<PAGE>   1
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    -------
                                   FORM 10-K
(MARK ONE)
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

         For the fiscal year ended December 31, 1997

                                       OR

[_]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

         For the transition period for ____________ to ____________

                          COMMISSION FILE NO. 0-21496

                             WESTPOINT STEVENS INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

507 WEST TENTH STREET, WEST POINT, GEORGIA                                31833
    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                         (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE  (706) 645-4000

SECURITIES 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. Yes  X   No
                                             -----    -----

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

         The aggregate market value of voting stock held by nonaffiliates of
the registrant was approximately $1,106,232,910 at March 3, 1998. The number of
shares of Common Stock outstanding at March 3, 1998, was 60,243,622.

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

         Indicate the number of shares outstanding of each of the registrants
classes of common stock, as of the latest practicable date: 60,188,258 at March
20, 1998

                      DOCUMENTS INCORPORATED BY REFERENCE:

         Portions of the registrant's definitive proxy statement to be mailed
to stockholders in connection with the registrant's May 13, 1998 Annual Meeting
of Stockholders are incorporated by reference into Part III hereof.

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                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                  Page No.
                                                                                                  --------

<S>      <C>                                                                                      <C>
Item 1.  Business........................................................................................1

Item 2.  Properties......................................................................................6

Item 3.  Legal Proceedings...............................................................................7

Item 4.  Submission of Matters to a Vote of Security Holders.............................................7

Item 5.  Market for Registrant's Common Stock and Related Stockholder Matters............................7

Item 6.  Selected Financial Data.........................................................................8

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations..........10

Item 8.  Financial Statements and Supplementary Data....................................................15

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........36

Item 10. Directors and Executive Officers of the Registrant.............................................36

Item 11. Executive Compensation.........................................................................36

Item 12. Security Ownership of Certain Beneficial Owners and Management.................................36

Item 13. Certain Relationships and Related Transactions.................................................36

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...............................36
</TABLE>

<PAGE>   3

ITEM 1. BUSINESS

WestPoint Stevens Inc., a Delaware corporation organized in 1987 (the
"Company"), is the successor corporation to West Point-Pepperell, Inc. through
a series of mergers occurring in December 1993. The Company is engaged directly
and indirectly through its subsidiaries in the manufacture, marketing and
distribution of bed and bath home fashions ("Home Fashions") products.

The Company manufactures and markets Home Fashions products for distribution to
chain and department stores, mass merchants and specialty stores. Home Fashions
products are manufactured and distributed under owned trademarks and pursuant
to various licensing agreements. See "-Trademarks and Licenses."

In August 1997, the Company sold its wholly-owned subsidiary, Alamac Knit
Fabrics, Inc. ("Alamac"), other than cash, accounts receivable of approximately
$42.5 million and a yarn mill located in Whitmire, South Carolina. Alamac
produced knitted fabrics which it supplied primarily to manufacturers of men's,
women's and children's apparel. See "Item 8. Financial Statements and
Supplementary Data" included elsewhere for additional information regarding
treatment of Alamac as a discontinued operation.

The Company's management estimates that it has the largest market share
(approximately 36%) in the domestic sheet and pillowcase market and the
largest market share (approximately 41%) in the domestic bath towel market.
Such estimates are calculated by the Company based on United States government
data (source: United States Census Bureau Current Industrial Report dated March
12, 1998), publicly available information about the Company's competitors and
information in trade publications. In addition, according to such United States
government data, each of these markets had over $1 billion in annual sales
during each of the past five years.

For a discussion of the Company's overall financial condition, see "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."

         PRODUCTS

The Company manufactures and markets a broad range of bed and bath products,
including decorative sheets and towels, designer sheets and accessories, sheets
and towels for institutions, blankets, private label sheets and towels,
bedskirts, bedspreads, comforters, duvet covers, drapes, valances, throw
pillows, shower curtains and table covers. 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.

         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, trade
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. Home Fashions' trademarks include ATELIER
MARTEX(R), MARTEX(R), UTICA(R), STEVENS(R), LADY PEPPERELL(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, Sanderson, Larry Laslo, Halston and Star Wars.

