net
fixed assets at year-end; b) average inventories; and c) average accounts
receivable.

For Fiscal 2003 the MIP was replaced by a key employee
retention and severance program with the approval of the Bankruptcy Court. See
"--Key Employee Retention and Severance Program" below.





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Key Employee Retention and Severance Program

To ensure that certain key employees continue to provide
essential management and operational services during the Company's chapter 11
case, the Compensation Committee approved the Company's Key Employee Retention
and Severance Program (collectively, the "KERP") which was approved by the
Bankruptcy Court on October 23, 2003. Under the KERP the performance targets of
the MIP were modified to reflect achievements of Company wide levels of EBITDA
and cash availability to better reflect the interests of the Company's
creditors. For achieving various levels of each target each eligible employee
will be paid a percentage of base salary as a bonus. Participants receive a
quarterly incentive payment based on achieving between 85% to 120% of the EBITDA
target and a quarterly incentive payment based on achieving between 85% to 120%
of the cash availability target, as each target is projected based on the Company's
business plan for such quarter.

Pursuant to the KERP, performance award payments were made on
October 23, 2003, for the third quarter of 2003 and on February 13, 2004, for
the fourth quarter of 2003.

Key Employee Stock Bonus Plan

Pursuant to the Key Employee Stock Bonus Plan, the Company may
grant bonus awards of shares of Common Stock to those key employees of the
Company who are deemed eligible to participate in the Key Employee Stock Bonus
Plan, based on the Company's achievement of certain pre-established earnings
levels during the Company's fiscal year. No Bonus Awards were earned for Fiscal
2001 and such Bonus Awards were forfeited. On February 13, 2003, the
Compensation Committee determined that Bonus Awards for Fiscal 2002 had not been
earned and such Bonus Awards were forfeited. On February 13, 2003, the
Compensation Committee suspended the granting of Bonus Awards for Fiscal 2003
under the Key Employee Stock Bonus Plan.

Option/SAR Grants in Last Fiscal Year

Stock options exercisable for shares of Common Stock are
granted to certain key employees of the Company pursuant to the WestPoint
Stevens Inc. Omnibus Stock Incentive Plan (the "Omnibus Stock Incentive Plan")
in order to secure and retain the services of persons capable of filling key
positions with the Company, to encourage their continued employment and to
increase their interest in the growth and performance of the Company by
providing them with an ownership stake. The Company did not grant any stock
options during the last fiscal year and does not intend to grant any additional
stock options during the pendency of the chapter 11 case.

Fiscal Year-End Option Holdings

The following table summarizes for each of the Named Executive
Officers option exercises during Fiscal 2003, including the aggregate value of
gains on the date of exercise, the total number of unexercised options for
Common Stock, if any, held at December 31, 2003, and the aggregate dollar value
of unexercised in-the-money options for Common Stock, if any, held at December
31, 2003. Value of unexercised in-the-money options at fiscal year-end is the
difference between the exercise or base price of such options and the fair
market value of the underlying Common Stock on December 31, 2003, which was $.02
per share. These values have not been, and may never be, realized, as these
options have not been, and may never be, exercised. Actual gains, if any, upon
exercise will depend on the value of Common Stock on the date of any exercise of
options.



|Aggregated Option/SAR Exercises in
the             
|---------------------------------------------------
|Last Fiscal Year and FY-End Option/SAR
      Values
|                                                   
|                                                   
|                                                   
|                                                   
|                                                   
|                                                   
|                                                   
|                                                   
|Name                                               
|                                                   
|M. L. ("Chip") Fontenot                            
|Lester D. Sears                                    
|Robert B. Dale                                     
|Arthur S. Birkins                                  







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Pension Plan and Retirement Plans

WestPoint Pension
Plan

Executive officers of the Company and certain of its
subsidiaries are covered by the WestPoint Stevens Inc. Retirement Plan (the
"WestPoint Pension Plan"), a defined benefit pension plan. The WestPoint Pension
Plan covers all salaried employees of the Company and certain subsidiaries and
affiliates who have met eligibility requirements and may include certain hourly
employees if designated for coverage.

Benefits under the plan are based on compensation and years of
service, and individual employee payments cannot be calculated until retirement.
Compensation covered by the pension plan consists of all payments made to a
participant for personal services rendered as an employee of the Company that
are subject to federal income tax withholding, including before tax
contributions to certain employee benefit plans and excluding income
attributable to stock based awards and imputed income attributable to certain
fringe benefit programs. Plan compensation covers up to a maximum of $200,000
per individual for Fiscal 2003. The plan provides that participants' benefits
fully vest after five years of service or the attainment of age 65.

Retirement benefits for the WestPoint Pension Plan for service
performed through December 31, 2002, are computed as the sum of 1% of a
participant's average compensation (the annual average of five consecutive,
complete plan years of highest compensation during the last 10 years of service)
multiplied by the participant's years of benefit service, plus 0.6% of a
participant's average compensation which exceeds the Social Security Integration
Level ($43,848 in Fiscal 2003), multiplied by the participant's years of benefit
service, not to exceed 35 years.

On November 7, 2002, the Board of Directors amended the
WestPoint Pension Plan to provide that annual retirement benefits for service
completed after December 31, 2002, will be computed as 1% of the average of the
participant's compensation for each year multiplied by the years of service
completed after December 31, 2002.

The following table indicates the approximate amounts of annual
retirement income that would be payable under the WestPoint Pension Plan
calculated on a straight-life annuity basis and based on various assumptions as
to compensation and years of service for certain employees. There is no social
security or other offset deducted from the amounts shown.

Pension Plan Table(1)(3)Years of
Service



|Average(2)Compensation |  | 15       |  | 20       |  | 25       |  | 30       |  | 35      
|---------------------- |  | -------- |  | -------- |  | -------- |  | -------- |  | --------
|                       |  |          |  |          |  |          |  |          |  |         
|$ 172,000              |  | $ 37,730 |  | $ 50,307 |  | $ 62,883 |  | $ 75,460 |  | $ 88,037



____________________________

|(1) |  | Assumes individual retires at age 65 with indicated years
      of service but further assumes the Social Security Integration Level as in
      effect in Fiscal 2002, which was $39,444.                                                                                                                                                                                 
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Represents the average of the annual covered compensation
      for the five consecutive, complete plan years of highest compensation
      during the last 10 years of service.                                                                                                                                                                                           
|(3) |  | Following amendment of the Plan in 2002, annual
      retirement benefits for service after December 31, 2002, is computed as 1%
      of the average of the participant's compensation for each year multiplied
      by the years of service completed after December 31, 2002, up to the
      compensation limit for each year which limit was $200,000 for
      2003.

The following table indicates the credited years of service as
of the date hereof for each of the Named Executive Officers who are participants
in the Plan and the annual average covered compensation for each of their five
consecutive plan years of highest compensation during their last 10 years of
service through December 31, 2002:





|                       |  | Credited |  | Average Covered
|---------------------- |  | -------- |  | ---------------
|                       |  | Years    |  | Compensation   
|                       |  |          |  |                
|                       |  |          |  |                
|Holcombe T. Green, Jr. |  | 10.3     |  | $172,000       



For 2003 Mr. Green had .7 years of credited service and earned
1% of the compensation limit of $200,000.



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Supplemental Retirement
Plan

The Company's Supplemental Retirement Plan ("Supplemental
Retirement Plan") provides for payment of amounts that would have been paid
under the WestPoint Pension Plan but for the limitations on covered compensation
and benefits applicable to qualified retirement plans imposed by the Internal
Revenue Code of 1986, as amended (the "Code"). For certain participants, the
compensation taken into account under the Supplemental Retirement Plan is
limited to the lesser of (i) $300,000 or (ii) 120% of the participant's base
salary. The Supplemental Retirement Plan is not qualified under Section 401(a)
of the Code and benefits are paid from the general assets of the Company.