A portion of the Company's sales are 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 11%
of the Company's total sales volume during any of the last five fiscal years.
Although the Company has no reason to believe that it will lose any of its
licenses, the loss of a significant

<PAGE>   4

license could have an adverse effect upon the Company's business, which could
be material. The following are the expiration dates for the licensing
agreements discussed above: Ralph Lauren, December 31, 2000; Sanderson, March
31, 1999; Larry Laslo, March 31, 1999; Halston, December 31, 1998; and Star
Wars, October 31, 1998.

         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
efficiently and economically anticipate and respond to customers' inventory
requirements. As a result, the Company is better able to plan and forecast its
own production and inventory requirements. Sales of the Company's Home Fashions
products are conducted through a divisional format consisting of the Fashion
Brands, Mass Brands and International divisions. Within each domestic division,
sales are conducted by business units consisting of marketing, merchandising,
management information systems, finance and sales staff members under the
supervision of an account executive. Business units are linked by a centralized
manufacturing logistics and planning group and designer and administration
groups. Each business unit focuses on one of the following channels of
distribution: mass merchants; department and specialty stores; custom brands;
Ralph Lauren; health and hospitality institutions; international and other
independent channels to service specialized areas, including freestanding
window treatments, blankets and baby bedding. This organization allows the
Company to tailor its services and resources to the different requirements of
each channel of distribution and customer.

The Company works closely with its major customers to assist them in
merchandising and promoting its products to the consumer. 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 web site have served to enhance brand recognition. The
Company also provides its customers with suggested customized advertising
materials designed to increase its product sales.

Approximately 86% of the Company's sales are made to retail establishments in
the United States, including chain and department stores, mass merchants, and
specialty bed and bath stores. Finished products are distributed to retailers
directly from the Company's plants. Distribution to hospitals and other
healthcare establishments accounts for most of the remaining portion of the
Company's sales of Home Fashions products. Certain institutional products also
are sold directly and through distributors to major hotel and motel chains, and
to laundry supply businesses. In addition to domestic sales, the Company
distributes its Home Fashions products for eventual sale to certain foreign
markets, principally Canada, Mexico, the United Kingdom, continental Europe,
the Middle East and the Far East. International operations accounted for less
than 5% of the total revenues of the Company in 1997.

In addition, certain products of the Company are sold through WestPoint Stevens
Stores Inc., a wholly-owned subsidiary of the Company ("WestPoint Stores").
WestPoint Stores currently consists of 41 geographically dispersed,
value-priced outlets throughout the United States and in Canada, some of
which are located in factory outlet shopping centers. The products sold in
WestPoint Stores are first quality (including overstocks), seconds,
discontinued items and other products.

         INVENTORY MANAGEMENT, ELECTRONIC COMMUNICATION AND DELIVERY

The Company uses EDI, Quick Response and Vendor Managed Inventory replenishment
programs, point-of-sale data and the latest available technology in retail
warehouse and shelf space management to minimize inventory and maximize floor
stock turnover for its customers. The Company's EDI system allows customers to
place orders, and allows the Company to fill, track and bill orders, all by
computer. This system enables the Company to ship products



                                       2
<PAGE>   5
on a Quick Response basis so that customers can maintain lower inventories and
react rapidly to changes in product demand. In addition, the Company is using
Vendor Managed Inventory and dedicating certain manufacturing facilities to
servicing key strategic customers. The Company anticipates that these programs
will result in lower transportation expense and reduced distribution
complexities for its customers. Through the use of the Nielsen Spaceman III
category management program, the Company supports its customers' efforts to
improve operating results through efficient inventory and shelf space
management. The Company's objective is to provide its customers with 100%
delivery reliability in terms of order quantities and delivery schedules. The
Company believes that the use of in-house transportation has enabled the
Company to maintain a high level of on-time delivery.