During fiscal 2001, the Supplemental Retirement Plan was
amended to provide that no participant would accrue any additional benefit on or
after February 13, 2001. In addition, the plan was amended to provide all active
participants with a one-time, irrevocable election to receive an alternative
benefit valued by and paid in the form of shares of Common Stock. The number of
shares of Common Stock to be issued under the alternative benefit was determined
by dividing the present value of each participant's accrued benefit by the fair
market value of one share of Common Stock on the date the participant elected to
receive the alternative benefit. Of the Named Executive Officers, only Mr. Green
had accrued benefits under the Supplemental Retirement Plan and he elected to
receive the alternative benefit. The Company does not anticipate issuing any
more shares of its Common Stock pursuant to the Supplemental Retirement Plan and
anticipates it will be terminated in the chapter 11 case.

On November 29, 2002, Mr. Green surrendered the right to
receive 818,902 shares of Common Stock under the Supplemental Retirement Plan as
part of a payment due in accordance with an agreement with the Company dated
November 29, 2001. See "--Employment Agreements, Termination Provisions and
Change in Control Arrangements" below.

Employment Agreements, Termination Provisions and Change in
Control Arrangements

The Company entered into employment agreements with Mr. Green
effective July 1, 2000, and Mr. Fontenot effective January 5, 2001, for
three-year terms, which automatically extend on a daily basis until notice is
given by either party to the agreements to cease any further extension. The
employment agreements for each of these executive officers provide an annual
base salary, subject to annual review as follows: Mr. Green - $1,030,000 and Mr.
Fontenot - $450,000. Mr. Green's base salary included an amount deemed
appropriate to compensate him for expenses he incurred in maintaining a
residence in New York City where the Company maintains a corporate office. In
2001, Mr. Green sold his residence in New York and his employment agreement was
modified to reflect a corresponding reduction in base salary. In 2003, Mr.
Fontenot received an annual base salary in the amount of $478,950 and Mr. Green
received $531,093 prior to his leaving his employment with the Company.
Effective January 1, 2004, Mr. Fontenot's annual base salary increased to
$493,319. Mr. Green also has been provided fringe benefits, including (i) an
automobile allowance, (ii) reasonable personal use of the Company aircraft and
(iii) reasonable cost of membership in a private club. Mr. Fontenot is provided
reasonable personal use of the Company aircraft and a choice of an automobile
allowance or club membership. Mr. Fontenot is provided reasonable expenses for
lodging in New York, New York, and for travel between New York, New York, and
Charlotte, North Carolina, with additional amounts added to his income to
provide him with funds to discharge any federal, state or local income taxes
imposed on such housing and travel reimbursements. The agreements provide that
each executive officer will participate in the top bonus category of 120% of his
annual base salary under the Company's Senior Management Incentive Plan based
upon the Company's achievement of certain performance goals in existence from
time to time. The agreements also provide that these executive officers will
participate in the Company's Key Employee Stock Bonus Plan and Omnibus Stock
Incentive Plan as well as any medical, dental, disability, insurance,
retirement, savings, vacation or other welfare or fringe benefit plans or
programs made available to the Company's other senior executive officers. See
"-- Senior Management Incentive Plan" and "-- Key Employee Stock Bonus
Plan."

Under their employment agreements, upon a termination of
employment by the Company in 2003 without "Cause" or by the executive for "Good
Reason" (which includes, among other things, a change in control of the Company
in certain circumstances), Messrs. Green and Fontenot would have received the
following payments after such termination became effective (in addition to all
compensation owed to the executive at the time of such termination): the sum of
(i) the executive's annual base salary times the number of whole and fractional
years remaining in the term of the employment agreement; (ii) the target bonus
amount payable to such executive under the management incentive plan applicable
to the year, times the number of years remaining in the term of the employment
agreement (with any fractional years treated as whole years) whether or not the
requirements otherwise applicable to the payment of such bonus amount under such
plan were met; and (iii) all outstanding unvested awards under the Key Employee
Stock Bonus Plan and the Omnibus Stock Incentive Plan which would have become
immediately vested and exercisable as applicable. To receive amounts described
in (i), (ii) and (iii) above, the executive would have been required to execute
a release of all employment-related claims. The



76

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Effective August 14, 2003, the Company entered into a
Separation and Settlement Agreement (the "Separation Agreement") with Mr. Green
with regard to Mr. Green's resignation from employment and from the Board of
Directors of the Company. Pursuant to the Separation Agreement, Mr. Green
received a cash payment of $1 million on the effective date. Under the
Separation Agreement, Mr. Green has agreed to make himself available to perform
consulting and other services for the Company for which he received $318,750 in
2003 and will receive $475,000 in each of years 2004 and 2005.

In connection with the Separation Agreement, Mr. Green's
employment agreement with the Company was terminated except for provisions
relating to restrictions on conduct including post-employment competition and
protection of the Company's confidential information and trade secrets. Under
the Separation Agreement the Company terminated the Letter Agreement with HTG
Corp. and the Guaranty Agreement with Vytech Holdings, Inc., both affiliates of
Mr. Green, relating to obligations to make certain payments to the Company in
order to restore a negative capital account balance in HTG Falcon LLC, of which
the Company and HTG Corp. were the only members. See "Item 13. Certain
Relationships and Related Transactions."

On October 23, 2003, the Bankruptcy Court approved the KERP a
part of which was a new Severance Plan for the Company's top 23 key executives
(the "KERP Severance Plan"). The Company entered into Severance Agreements with
each of the participants in the KERP Severance Plan. The Severance Agreements
set forth the terms and conditions for participation and replace any and all
other severance agreements, arrangements or other severance rights in regard to
employment with the Company. Under their Severance Agreements, Mr. Fontenot and
Mr. Sears each will be entitled to a lump sum severance payment, upon
termination by the Company without "Cause" or resignation by the executive for
"Good Reason," equal to three times their respective base salaries. The
remaining 21 participants will be entitled to a lump sum severance payment, upon
termination by the Company without cause or by the executive for "Good Reason,"
equal to each of their respective base salaries.

Under the Severance Agreements "For Cause" includes (a) the
executive's fraud, embezzlement or conviction of any felony; (b) a material
breach of, or willful failure to perform and discharge, other than for Good
Reason the executive's duties and responsibilities, or a material breach of the
Company's Code of Business Conduct and Ethics. "Good Reason" includes (a) the
assignment of any duties inconsistent in any material respect with the
executive's current position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities, or any other action by the
Company which results in a material diminishment in such position, authority,
duties or responsibilities; (b) any failure by the Company to comply with any
material provision of any employment agreement to which the executive is a
party; (c) any reduction in the executive's "Base Salary" or any decrease in
bonus opportunity by reason of a change in the executive's employee group under
the Company's Senior Management Incentive Plan or any replacement plan; or (d)
any relocation of the executive's principal place of work to a new location
which is more than 50 miles distance from his or her current principal place of
work.

The Company entered into an employment agreement with Mr. Sears
effective April 17, 2001, providing a starting annual base salary of $320,000,
participation in the MIP at the top bonus category and participation in the
Company's Key Employee Stock Bonus Plan and Pension Plan. Under the agreement,
Mr. Sears was awarded stock options to purchase 100,000 shares of Company Common
Stock at an exercise price of $7.90 per share to vest equally over a five-year
period and a guaranteed minimum cash bonus of $80,000 for fiscal year 2001.
Pursuant to his employment agreement, upon termination of employment by the
Company for any reason or resignation by the executive for good reason, Mr.
Sears would receive a payment equal to his annual cash compensation, all
outstanding unvested awards under the Company's Key Employee Stock Bonus Plan
would immediately vest and become nonforfeitable, and any outstanding stock
options would immediately become vested and exercisable. Effective January 1,
2003, Mr. Sears' annual base salary was increased to $339,900. Accordingly, if
such a termination were to occur in 2003, Mr. Sears would be entitled to a cash
payment of $339,900. The KERP Severance Agreement supersedes the severance
provisions of Mr. Sears' employment agreement.



77

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|

On April 5, 2001, the Company sent an employment letter to
Mr. Dale outlining his employment arrangement, providing a starting annual base
salary of $250,000 and payment of an amount equal to his annual salary upon
termination by the Company during the first two years of employment and
thereafter equal to six months salary. Mr. Dale was awarded stock options to
purchase 100,000 shares of Common Stock at an exercise price of $8.00 per share
to vest equally over a five-year period. The KERP Severance Agreement supersedes
the severance provisions of Mr. Dale's employment letter.