         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 chain stores, including, among
others, J.C. Penney Company, Inc. ("J.C. Penney"), and Sears Roebuck & Co.,
Inc. ("Sears"); mass merchants such as Wal-Mart Stores, Inc. ("Wal- Mart"),
Kmart Corporation ("Kmart") and Target Stores (a division of Dayton Hudson
Corporation); and department and specialty stores, including Federated
Department Stores and Mervyn's (also a division of Dayton Hudson Corporation).
The above named customers, which are the Company's six largest customers,
accounted for approximately 52% of the net sales of the Company during the
fiscal year ended December 31, 1997. In 1997 sales to Dayton Hudson Corporation
were 13% of the net sales of the Company and sales to Kmart were 10% 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 the largest accounts (or a material portion of any thereof) would
have an adverse effect upon the Company's business, which could be material.

         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 $522 million to
modernize its manufacturing and distribution systems and has spent
approximately $160 million of that amount during 1997, including the purchase
in February 1997 of towel manufacturing facilities from the Bibb Company. The
capital expenditures have been used to, among other things, replace shuttle
looms with faster, more efficient projectile and air jet looms, replace ring
spinning with open-end and air jet spinning, purchase new high speed multicolor
printing equipment, and further automate the Company's cut and sew operations.
Air jet and projectile looms produce at higher speeds than shuttle looms,
yielding fewer defects, requiring less maintenance and providing cleaner and
safer working environments. Using air jet technology, compressed air propels
the filling yarn at high speeds, with robotics handling fabric cutting and
tucking. The Company's new open-end spinning machines use computerized monitors
and sensors which track and analyze the work, streamline information gathering
and detect defects immediately to improve yarn quality. The Company intends to
invest $140 million in capital improvements in the aggregate in 1998 which
includes the addition of new air jet looms, the continued conversion of the
Company's older projectile looms to higher speed air jet looms, construction of
new and expanded distribution centers and installation of dyeing and finishing
equipment, and automated fabricating equipment and distribution management
systems which will further eliminate labor-intensive and costly manufacturing
steps and improve distribution efficiency. These capital programs have
resulted, and are expected to continue to result, in improved product quality,
increased efficiency and capacity, lower costs and quicker response time to
customer orders. The Company (including its subsidiaries) owns and utilizes 23
manufacturing facilities located primarily in the Southeastern United States
and leases a manufacturing facility in England. See "-Properties."



                                       3
<PAGE>   6

         RAW MATERIALS

The principal raw materials used in the manufacture of Home Fashions products
are cotton of various grades and staple lengths and polyester in staple and
filament form. Cotton and polyester 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 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.

         SEASONALITY; CYCLICALITY; INVENTORY

Traditionally, the home fashions industry has been seasonal, with peak sales
seasons in the summer and 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 summer and fall peak
seasons. 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 the need to stockpile inventory to
meet peak season demands.

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 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 $111.5 million at January 31, 1998, as compared with
approximately $97.9 million at February 1, 1997. The Company does not believe
that its backlogs are a meaningful indicator of its future business.

         COMPETITION

The home fashions industry is highly competitive. The Company competes on the
basis of price, quality and customer service, among other factors. In the sheet
and towel markets, the Company competes primarily with Fieldcrest Cannon, Inc.,
a wholly-owned subsidiary of Pillowtex Corporation (collectively
"Pillowtex/Fieldcrest"), and Springs Industries, Inc. ("Springs"). 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. The Company does not
believe that there is any significant foreign competition with its current
domestic operations. There can be no assurance, however, if such foreign
competition develops that the Company will effectively compete.



                                       4
<PAGE>   7

         OTHER OPERATIONS

The Company's operations include Grifftex Chemicals ("Grifftex"). Grifftex
formulates chemicals primarily used in the Company's finishing processes.
Grifftex does not 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 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 did not make any material expenditures for
Company sponsored research and development activities during the last three
fiscal years.

         ENVIRONMENTAL MATTERS

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 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 (known as "CERCLA"), as amended.

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 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 16,100 active
employees as of February 27, 1998. Of these employees, approximately 14,630
were employed in the Company's manufacturing operations, approximately 420 in
sales and approximately 1,050 in administration.

The Company believes that its relations with all of its employees are
excellent. The Company has not experienced a strike or work stoppage by any of
its unionized employees during the past 15 years.

The Company has developed an efficient employee communications system that
includes rules and regulations for employee conduct and procedures for employee
complaints. This long-standing system focuses on and, in the view of
management, has resulted in, strong employee relations practices, good working
conditions, progressive personnel policies and expansive safety programs.

         RECENT DEVELOPMENTS

On February 2, 1998, the Board of Directors of the Company declared a
two-for-one stock split payable in the form of a 100% stock dividend and
expanded the stock repurchase program by an amount equal to the amount of
shares of Common Stock available for repurchase under the repurchase program on
February 16, 1998, the record date for the



                                       5
<PAGE>   8

stock split (the "Record Date"). The additional shares issuable in the stock
split were distributed on March 2, 1998 to shareholders of record on the Record
Date.

During 1997 the Company purchased approximately 3.4 million shares (on a split
basis) under the various stock repurchase programs, at an average price of
$19.64 per share (on a split basis). In August 1997 the Board of Directors
approved the purchase of up to three million additional shares of the Company's
common stock, subject to the Company's debt limitations, which brings the total
shares that have been approved for purchase to eight million shares (sixteen
million shares on a split basis). At December 31, 1997, approximately 5.8
million shares (on a split basis) remained to be purchased. The repurchased
shares include open market purchases and private transactions. The repurchased
shares are held in the Company's treasury for general corporate purposes.

         OTHER FACTORS

Except for historical information contained herein, certain matters set forth
in this Annual Report on Form 10-K are forward looking statements that involve
certain risks and uncertainties that could cause actual results to differ
materially from those in the forward looking statements. Such risks and
uncertainties may be attributable to important factors which include but are
not limited to the following: 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 other companies'
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; the availability and price of raw materials could be affected
by weather, disease, energy costs or other factors; efforts to avoid adverse
effects due to computer systems failing to function properly with respect to
dates in the year 2000 and beyond could meet with varying degrees of success in
operations and in transactions with customers, suppliers and financial
institutions; and the ability to project risk factors may vary. 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.

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 Lanett and Valley,
Alabama, and leases various additional office space, including approximately
288,000 square feet in New York City, of which approximately 187,000 square
feet is subleased to other tenants. The Company also owns or leases various
administrative, storage and office space.

The Company also owns a chemical plant containing approximately 39,000 square
feet of floor space from which Grifftex Chemicals operates.

The Company and its subsidiaries own 23 manufacturing facilities located in
Alabama, Florida, Georgia, Maine, North Carolina, South Carolina and Virginia
which contain in the aggregate approximately 9,576,000 square feet of floor
space and lease one manufacturing facility in England.

The Company and its subsidiaries also own 10 distribution centers and
warehouses for their operations which contain approximately 2,896,000 square
feet of floor space. In addition, the Company and its subsidiaries lease 10
distribution outlets and warehouses containing approximately 348,000 square
feet of floor space.



                                       6
<PAGE>   9

WestPoint Stores owns 2 retail stores and leases its 39 other retail stores,
all of which are dispersed throughout the United States and Canada.

ITEM 3. LEGAL PROCEEDINGS

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 non-hazardous 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 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 their
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 1997, no matters were submitted by the
Company to a vote of its stockholders.


ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The Common Stock of the Company is listed on the National Association of
Securities Dealers Automated Quotation System - National Market System
("NASDAQ") under the symbol WPSN. Such listing became effective on August 2,
1993. Prior thereto, the Company's Common Stock was not listed or admitted to
unlisted trading privileges on a national securities exchange or included for
quotation through an inter-dealer quotation system of a registered national
securities association, and there was a limited trading market for the Common
Stock.