On April 9, 2001, the Company sent an employment letter to Mr.
Birkins outlining his employment arrangement, providing a starting annual base
salary of $225,000 and providing for payment of an amount equal to his annual
salary upon termination from the Company during the first two years of
employment and thereafter equal to six months salary. Mr. Birkins was awarded
stock options to purchase 50,000 shares of Common Stock at an exercise price of
$4.44 per share vesting equally over a five-year period and a guaranteed minimum
bonus of $67,500 for calendar year 2001. The KERP Severance Agreement supersedes
the severance provisions of Mr. Birkins' employment letter.

Item 12.   Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth certain information as of January 13, 2004, (except as otherwise specified in the footnotes), about beneficial ownership of Common Stock by (i) each person who is the beneficial owner of more than 5% of the outstanding Common Stock, (ii) all directors of the Company, (iii) the three most highly compensated executive officers who are not directors and (iv) all directors and executive officers as a group, based in each case on information furnished to the Company by each such person.



|Name and Address of Beneficial Owner(1)                                                                                                                                                                                                                                                         | Amount and Nature of
Beneficial Ownership           | Percent
Of Class
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ----------------
|                                                                                                                                                                                                                                                                                                |                                                     |                 
|                                                                                                                                                                                                                                                                                                |                                                     |                 
|Greenwich Street Capital Partners II, L.P	
Greenwich Fund, L.P.	
Greenwich Street Employees Fund, L.P.	
TRV Executive Fund, L.P.	
   500 Campus Drive, Suite 220
   Florham Park NJ 07932
GSCP Offshore Fund, L.P.	
   c/o GSC Partners
   500 Campus Drive, Suite 220
   Florham Park NJ 07932 | 5,636,260(2)190,921(2)336,468(2)27,778(2)117,504(2) |                 
|                                                                                                                                                                                                                                                                                                |                                                     |                 
|Wachovia Bank, National Association	
   301 South College Street
   Charlotte NC 28270                                                                                                                                                                                                          | 3,096,661                                           |                 
|                                                                                                                                                                                                                                                                                                |                                                     |                 
|Hugh M. Chapman                                                                                                                                                                                                                                                                                 | 59,000(3)                                           |                 
|                                                                                                                                                                                                                                                                                                |                                                     |                 
|M. Katherine Dwyer                                                                                                                                                                                                                                                                              | 60,000(4)                                           |                 
|                                                                                                                                                                                                                                                                                                |                                                     |                 
|Joseph R. Gladden, Jr.                                                                                                                                                                                                                                                                          | 25,000(5)                                           |                 
|                                                                                                                                                                                                                                                                                                |                                                     |                 
|J. Hicks Lanier                                                                                                                                                                                                                                                                                 | 55,000(6)                                           |                 
|                                                                                                                                                                                                                                                                                                |                                                     |                 
|John F. Sorte                                                                                                                                                                                                                                                                                   | 160,000(7)                                          |                 
|                                                                                                                                                                                                                                                                                                |                                                     |                 
|M. L. ("Chip") Fontenot                                                                                                                                                                                                                                                                         | 410,000(8)                                          |                 
|                                                                                                                                                                                                                                                                                                |                                                     |                 
|Lester D. Sears                                                                                                                                                                                                                                                                                 | 100,000(9)                                          |                 
|                                                                                                                                                                                                                                                                                                |                                                     |                 
|Robert B. Dale                                                                                                                                                                                                                                                                                  | 85,000(10)                                          |                 
|                                                                                                                                                                                                                                                                                                |                                                     |                 
|Arthur S. Birkins                                                                                                                                                                                                                                                                               | 40,000(11)                                          |                 
|                                                                                                                                                                                                                                                                                                |                                                     |                 
|All Directors and Executive Officers as a group (11 persons)                                                                                                                                                                                                                                    | 1,080,631(12)                                       |                 

______________________

*  Represents less than 1%



|(1)  |  | The address of each person who is an officer or director of the Company is c/o WestPoint Stevens Inc., 507 West Tenth Street, West Point, Georgia 31833.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(2)  |  | Greenwich Street Capital Partners II, L.P. (GSCP II) is the direct beneficial owner of 5,636,260 shares, Greenwich Fund, L.P. is the direct beneficial owner of 190,921 shares, Greenwich Street Employees Fund, L.P. is the direct beneficial owner of 336,468 shares, TRV Executive Fund, L.P. is the direct beneficial owner of 27,778 shares and GSCP Offshore Fund, L.P. is the direct beneficial owner of 117,504 shares.  By virtue of its position as general partner of each of the Greenwich Street funds, Greenwich Street Investments II, L.L.C. ("GSI") may be deemed to be the indirect beneficial owner of the same shares (i.e., an aggregate of 6,308,931 shares, or 12.47%).  By virtue of its position as manager of each of the Greenwich Street Funds, GSCP (NJ), L.P. may be deemed to be the indirect beneficial owner of the same shares (i.e., an aggregate of 6,308,931 shares, or 12.47% of the Common Stock).  By virtue of its position as general partner of GSCP (NJ) L.P., GSCP (NJ) Inc. may be deemed to be the indirect owner of the same shares (i.e., an aggregate of 6,308,931 shares, or 12.47% of the Common Stock).  By virtue of their positions as managing members of GSI, executive officers of GSCP (NJ) Inc. and senior limited partners of GSCP (NJ) LP, each of Messrs. Alfred C. Eckert III, Keith W. Abell, Sanjay H. Patel, Richard M. Hayden, Robert A. Hamwee, Thomas V. Inglesby, Matthew C. Kaufman, Andrew J. Wagner and Ms. Christine K. Vanden Beukel may be deemed to be indirect beneficial owners of the same shares (i.e., an aggregate of 6,308,931 shares, or 12.47% of the Common Stock).
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(3)  |  | Includes 4,000 shares held directly and 55,000 shares as to which Mr. Chapman holds options exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(4)  |  | Includes 60,000 shares as to which Ms. Dwyer holds options exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(5)  |  | Includes 5,000 shares held directly and 20,000 shares as to which Mr. Gladden holds options exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(6)  |  | Includes 35,000 shares held directly and 20,000 shares as to which Mr. Lanier holds options exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(7)  |  | Includes 115,000 shares held directly and 45,000 shares as to which Mr. Sorte holds options exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(8)  |  | Includes 10,000 shares held directly and 400,000 shares as to which Mr. Fontenot holds options exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(9)  |  | Includes 20,000 shares held indirectly and 80,000 shares as to which Mr. Sears holds options exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(10) |  | Includes 1,500 shares held directly, 3,500 shares held indirectly and 80,000 shares as to which Mr. Dale holds options exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(11) |  | Includes 40,000 shares as to which Mr. Birkins holds options exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(12) |  | Includes 205,131 shares held directly, 23,500 shares held indirectly, 652,000 shares as to which certain members of management hold options exercisable within 60 days and 200,000 shares as to which non-employee directors hold options exercisable within 60 days. See footnotes (3)-(11).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              



Item 13.   Certain Relationships
and Related Transactions

During Fiscal 2000, the Company acquired an
interest in a limited liability company, HTG Falcon, LLC ("HTGF"). The only
other member of the company is HTG Corp., a corporation wholly owned by Holcombe
T. Green, Jr., the Company's former Chairman and Chief Executive Officer. When
the Company acquired its interest in HTGF, HTGF was the beneficial owner of a
Falcon 2000 jet aircraft used by Company employees, including Mr. Green, for
business travel and by HTG Corp. HTGF later received a contribution from HTG
Corp. of an indirect leasehold interest in property for hangar construction (the
"Hangar Property").

During Fiscal 2001, HTGF disposed of the Falcon 2000 jet
aircraft by a sale to an unrelated third party. The sales price was less than
the book value of the aircraft. After analyzing the fair market value of HTGF's
assets remaining after its primary asset, the aircraft, was sold and the net
proceeds distributed to the Company, in consultation with its auditors, the
Company concluded that it was appropriate to record a non-cash charge of $7.5
million representing the Company's entire investment in HTGF. This charge was
announced in the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001. Following the sale, HTG Corp. had a deficit capital account
balance in HTGF of approximately $4.5 million.