High (ask) and low (bid) quotations, as reported (on a split basis), each
quarterly period within the two most recent fiscal years were:

<TABLE>
<CAPTION>
                  Quarter Ended                                   Quotations
                  -------------                     ------------------------------------
                                                      1997                        1996
                                                    --------                    --------
                                                High/Ask     Low/Bid       High/Ask     Low/Bid
                                                --------     -------       --------     -------
                  <S>                           <C>          <C>           <C>          <C>
                  March 31..................     20          14 1/2         10 13/16      8 3/4
                  June 30...................     20 1/4      17 9/16        12 1/2        9 5/8
                  September 30   ...........     21 1/2      18 5/16        14 3/4       11 3/16
                  December 31...............     24 1/16     19             15 1/8       13 1/8
</TABLE>

The Company has not declared any cash dividends on its Common Stock during the
past two fiscal years. Under its existing credit facility the



                                       7
<PAGE>   10

Company is permitted to pay dividends from excess cash flow as defined in the
credit facility. The Company does not expect to pay dividends to its
stockholders in the near future.

As of March 3, 1998, there were approximately 15,460 holders of the Company's
Common Stock. Of that total, approximately 260 were stockholders of record and
approximately 15,200 held their stock in nominee name.


ITEM 6. SELECTED FINANCIAL DATA

The selected historical financial data presented below for 1997, 1996 and 1995
were derived from the Audited Consolidated Financial Statements of the Company
and its subsidiaries for the years ended December 31, 1997, 1996 and 1995 (the
"Consolidated Financial Statements"), and should be read in conjunction
therewith, including the notes thereto and the other financial information
included elsewhere herein. The statement of operations data reflect the
discontinuance of all operations other than Home Fashions.



<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                       ----------------------------------------------------------------------
                                                         1997            1996           1995           1994           1993(1)
                                                       --------        --------       --------       --------        --------
  (In millions, except per share data)
<S>                                                    <C>             <C>            <C>            <C>             <C>
Statement of
  Operations Data:
Net sales                                              $1,657.5        $1,501.8       $1,418.2       $1,346.9        $1,267.5
Gross earnings                                            419.8           372.4          359.1          331.9           321.6
Operating earnings (loss)(2)                              214.9           188.5           26.3          (46.5)         (217.3)
Interest expense                                          102.2            94.5           93.5           94.2            90.4
Income (loss) from continuing operations
  before income tax expense
  (benefit) and  extraordinary items                      110.2            91.0          (70.4)        (153.7)         (325.9)
Income (loss) from continuing operations
  before extraordinary items                               69.3            58.0         (102.3)        (173.7)         (281.8)

Net income (loss)                                          78.0            57.7         (129.8)        (203.4)         (402.3)

Diluted net income (loss) per common share:
  Continuing operations                                    1.11            0.91          (1.57)         (2.57)          (4.39)
  Discontinued operations                                   .14               -           (.42)          (.44)           (.62)
  Extraordinary item - loss on extinguishment of debt         -               -              -              -           (1.26)
                                                       --------        --------       --------       --------        --------
  Net income (loss) per common share                       1.25            0.91          (1.99)         (3.01)          (6.27)

Diluted average common shares outstanding                  62.7            63.7           65.4           67.6            64.1

<CAPTION>

                                                                                      DECEMBER 31,
                                                       ----------------------------------------------------------------------
                                                         1997            1996           1995           1994            1993
                                                       -------         --------       --------       --------        --------
  (In millions)

Balance Sheet Data:
Total assets                                          $1,286.1         $1,157.0       $1,143.0       $1,270.2        $1,512.9
Working capital (3)                                      212.2            140.9          115.7          122.7           159.7
Total debt                                             1,187.7          1,099.0        1,148.0        1,083.0         1,112.5
Stockholders' equity (deficit)                          (423.0)          (450.4)        (505.9)        (337.2)         (140.3)
</TABLE>



                                       8
<PAGE>   11

<TABLE>
<CAPTION>

                                                                  YEAR ENDED DECEMBER 31,
                                                 -------------------------------------------------------
    (In millions, except ratios)                   1997          1996       1995       1994      1993(1)
                                                 --------      --------   --------   --------   --------
<S>                                              <C>           <C>        <C>        <C>        <C>