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The only remaining asset of HTGF was a contract for the
purchase of a new Falcon 2000EX jet aircraft. HTGF sold its interest in this
contract for $500,000. Pursuant to the Letter Agreement, the proceeds from the
sale of the contract were paid to the Company and the Amount Due was decreased
by the amount of the proceeds paid to the Company. Mr. Green caused another of
his affiliated companies, which was wholly owned by him (the "Guarantor"), to
enter into a Guaranty Agreement dated November 29, 2001, (the "Guaranty
Agreement"), in favor of the Company under which it guaranteed the payment of
the Amount Due and performance by HTG Corp. under the Letter Agreement. Under
the Letter Agreement, until the entire Amount Due was paid, HTG Corp. agreed to
provide the Company, within 15 days after the end of each of the Company's
fiscal quarters, an updated business appraisal reflecting the value of the
Guarantor. Mr. Green agreed to provide support to the extent necessary,
including contributions to the capital of the Guarantor, to permit the Guarantor
to maintain a value of at least two times the outstanding Amount Due from time
to time.

On November 29, 2002, HTG Corp. paid the first installment with
accumulated interest due under the Letter Agreement. The payment amount
consisted of a cash payment of $651,616 and the surrender by Mr. Green of his
right to receive 818,902 shares of Common Stock under the Company's Supplemental
Retirement Plan in accordance with the terms of the Letter Agreement. The shares
surrendered under the Supplemental Retirement Plan were valued based on the
closing price of the Common Stock on November 29, 2002. The total amount
tendered by Mr. Green included the amount necessary to satisfy the payroll taxes
due as a result of his surrender of his Supplemental Retirement Plan benefit.
After the payment on November 29, 2002, the Amount Due under the Letter
Agreement was $3,886,180.

Effective August 14, 2003, the Company entered into the
Separation Agreement with Mr. Green in connection with the termination of his
employment with the Company and his resignation from its Board of Directors.
Pursuant to the Separation Agreement, the Company agreed to the termination of
the Letter Agreement and the Guaranty Agreement. (See "Item 11. Executive
Compensation -- Employment Agreements, Termination Provisions and Change in
Control Arrangements.")

Item 14.   Principal Accounting Fees and
Services

Audit Fees

Ernst & Young LLP (E&Y) was the Company's principal
accountant for the years ended December 31, 2003 and 2002. Total fees paid to
E&Y for audit services rendered during 2003 and 2002 were $908,547 and
$1,020,462, respectively.

Audit-Related Fees

Total fees paid to E&Y for audit-related services rendered
during 2003 and 2002 were $1,056,405 and $227,679, respectively. These services
consisted primarily of consultation on matters related to proposed transactions,
employee benefit plans, potential acquisitions and accounting consultation.





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Tax Fees

Total fees paid to E&Y for tax services rendered during
2003 and 2002 were $237,828 and $403,768, respectively. These services consisted
primarily of tax planning and consultation.

All Other Fees

Total fees paid to E&Y for all other services rendered
during 2003 and 2002 were $1,705,296 and $542,797, respectively. These services
consisted primarily of actuarial services, internal audit teaming services,
corporate finance services and other professional services.

Audit Committee Pre-Approval Policy

Under policies and procedures adopted by the Audit Committee of
the Company's Board of Directors, the Company's principal accountant may not be
engaged to provide non-audit services that are prohibited by law or regulation
to be provided by it, nor may the Company's principal accountant be engaged to
provide any other non-audit service unless the Audit Committee or its Chairman
pre-approve the engagement of the Company's accountant to provide both audit and
permissible non-audit services. If the Chairman pre-approves any engagement or
fees, he is to make a report to the full Audit Committee at its next meeting.
One hundred percent (100%) of all services provided by the Company's principal
accountant in 2003 were pre-approved by the Audit Committee or its Chairman.

PART IV

Item 15.   Financial Statement Schedules,
Reports on Form 8-K and Exhibits

(a)  Financial Statements and Schedules

Financial
Statements.

Consolidated
Financial Statements for the three years ended December 31, 2003.





|                                                          |  | Page   
|--------------------------------------------------------- |  | -------
|Report of Ernst & Young LLP, Independent Auditors         |  | 32     
|Consolidated Balance Sheets                               |  | 33 - 34
|Consolidated Statements of Operations                     |  | 35     
|Consolidated Statements of Stockholders' Equity (Deficit) |  | 36     
|Consolidated Statements of Cash Flows                     |  | 37     
|Notes to Consolidated Financial Statements                |  | 38 - 67





All financial statements required to be filed as part of this
Annual Report on Form 10-K are filed under "Item 8. Financial Statements and
Supplementary Data."

Financial
Statement Schedules





|                                                 |  | Page
|------------------------------------------------ |  | ----
|                                                 |  |     
|Schedule II -- Valuation and Qualifying Accounts |  | 89  

Note: All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and, therefore,
have been omitted.





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(b)  Reports on Form 8-K



| | (b.1.) |  | The Company filed a Current Report on Form 8-K on October
      17, 2003. The item reported was "Item 5. Other Events and Regulation FD
      Disclosure."                                                                                                                                
| | ------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |        |  |                                                                                                                                                                                                                                                                                           
| | (b.2.) |  | The Company filed a Current Report on Form 8-K on
      November, 17, 2003. The item reported was "Item 5. Other Events and
      Regulation FD Disclosure," including a copy of the Monthly Operating
      Report filed with the Bankruptcy Court for the month of September
      2003.
| |        |  |                                                                                                                                                                                                                                                                                           
| | (b.3.) |  | The Company filed a Current Report on Form 8-K on
      November 26, 2003. The item reported was "Item 5. Other Events and
      Regulation FD Disclosure," including a copy of the Monthly Operating
      Report filed with the Bankruptcy Court for the month of October
      2003.   
| |        |  |                                                                                                                                                                                                                                                                                           
| | (b.4.) |  | The Company filed a Current Report on Form 8-K on
      December 31, 2003. The item reported was "Item 5. Other Events and
      Regulation FD Disclosure," including a copy of the Monthly Operating
      Report filed with the Bankruptcy Court for the month of November
      2003.  