Other Data:
Depreciation and amortization(4):
     Continuing operations                       $ 71.7        $   68.9   $   69.3   $   74.2   $   71.2
     Discontinued operations                        5.5             8.1       11.1       12.0       11.6
Amortization of excess reorganization value:
     Continuing operations                            -               -      152.4      203.3      190.2
     Discontinued operations                          -               -       25.3       33.6       31.4
Restructuring expense:
     Continuing operations                            -               -          -          -      178.0
     Discontinued operations                          -               -          -          -       22.0
Capital expenditures:
     Continuing operations                        148.9            94.9       92.4       84.5       76.9
     Discontinued operations                        3.2             5.0        9.8       24.5       12.1
Operating earnings from continuing
     operations before amortization
     of excess reorganization value
     and restructuring expense(5)                 214.9           188.5      178.7      156.8      150.9
Operating margin from continuing
     operations before amortization
     of excess reorganization value
     and restructuring expense(6)                  13.0%           12.6%      12.6%      11.6%     11.9%
</TABLE>




(1)The results for the year ended December 31, 1993 include restructuring
expense of $200 million ($117.8 million after minority interest and income
taxes). The charge related to (a) the closing and consolidation of certain
facilities; (b) the write-off of certain equipment; and (c) severance,
outplacement and other costs associated with plant closures and overhead
reductions.

(2)Operating earnings (loss) for the year ended December 31, 1995 includes
amortization of excess reorganization value of $152.4 million, for the year
ended December 31, 1994 includes amortization of excess reorganization value of
$203.3 million, for the year ended December 31, 1993 includes restructuring
expense of $178 million and amortization of excess reorganization value of
$190.2 million.

(3)Working capital for the years ended December 31, 1997, 1996, 1995, 1994 and
1993 includes the current portion of bank indebtedness and other long-term debt
of $41.4 million, $24.0 million, $73.0 million, $48.0 million, and $18.0
million, respectively.

(4)Excludes amortization of excess reorganization value.

(5)Such amounts are presented to facilitate comparisons between periods since
there were no charges in the 1997 and 1996 periods for amortization of excess
reorganization value or restructuring expense.

(6)Operating margin before amortization of excess reorganization value and
restructuring expense represents operating earnings before amortization of
excess reorganization value and restructuring expense as a percentage of net
sales for the periods presented.



                                       9
<PAGE>   12

                ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

On August 27, 1997 the Company closed a transaction pursuant to which WestPoint
Stevens sold its Alamac Knit Fabrics subsidiary (other than cash, accounts
receivable of approximately $42.5 million and a yarn mill located in Whitmire,
S.C.) to Dyersburg Corporation for approximately $126 million. The Whitmire
facility was transferred by the Company to Home Fashions to support the
Company's expansion of its sheeting production capacity. As a result of the
transaction, the Company now accounts for the Alamac Knit Fabrics subsidiary as
a discontinued operation and the accompanying financial statements have been
adjusted and restated accordingly.

In February 1998 the Board of Directors declared a two-for-one stock split of
its common stock payable on March 2, 1998 in the form of a 100% stock dividend
to stockholders of record on February 16, 1998. Outstanding shares, stock
purchases and earnings per share comparisons for all periods have been restated
to reflect the stock split.

The Company has determined that it will need to modify or replace portions of
its software so that its computer systems will function properly with respect
to dates in the year 2000 and beyond. The Company also has initiated
discussions with its significant suppliers, large customers and financial
institutions to ensure that those parties have appropriate plans to remediate
Year 2000 issues where their systems interface with the Company's systems or
otherwise impact its operations. The Company is assessing the extent to which
its operations are vulnerable should those organizations fail to remediate
properly their computer systems.

The Company's comprehensive Year 2000 initiative is being managed by a team of
internal staff and outside consultants. The team's activities are designed to
ensure that there is no adverse effect on the Company's core business
operations and that transactions with customers, suppliers, and financial
institutions are fully supported. The Company is well underway with these
efforts. In 1994 the Company began a company-wide manufacturing and
distribution systems redesign and implementation project (including customer
service, sales, product costing and inventory controls) which is expected to be
completed in early 1999. These new systems, which are Year 2000 compliant,
replace substantially all of the Company's internal manufacturing and
distribution systems. The Company's business application programs are currently
compliant or will be made compliant through the Year 2000 Project. The few
remaining non-compliant programs are to be brought into compliance by the
vendors that will supply the programs or through modifications by internal
staff. The majority of the business applications Year 2000 Project is scheduled
to be completed by December 31, 1998, with a few software programs scheduled to
be replaced in early 1999. The Company will follow up with critical suppliers
and customers concerning their plans and progress in addressing the Year 2000
problem. The costs of the Year 2000 Project are not expected to be material to
the Company's results of operations or financial position and are being
expensed as incurred.