|Exhibits
|--------



|Exhibit Number |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                            
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                                                                                                                                                                                                   
|3.1            |  | Restated Certificate of Incorporation of WestPoint
      Stevens Inc., as currently in effect, incorporated by reference to Exhibit
      3(a) to the Registration Statement on Form S-4 (Commission File No.
      333-59817) filed by the Company with the Securities and Exchange
      Commission on August 4, 1998.                          
|               |  |                                                                                                                                                                                                                                                                                                                                                   
|3.2            |  | Amended and Restated By-Laws of WestPoint Stevens Inc.,
      as currently in effect, incorporated by reference to the Post-Effective
      Amendment No. 1 to Registration Statement on Form S-1 (Commission File No.
      33-77726) filed by the Company with the Securities and Exchange Commission
      on May 19, 1994.                    
|               |  |                                                                                                                                                                                                                                                                                                                                                   
|4.1            |  | Indenture dated as of June 9, 1998, between the Company
      and The Bank of New York, as trustee, for the 7-7/8% Senior Notes due
      2005, incorporated by reference to Exhibit 4(a) to Registration Statement
      on Form S-4 (Commission File No. 333-59817) filed by the Company with the
      Commission on July 24, 1998.            
|               |  |                                                                                                                                                                                                                                                                                                                                                   
|4.2            |  | Form of Old 7-7/8% Senior Notes due 2005 (included in the
      Indenture incorporated by reference as Exhibit 10.34), incorporated by
      reference to Exhibit 4(b) to Registration Statement on Form S-4
      (Commission File No. 333-59817) filed by the Company with the Commission
      on July 24, 1998.                               
|               |  |                                                                                                                                                                                                                                                                                                                                                   
|4.3            |  | Form of Exchange 7-7/8% Senior Notes due 2005 (included
      in the Indenture incorporated by reference as Exhibit 10.34), incorporated
      by reference to Exhibit 4(c) to Registration Statement on Form S-4
      (Commission File No. 333-59817) filed by the Company with the Commission
      on July 24, 1998.                          
|               |  |                                                                                                                                                                                                                                                                                                                                                   
|4.4            |  | Registration Rights Agreement dated as of June 9, 1998,
      among the Company and the Initial Purchasers with respect to the Senior
      Notes due 2005, incorporated by reference to Exhibit 4(d) to Registration
      Statement on Form S-4 (Commission File No. 333-59817) filed by the Company
      with the Commission on July 24, 1998.
|               |  |                                                                                                                                                                                                                                                                                                                                                   
|4.5            |  | Indenture for the 7-7/8% Senior Notes due 2008 dated as
      of June 9, 1998, between the Company and The Bank of New York, as Trustee,
      incorporated by reference to Exhibit 4(e) to Registration Statement on
      Form S-4 (Commission File No. 333-59817) filed by the Company with the
      Commission on July 24, 1998.             
|               |  |                                                                                                                                                                                                                                                                                                                                                   
|4.6            |  | Form of Old 7-7/8% Senior Notes due 2008 (included in the
      Indenture incorporated by reference as Exhibit 10.38), incorporated by
      reference to Exhibit 4(f) to Registration Statement on Form S-4
      (Commission File No. 333-59817) filed by the Company with the Commission
      on July 24, 1998.                               
|               |  |                                                                                                                                                                                                                                                                                                                                                   
|4.7            |  | Form of Exchange 7-7/8% Senior Notes due 2008 (included
      in the Indenture incorporated by reference as Exhibit 10.38), incorporated
      by reference to Exhibit 4(g) to Registration Statement on Form S-4
      (Commission File No. 333-59817) filed by the Company with the Commission
      on July 24, 1998.                          
|               |  |                                                                                                                                                                                                                                                                                                                                                   
|4.8            |  | Registration Rights Agreement dated June 9, 1998, among
      the Company and the Initial Purchasers with respect to the Senior Notes
      due 2008, incorporated by reference to Exhibit 4(h) to Registration
      Statement on Form S-4 (Commission File No. 333-59817) filed by the Company
      with the Commission on July 24, 1998.      
|               |  |                                                                                                                                                                                                                                                                                                                                                   



82

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|Exhibit Number |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.9            |  | Rights Agreement dated as of May 9, 2001, by and between
      WestPoint Stevens Inc. and SunTrust Bank, as Rights Agent including
      Exhibit A the form of Summary of Rights and Exhibit B the form of Right
      Certificate, incorporated by reference to the Form 8-K (Commission File
      No. 1-15381) filed by the Company with the Commission on May 9,
      2001.                                                                                                                                                                                                                     
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.1           |  | 1993 Management Stock Option Plan, incorporated by
      reference to the Registration Statement on Form 10 (Commission File No.
      0-21496) filed by the Company with the Commission on July 1, 1993.                                                                                                                                                                                                                                                                                                                                                                                            
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.2           |  | WestPoint Stevens Inc. 1994 Non-Employee Directors Stock
      Option Plan, incorporated by reference to the Annual Report on Form 10-K/A
      for the fiscal year ended December 31, 1994 (Commission File No. 0-21496)
      filed by the Company with the Commission on March 31,
  1995.                                                                                                                                                                                                                                                                                                        
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.3           |  | WestPoint Stevens Inc. Amended and Restated 1994
      Non-Employee Directors Stock Option Plan, incorporated by reference to the
      Form 10-Q for the quarterly period ended June 30, 1995, (Commission File
      No. 0-21496) filed by the Company with the Commission on August 9,
      1995.                                                                                                                                                                                                                                                                                                
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.4           |  | Form of directors and officers Indemnification Agreement
      with the Company, incorporated by reference to the Annual Report on Form
      10-K for the fiscal year ended December 31, 1995, (Commission File No.
      0-21496) filed by the Company with the Commission on March 28,
      1996.                                                                                                                                                                                                                                                                                                
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.5           |  | WestPoint Stevens Inc. 1995 Key Employee Stock Bonus Plan
      (As Amended), incorporated by reference to the Annual Report on Form 10-K
      for the fiscal year ended December 31, 1995, (Commission File No. 0-21496)
      filed by the Company with the Commission on March 28,
  1996.                                                                                                                                                                                                                                                                                                       
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.6           |  | WestPoint Stevens Inc. Omnibus Stock Incentive Plan,
      incorporated by reference to the Company's 1997 Proxy Statement
      (Commission File No. 333-20013) filed by the Company with the Commission
      on April 4, 1997.                                                                                                                                                                                                                                                                                                                                                                    
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.7           |  | Second Amended and Restated Credit Agreement dated as of
      June 9, 1998, among the Company, WestPoint Stevens (UK) Limited, WestPoint
      Stevens (Europe) Limited, NationsBank, N.A., as agent, and the other
      financial institutions party thereto, incorporated by reference to Exhibit
      10.59 to Registration Statement on Form S-4 (Commission File No.
      333-59817) filed by the Company with the Commission on July 24,
      1998.                                                                                                                                       
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.8           |  | Second Amended and Restated Collateral Trust Agreement
      dated as of June 9, 1998, among WestPoint Stevens Inc., certain of its
      Subsidiaries, NationsBank, N.A. (formerly NationsBank of North Carolina,
      N.A.), as Trustee, IBJ Schroder Bank & Trust Company as the Stevens
      Indenture Trustee (as defined therein) and the other financial
      institutions party thereto, incorporated by reference to the Form 10-Q for
      the quarterly period ended June 30, 2001, (Commission File No. 1-15381)
      filed by the Company with the Commission on August 14,
  2001.
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.9           |  | Letter Amendment Agreement dated as of June 30, 1998,
      among the Company, WestPoint Stevens (UK) Limited, WestPoint Stevens
      (Europe) Limited, NationsBank, N.A., as agent and the other financial
      institutions party thereto, incorporated by reference to Exhibit 10.60 to
      Registration Statement on Form S-4 (Commission File No. 333-59817) filed
      by the Company with the Commission on July 24, 1998.                                                                                                                                                               
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.10          |  | Letter Amendment Agreement dated as of July 31, 1998,
      among the Company, WestPoint Stevens (UK) Limited, WestPoint Stevens
      (Europe) Limited, NationsBank, N.A., as agent and other financial
      institutions party thereto, incorporated by reference to the Form 10-Q for
      the quarterly period ended September 30, 1998, (Commission File No.
      333-20013) filed by the Company with the Commission on November 13,
      1998.                                                                                                                                            
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.11          |  | Letter Amendment Agreement dated as of October 7, 1998,
      among the Company, WestPoint Stevens (UK) Limited, WestPoint Stevens
      (Europe) Limited, NationsBank, N.A., as agent and other financial
      institutions party thereto, incorporated by reference to the Annual Report
      on Form 10-K for fiscal year ended December 31, 1998, (Commission File No.
      333-20013) filed by the Company with the Commission on March 31,
      1999.                                                                                                                                      
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.12          |  | Amendment dated October 29, 1998, to the WestPoint
      Stevens Inc. 1995 Key Employee Stock Bonus Plan (As Amended), incorporated
      by reference to the Annual Report on Form 10-K for fiscal year ended
      December 31, 1998, (Commission File No. 333-20013) filed by the Company
      with the Commission on March 31, 1999.                                                                                                                                                                                                                                                            