The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.


RESULTS OF OPERATIONS

The table below sets forth continuing operations net sales, gross earnings,
operating earnings, interest expense, income (loss) from continuing operations,
income (loss) from discontinued operations, gain on sale of discontinued
operations and net income (loss) of the Company for the years ended December
31, 1997, 1996 and 1995. See Note 10 in the Notes to Consolidated Financial
Statements for information concerning the Company's discontinued operations.
The following discussion is limited to an analysis of the results of continuing
operations (in millions of dollars and as percentages of net sales).



                                       10
<PAGE>   13



RESULTS OF OPERATIONS--CONTINUED

<TABLE>
<CAPTION>

                                                                         YEAR ENDED DECEMBER 31,
                                                                 --------------------------------------
                                                                   1997           1996           1995
                                                                 --------       --------       --------

<S>                                                              <C>            <C>            <C>
Net sales...............................................         $1,657.5       $1,501.8       $1,418.2

Gross earnings..........................................         $  419.8       $  372.4       $  359.1

Operating earnings......................................         $  214.9       $  188.5       $   26.3

Interest expense........................................         $  102.2       $   94.5       $   93.5

Income (loss) from continuing operations................         $   69.3       $   58.0       $ (102.3)
Income (loss ) from discontinued operations.............              2.6           (0.3)         (27.5)
Gain on sale of discontinued operations.................              6.1              -              -
                                                                 --------       --------       --------
Net income (loss).......................................         $   78.0       $   57.7       $ (129.8)


Gross margins...........................................             25.3%          24.8%          25.3%

Operating earnings before amortization
   of excess reorganization value.......................         $  214.9       $  188.5       $  178.7

Operating margins before amortization
   of excess reorganization value.......................             13.0%          12.6%          12.6%
</TABLE>



                            1997 COMPARED WITH 1996

NET SALES. Net sales for the year ended December 31, 1997 increased $155.7
million, or 10.4%, to $1,657.5 million compared with net sales of $1,501.8
million for the year ended December 31, 1996. The increase in net sales
resulted primarily from higher unit volume (including acquisitions) in the 1997
period compared with the 1996 period.

GROSS EARNINGS/MARGINS. Gross earnings for the year ended December 31, 1997 of
$419.8 million increased $47.4 million, or 12.7%, compared with $372.4 million
for the same period of 1996 and reflect gross margins of 25.3% in the 1997
period compared with 24.8% in the 1996 period. Gross earnings and margins
increased in 1997 primarily as a result of the increase in unit volume and
lower raw material costs.

OPERATING EARNINGS/MARGINS. Selling, general and administrative expenses
increased by $21.1 million, or 11.5%, for the year ended December 31, 1997,
compared with the same period of 1996, and as a percentage of net sales
represent 12.4% in 1997 and 12.2% in 1996. The increase in selling, general and
administrative expenses for 1997 was due primarily to acquisitions along with
higher warehousing/shipping and advertising expenses.

Operating earnings for the year ended December 31, 1997 were $214.9 million, or
13% of sales, and increased $26.4 million, or 14%, compared with operating
earnings of $188.5 million, or 12.6% of sales, for the year ended December 31,
1996. The increase resulted from the increase in gross earnings offset somewhat
by the increase in selling, general and administrative expenses discussed
above.

INTEREST EXPENSE. Interest expense for the year ended December 31, 1997 of
$102.2 million increased $7.7 million compared with interest expense for the
year ended December 31, 1996. The increase was due primarily to higher average
debt levels in the 1997 period compared with the corresponding 1996 average
debt levels.