83

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|Exhibit Number |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.13          |  | Amendment dated February 1, 1999, to the WestPoint
      Stevens 1995 Key Employee Stock Bonus Plan (as amended), incorporated by
      reference to the Form 10-Q for the quarterly period ended March 31, 1999,
      (Commission File No. 333-20013) filed by the Company with the Commission
      on May 13, 1999.                                                                                                                                                
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.14          |  | Letter Amendment Agreement dated as of March 16, 1999,
      among the Company, WestPoint Stevens (UK) Limited, WestPoint Stevens
      (Europe) Limited, NationsBank, N.A., as agent and other financial
      institutions party thereto, incorporated by reference to the Form 10-Q for
      the quarterly period ended March 31, 1999, (Commission File No. 333-20013)
      filed by the Company with the Commission on May 13, 1999.                            
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.15          |  | WestPoint Stevens Inc. Omnibus Stock Incentive Plan (As
      Amended), incorporated by reference to the Company's 1999 Proxy Statement
      (Commission File No. 333-20013) filed by the Company with the Commission
      on April 9, 1999.                                                                                                                                                                                                                         
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.16          |  | Second Amendment Agreement dated May 20, 1999, among the
      Company, WestPoint Stevens (UK) Limited, WestPoint Stevens (Europe)
      Limited, NationsBank, N.A., as agent and the other financial institutions
      party thereto, incorporated by reference to the Form 10-Q for the
      quarterly period ended June 30, 1999, (Commission File No. 333-20013)
      filed by the Company with the Commission on August 11,
  1999.                            
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.17          |  | Letter Amendment Agreement dated as of August 31, 1999,
      among the Company, WestPoint Stevens (UK) Limited, WestPoint Stevens
      (Europe) Limited, NationsBank, N.A., as agent and other financial
      institutions party thereto, incorporated by reference to the Form 10-Q for
      the quarterly period ended September 30, 1999, (Commission File No.
      1-15381) filed by the Company with the Commission on November 12,
      1999.              
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.18          |  | Letter Amendment Agreement dated as of November 15, 1999,
      among the Company, WestPoint Stevens (UK) Limited, WestPoint Stevens
      (Europe) Limited, NationsBank, N.A., as agent and the other financial
      institutions, party thereto, incorporated by reference to the Annual
      Report on Form 10-K for fiscal year ended December 31, 1999 (Commission
      File No. 1-15381) filed by the Company with the Commission on March 29,
      2000.    
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.19          |  | WestPoint Stevens Inc. Stock Award Agreement dated
      November 18, 1999, between the Company and Holcombe T. Green, Jr.,
      incorporated by reference to the Annual Report on Form 10-K for fiscal
      year ended December 31, 1999, (Commission File No. 1-15381) filed by the
      Company with the Commission on March 29, 2000.                                                                                                                           
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.20          |  | Third Amendment Agreement dated as of May 30, 2000, among
      the Company, WestPoint Stevens (UK) Limited, WestPoint Stevens (Europe)
      Limited, NationsBank, N.A. as agent and the other financial institutions
      party thereto, incorporated by reference to the Form 10-Q for the
      quarterly period ended June 30, 2000, (Commission File No. 1-15381) filed
      by the Company with the Commission on August 14, 2000.                            
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.21          |  | Employment Agreement dated as of July 1, 2000, between
      WestPoint Stevens Inc. and Holcombe T. Green, Jr., incorporated by
      reference to the Form 10-Q for the quarterly period ended September 30,
      2000, (Commission File No. 1-15381) filed by the Company with the
      Commission on November 14, 2000.                                                                                                                                           
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.22          |  | Fourth Amendment Agreement dated December 31, 2000, among
      the Company, WestPoint Stevens (UK) Limited, WestPoint Stevens (Europe)
      Limited, Bank of America (formerly NationsBank, N.A.), as agent and the
      other financial institutions, party thereto, incorporated by reference to
      Form 10-K for the fiscal year ended December 31, 2000, (Commission File
      No. 1-15381) filed by the Company with the Commission on April 2,
      2001.
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.23          |  | Membership Interest Purchase Agreement effective as of
      February 4, 2000, by and among HTG Falcon LLC, HTG Corp. and the Company,
      incorporated by reference to Form 10-K for the fiscal year ended December
      31, 2000, (Commission File No. 1-15381) filed by the Company with the
      Commission on April 2, 2001.                                                                                                                                  
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.24          |  | Employment Agreement dated as of January 5, 2001, between
      WestPoint Stevens Inc. and M. L. Fontenot, incorporated by reference to
      the Form 10-Q for the quarterly period ended March 31, 2001, (Commission
      File No. 1-15381) filed by the Company with the Commission on May 15,
      2001.                                                                                                                                                         
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        



84

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|Exhibit Number |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.25          |  | Fifth Amendment dated as of March 26, 2001, among the
      Company, WestPoint Stevens (UK) Limited, WestPoint Stevens (Europe)
      Limited, Bank of America, N.A. (formerly NationsBank, N.A.), as agent and
      the other financial institutions party thereto, incorporated by reference
      to the Form 10-Q for the quarterly period ended March 31, 2001,
      (Commission File No. 1-15381) filed by the Company with the Commission on
      May 15, 2001.                    
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.26          |  | Employment Agreement dated April 17, 2001, between
      WestPoint Stevens Inc. and Lester Dupuy Sears, incorporated by reference
      to the Form 10-Q for the quarterly period ended June 30, 2001, (Commission
      File No. 1-15381) filed by the Company with the Commission on August 14,
      2001.                                                                                                                                                                                
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.27          |  | WestPoint Stevens Inc. Key Employee Stock Bonus Plan,
      incorporated by reference to the Company's 2001 Proxy Statement
      (Commission File No. 1-15381) filed by the Company with the Commission on
      April 9, 2001.                                                                                                                                                                                                                                                             
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.28          |  | Credit Agreement dated as of June 29, 2001, among
      WestPoint Stevens Inc., certain of its Subsidiaries, Bankers Trust
      Company, as Administrative Agent and the Lenders party thereto,
      incorporated by reference to the Form 10-Q for the quarterly period ended
      June 30, 2001, (Commission File No. 1-15381) filed by the Company with the
      Commission on August 14, 2001.                                                                                       
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.29          |  | Amendment Agreement dated June 29, 2001, among WestPoint
      Stevens Inc., WestPoint Stevens (UK) Limited, WestPoint Stevens (Europe)
      Limited, Bank of America, N.A. (formerly NationsBank, N.A.), as Agent and
      the other financial institutions party thereto, incorporated by reference
      to the Form 10-Q for the quarterly period ended June 30, 2001, (Commission
      File No. 1-15381) filed by the Company with the Commission on August 14,
      2001.          
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.30          |  | Intercreditor and Lien Subordination Agreement dated as
      of June 29, 2001, among WestPoint Stevens Inc., certain of its
      Subsidiaries, Bank of America, N.A. (formerly NationsBank, N.A.) as the
      collateral trustee and Bankers Trust Company, as administrative agent,
      incorporated by reference to the Form 10-Q for the quarterly period ended
      June 30, 2001, (Commission File No. 1-15381) filed by the Company with the
      Commission on August 14, 2001.
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.31          |  | Collateral Security Agreement dated as of June 29, 2001,
      among WestPoint Stevens Inc., certain of its Subsidiaries and Bankers
      Trust Company, as administrative agent, incorporated by reference to the
      Form 10-Q for the quarterly period ended June 30, 2001, (Commission File
      No. 1-15381) filed by the Company with the Commission on August 14,
      2001.                                                                                                     
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.32          |  | Amendment dated August 9, 2001, to the WestPoint Stevens
      Inc. 1993 Management Stock Option Plan, incorporated by reference to the
      Form 10-Q for the quarterly period ended September 30, 2001, (Commission
      File No. 1-15381) filed by the Company with the Commission on November 14,
      2001.                                                                                                                                                                          
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.33          |  | Amendment dated August 9, 2001, to the WestPoint Stevens
      Inc. 1994 Non-Employee Directors Stock Option Plan, incorporated by
      reference to the Form 10-Q for the quarterly period ended September 30,
      2001, (Commission File No. 1-15381) filed by the Company with the
      Commission on November 14, 2001.                                                                                                                                                              
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.34          |  | Letter dated April 5, 2001, from the Company to Mr. Bob
      Dale, incorporated by reference to Form 10-K for the fiscal year ended
      December 31, 2002, (Commission File No. 1-15381) filed by the Company with
      the Commissionon June 19, 2003.                                                                                                                                                                                                                                  
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.35          |  | Letter dated April 9, 2001, from the Company to Mr.
      Arthur Birkins, incorporated by reference to Form 10-K for the fiscal year
      ended December 31, 2002, (Commission File No. 1-15381) filed by the
      Company with the Commission on June 19, 2003.                                                                                                                                                                                                                           
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.36          |  | First Amended and Restated Receivables Purchase Agreement
      dated as of October 31, 2001, by and between the Company and WPS
      Receivables Corporation, incorporated by reference to Form 10-K for the
      fiscal year ended December 31, 2002, (Commission File No. 1-15381) filed
      by the Company with the Commission on June 19, 2003.                                                                                                                                     
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              





85

|
|

|Exhibit Number |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.37          |  | First Amended and Restated Asset Interest Transfer
      Agreement dated as of October 31, 2001, among WPS Receivables Corporation,
      the Company, Blue Ridge Asset Funding Corporation, North American Capacity
      Insurance Company and Wachovia Bank, N.A, incorporated by reference to
      Form 10-K for the fiscal year ended December 31, 2002, (Commission File
      No. 1-15381) filed by the Company with the Commission on June 19,
      2003.  
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.38          |  | Amendment Letter dated March 22, 2002, between the
      Company, Holcombe T. Green, Jr. and HTG Corp., incorporated by reference
      to Form 10-K for the fiscal year ended December 31, 2002, (Commission File
      No. 1-15381) filed by the Company with the Commission on June 19,
      2003.                                                                                                                                                               
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.39          |  | First Amendment dated as of January 14, 2002, among WPS
      Receivables Corporation, the company, Blue Ridge Asset Funding
      Corporation, North American Capacity Insurance Company and Wachovia Bank,
      N.A., incorporated by reference to the Form 10-Q for the quarterly period
      ended March 31, 2002, (Commission File No. 1-15381) filed by the Company
      with the Commission on May 7, 2002.                                                
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.40          |  | Seventh Amendment Agreement dated September 19, 2002,
      among WestPoint Stevens Inc., WestPoint Stevens (UK) Limited, WestPoint
      Stevens (Europe) Limited, Bank of America, N.A. (formerly NationsBank
      N.A.) as agent and the other financial institutions party thereto,
      incorporated by reference to the Form 8-K (Commission File No. 1-15381)
      filed by the Company with the Commission on September 20,
    2002.                     
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.41          |  | Second Amendment to First Amended and Restated Asset
      Interest Transfer Agreement dated January 10, 2003, among WPS Receivables
      Corporation, WestPoint Stevens Inc., Blue Ridge Asset Funding Corporation,
      North American Capacity Insurance Company and Wachovia Bank National
      Association, incorporated by reference to the Form 8-K (Commission File
      No. 1-15381) filed by the Company with the Commission on January 15,
      2003.
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.42          |  | Third Amendment to First Amended and Restated Asset
      Interest Transfer Agreement dated February 7, 2003, among WPS Receivables
      Corporation, WestPoint Stevens Inc., Blue Ridge Asset Funding Corporation,
      North American Capacity Insurance Company and Wachovia Bank National
      Association, incorporated by reference to the Form 8-K (Commission File
      No. 1-15381) filed by the Company with the Commission on February 11,
      2003.
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.43          |  | Loan and Security Agreement dated March 28, 2003, by and
      among WPS Receivables Corporation, WestPoint Stevens Inc., Congress
      Financial Corporation (Southern), The CIT Group/Commercial Services, Inc.
      and the Lenders from Time to Time Parties Hereto, incorporated by
      reference to the Form 8-K (Commission File No. 1-15381) filed by the
      Company with the Commission on April 1, 2003.                                            
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.44          |  | Second Amended and Restated Receivables Purchase
      Agreement dated as of March 28, 2003, by and between WestPoint Stevens
      Inc. and WPS Receivables Corporation, incorporated by reference to the
      Form 8-K (Commission File No. 1-15381) filed by the Company with the
      Commission on April 1, 2003.                                                                                                                                             
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.45          |  | Amendment Letter dated March 20, 2003, between WestPoint
      Stevens Inc. and M. L. Fontenot, incorporated by reference to the Form
      10-K (Commission File No. 1-15381) filed by the Company with the
      Commission on June 30, 2003.                                                                                                                                                                                                                      
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.46          |  | The First Amendment Agreement dated as of March 31, 2003,
      among the Company, certain of its subsidiaries, Deutsche Bank Trust
      Company Americas (f/k/a Bankers Trust Company), as Administrative Agent
      and the Lenders party thereto, incorporated by reference to the Form 10-K
      (Commission File No. 1-15381) filed by the Company with the Commission on
      June 30, 2003.                                                               
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.47          |  | Waiver Agreement dated as of March 31, 2003, among the
      Company, certain of its subsidiaries, Deutsche Bank Trust Company Americas
      (f/k/a Bankers Trust Company), as Administrative Agent and the Lenders
      party thereto, incorporated by reference to the Form 10-K (Commission File
      No. 1-15381) filed by the Company with the Commission on June 30,
      2003.                                                                            
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.48          |  | Eighth Amendment and Temporary Waiver Agreement dated as
      of March 31, 2003, among the Company, WestPoint Stevens (UK) Limited,
      WestPoint Stevens (Europe) Limited, Bank of America, N.A., as Agent and
      the other financial institutions party thereto, incorporated by reference
      to the Form 10-K (Commission File No. 1-15381) filed by the Company with
      the Commission on June 30, 2003.                                             



86

|
|

|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.49          |  | Post-Petition Credit Agreement dated as of June 2, 2003,
      among WestPoint Stevens Inc. and certain of its subsidiaries, the
      financial institutions named therein and Bank of America, N.A. and
      Wachovia Bank, National Association, incorporated by reference to the Form
      8-K (Commission File No. 1-15381) filed by the Company with the Commission
      on June 5, 2003.                                                                                                                         
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.50          |  | Amendment No. 1 to Loan and Security Agreement dated as
      of April 15, 2003, by and among WPS Receivables Corporation, WestPoint
      Stevens Inc., Congress Financial Corporation (Southern), The CIT
      Group/Commercial Services, Inc. and the parties to the Loan Agreement as
      lenders, incorporated by reference to the Form 10-Q for the period ended
      June 30, 2003, (Commission File No. 1-15381) filed by the Company with the
      Commission on August 14, 2003.                            
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.51          |  | Amendment dated as of May 30, 2003, to the $165,000,000
      Credit Agreement dated as of June 29, 2001, among WestPoint Stevens Inc.,
      certain of its Subsidiaries and Deutschebank Trust Company America (f/k/a
      Bankers Trust Company) in its capacity as Agent and the parties to the
      Loan Agreement as lenders, incorporated by reference to the Form 10-Q for
      the period ended June 30, 2003, (Commission File No. 1-15381) filed by the
      Company with the Commission on August 14, 2003.
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.52          |  | Amendment No. 2 to Loan and Security Agreement dated as
      of June 1, 2003, by and among WPS Receivables Corporation, WestPoint
      Stevens Inc., Congress Financial Corporation (Southern), The CIT
      Group/Commercial Services, Inc. and the parties to the Loan Agreement as
      lenders, incorporated by reference to the Form 10-Q for the period ended
      June 30, 2003, (Commission File No. 1-15381) filed by the Company with the
      Commission on August 14, 2003.                              
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.53          |  | Post-Petition Credit Amendment dated as of June 2, 2003,
      among WestPoint Stevens Inc. and certain of its subsidiaries, the
      financial institutions named therein and Bank of America, N.A. and
      Wachovia Bank, National Association, incorporated by reference to the Form
      8-K (Commission File No. 1-15381) filed by the Company with the Commission
      on June 5, 2003.                                                                                                                         
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.54          |  | Security Agreement dated June 2, 2003, by WestPoint
      Stevens Inc. and certain of its subsidiaries, the financial institutions
      named therein and Bank of America, N.A. in its capacity as administrative
      and collateral agent, incorporated by reference to the Form 10-Q for the
      period ended June 30, 2003 (Commission File No. 1-15381) filed by the
      Company with the Commission on August 14, 2003.                                                                                        
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.55          |  | First Amendment to Post-Petition Credit Agreement dated
      June 26, 2003, among WestPoint Stevens Inc. and certain of its
      subsidiaries, the financial institutions named therein and Bank of
      America, N.A. and Wachovia Bank, National Association, incorporated by
      reference to the Form 10-Q for the period ended June 30, 2003 (Commission
      File No. 1-15381) filed by the Company with the Commission on August 14,
      2003.                                                              
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.56          |  | Separation and Settlement Agreement effective August 14,
      2003, between the Company and Holcombe T. Green, Jr., incorporated by
      reference to the Form 8-K (Commission File No. 1-15381) filed by the
      Company with the Commission on August 18, 2003.                                                                                                                                                                                                                                                      
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.57          |  | Termination Agreement dated as of August 31, 2003, by and
      among WPS Receivables Corporation, WestPoint Stevens Inc., the lenders
      party to the Loan and Security Agreement, dated March 28, 2003 and
      Congress Financial Corporation (Southern) as Agent for the Lenders,
      incorporated by reference to the Form 10-Q for the period ended September
      30, 2003 (Commission File No. 1-15381) filed by the Company with the
      Commission on November 14, 2003.                                
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.58          |  | Second Amendment to Post-Petition Credit Agreement and
      First Amendment to Security Agreement dated as of September 25, 2003,
      among WestPoint Stevens Inc. and certain of its subsidiaries, the
      financial institutions from time to time parties to the Credit Agreement
      and Bank of America, N.A. and Wachovia Bank, National Association,
      incorporated by reference to the Form 8-K (Commission File No. 1-15381)
      filed by the Company with the Commission on October 17,
  2003.     
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.59          |  | Third Amendment to Post-Petition Credit Agreement dated
      as of September 25, 2003, among WestPoint Stevens Inc. and certain of its
      subsidiaries, the financial institutions from time to time parties to the
      Credit Agreement and Bank of America, N.A. and Wachovia Bank, National
      Association, incorporated by reference to the Form 8-K (Commission File
      No. 1-15381) filed by the Company with the Commission on October 17, 2003.                                                        
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



87

|
|

|Exhibit Number |  | Description of Exhibit                                                                                                                                                           
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                                  
|               |  |                                                                                                                                                                                  
|10.60          |  | Restated WestPoint Stevens Inc. Welfare Benefits Plan
      effective January 1, 2003, approved by the Company's Board of Directors on
      October 15, 2003.                   
|               |  |                                                                                                                                                                                  
|10.61          |  | WestPoint Stevens Inc. Key Employee Retention and
      Severance Program approved by the Compensation Committee of the Company's
      Board of Directors on September 29, 2003.
|               |  |                                                                                                                                                                                  
|10.62          |  | WestPoint Stevens Inc. Severance Agreement for Group 1A
      employees covered by the WestPoint Stevens Inc. Key Employee Retention and
      Severance Program.                
|               |  |                                                                                                                                                                                  
|10.63          |  | WestPoint Stevens Inc. Severance Agreement for Group 1
      employees covered by the WestPoint Stevens Inc. Key Employee Retention and
      Severance Program.                 
|               |  |                                                                                                                                                                                  
|21             |  | List of Subsidiaries of the Registrant.                                                                                                                                          
|               |  |                                                                                                                                                                                  
|23             |  | Consent of Ernst & Young LLP, independent
      auditors.                                                                                                                        
|               |  |                                                                                                                                                                                  
|31.1           |  | Rule 13a-15(e) Certification of Chief Executive
      Officer                                                                                                                    
|               |  |                                                                                                                                                                                  
|31.2           |  | Rule 13a-15(e) Certification of Chief Financial
      Officer                                                                                                                    
|               |  |                                                                                                                                                                                  
|32.1           |  | Certification of the Chief Executive Officer pursuant to
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.                  
|               |  |                                                                                                                                                                                  
|32.2           |  | Certification of the Chief Financial Officer pursuant to
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.                  



88

|
|

WESTPOINT STEVENS INC.SCHEDULE II -- Valuation and Qualifying Accounts
(In thousands)





|                             |                                 |            |        | Additions  |   |            |         |           
|---------------------------- | ------------------------------- | ---------- | ------ | ---------- | - | ---------- | ------- | ----------
|                             |                                 | Balance at |        | Charged to |   |            |         | Balance at
|                             |                                 | Beginning  |        | Cost and   |   |            |         | End of    
|                             |                                 | of Period  |        | Expenses   |   | Deductions |         | Period (3)
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|Year Ended December 31, 2003 |                                 |            |        |            |   |            |         |           
|                             | Accounts receivable allowances: |            |        |            |   |            |         |           
|                             | Doubtful accounts               |            | $      | 31,728     |   | $          | 446     |           
|                             | Cash and/or trade discounts     |            |        |            |   |            |         |           
|                             | and returns and allowances      |            |        | 9,119      |   |            | 18,426  |           
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 | $          | 40,847 |            | $ | 18,872     |         | $         
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|                             | Inventory reserves:             |            |        |            |   |            |         |           
|                             | Market and obsolescence         |            | $      | 77,757     |   | $          | (5,895) | (2)       
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|Year Ended December 31, 2002 |                                 |            |        |            |   |            |         |           
|                             | Accounts receivable allowances: |            |        |            |   |            |         |           
|                             | Doubtful accounts               |            | $      | 22,333     |   | $          | 11,534  |           
|                             | Cash and/or trade discounts     |            |        |            |   |            |         |           
|                             | and returns and allowances      |            |        | 11,240     |   |            | 19,554  |           
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 | $          | 33,573 |            | $ | 31,088     |         | $         
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|                             | Inventory reserves:             |            |        |            |   |            |         |           
|                             | Market and obsolescence         |            | $      | 73,097     |   | $          | 4,660   | (2)       
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|Year Ended December 31, 2001 |                                 |            |        |            |   |            |         |           
|                             | Accounts receivable allowances: |            |        |            |   |            |         |           
|                             | Doubtful accounts               |            | $      | 11,490     |   | $          | 14,043  |           
|                             | Cash and/or trade discounts     |            |        |            |   |            |         |           
|                             | and returns and allowances      |            |        | 10,573     |   |            | 23,813  |           
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 | $          | 22,063 |            | $ | 37,856     |         | $         
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|                             | Inventory reserves:             |            |        |            |   |            |         |           
|                             | Market and obsolescence         |            | $      | 63,439     |   | $          | 9,658   | (2)       
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           
|                             |                                 |            |        |            |   |            |         |           

(1)Accounts written off, less recoveries of accounts previously written
off.
(2)Net change.
(3)Reserves are deducted from assets to which they apply.



89

|
|

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.





|WESTPOINT STEVENS INC.                
|--------------------------------------
|(Registrant)                          
|                                      
|                                      
|By   /s/ M. L. Fontenot               
|                                      
|M. L. Fontenot                        
|President, Chief Executive Officer and
|Chief Operating Officer               
|                                      
|March 15, 2004                        

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.





|By  /s/ M. L. Fontenot |                                                        | By /s/ Lester D. Sears
|---------------------- | ------------------------------------------------------ | ----------------------
|                       |                                                        |                       
|                       | M. L. Fontenot                                         |                       
|                       | Director, President, Chief Executive Officer
      and |                       
|                       | Chief Operating Officer                                |                       
|                       | (principal executive officer)                          |                       
|                       |                                                        |                       
|March 15, 2004         |                                                        | March 15, 2004        



|By  /s/ J. Nelson Griffith |                                      | By  /s/ Hugh M. Chapman
|-------------------------- | ------------------------------------ | -----------------------
|                           |                                      |                        
|                           | J. Nelson Griffith                   |                        
|                           | Senior Vice President and Controller |                        
|                           | (principal accounting officer)       |                        
|                           |                                      |                        
|March 15, 2004             |                                      | March 15, 2004         



|By  /s/ M. Katherine Dwyer |                    | By  /s/ Joseph R. Gladden
|-------------------------- | ------------------ | -------------------------
|                           |                    |                          
|                           | M. Katherine Dwyer |                          
|                           | Director           |                          
|                           |                    |                          
|March 15, 2004             |                    | March 15, 2004           



|By  /s/ J. Hicks Lanier |                 | By  /s/ John F. Sorte
|----------------------- | --------------- | ---------------------
|                        |                 |                      
|                        | J. Hicks Lanier |                      
|                        | Director        |                      
|                        |                 |                      
|March 15, 2004          |                 | March 15, 2004       





90