                                       11
<PAGE>   14

RESULTS OF OPERATIONS--CONTINUED

                       1997 COMPARED WITH 1996--CONTINUED

OTHER EXPENSE-NET. Other expense-net for the year ended December 31, 1997
decreased $0.5 million compared with the same period in 1996. Included in other
expense-net for the years ended December 31, 1997 and 1996 are the amortization
of deferred financing fees of $3.9 million in each period less certain
miscellaneous income items.

INCOME TAX EXPENSE. The Company's effective tax rate differed from the federal
statutory rate primarily due to state income taxes and nondeductible items.

INCOME FROM CONTINUING/DISCONTINUED OPERATIONS. Income from continuing
operations for the year ended December 31, 1997 was $69.3 million, or $1.11 per
share diluted, compared with income from continuing operations of $58 million,
or $.91 per share diluted, for the year ended December 31, 1996.

Income from discontinued operations for the year ended December 31, 1997 was
$2.6 million, or $.04 per share diluted, compared with a loss from discontinued
operations of $0.3 million for the year ended December 31, 1996.

GAIN ON SALE OF DISCONTINUED OPERATIONS. During the third quarter of 1997 the
Company recorded a gain on the sale of its Alamac Knit Fabrics subsidiary of
$6.1 million, or $.10 per share diluted.

NET INCOME. Net income for the year ended December 31, 1997 was $78 million, or
$1.25 per share diluted, compared with net income of $57.7 million, or $.91 per
share diluted, for the year ended December 31, 1996.

Diluted per share amounts are based on 62.7 million and 63.7 million average
shares outstanding for the 1997 and 1996 periods, respectively. The decrease in
the average shares outstanding was primarily the result of the purchase by the
Company of shares under the stock repurchase programs.



                            1996 COMPARED WITH 1995

NET SALES. Net sales for the year ended December 31, 1996 increased $83.6
million, or 5.9%, to $1,501.8 million compared with net sales of $1,418.2
million for the year ended December 31, 1995. The increase in net sales
resulted primarily from higher unit volume in the 1996 period compared with the
1995 period.

GROSS EARNINGS/MARGINS. Gross earnings for the year ended December 31, 1996 of
$372.4 million increased $13.3 million, or 3.7%, compared with $359.1 million
for the same period of 1995 and reflect gross margins of 24.8% in the 1996
period compared with 25.3% in the 1995 period. Gross earnings increased in 1996
primarily as a result of the increase in unit volume, offset somewhat by a wage
increase effective the beginning of the second quarter, higher raw material
costs, and production challenges due to high customer demand and capacity
constraints in the last half of 1996.

OPERATING EARNINGS/MARGINS. Selling, general and administrative expenses
increased by $3.5 million, or 1.9%, for the year ended December 31, 1996
compared with the same period of 1995, and as a percentage of net sales
represent 12.2% in 1996 and 12.7% in 1995. The increase in selling, general and
administrative expenses in 1996 was due primarily to higher
warehousing/shipping and advertising expenses, offset somewhat by lower selling
and trade receivables program expenses.

Operating earnings were $188.5 million for the year ended December 31, 1996
compared with operating earnings of $26.3 million for the same period of 1995
which includes the amortization of excess reorganization value of $152.4
million. Operating earnings increased as a result of the increase in gross
earnings offset somewhat by the increase in selling, general and administrative
expenses, and the decrease in amortization of excess reorganization value which
was completely amortized as of September 30, 1995.

INTEREST EXPENSE. Interest expense for the year ended December 31, 1996 of
$94.5 million increased $1 million compared with interest expense for the year
ended December 31, 1995. The increase was due primarily to higher average debt
levels in the



                                       12
<PAGE>   15

RESULTS OF OPERATIONS--CONTINUED

                       1996 COMPARED WITH 1995--CONTINUED

1996 period compared with the corresponding 1995 average debt levels offset
somewhat by lower interest rates on the Company's variable rate bank debt.

OTHER EXPENSE-NET. Other expense-net for the year ended December 31, 1996
decreased $0.2 million compared with the same period in 1995. Included in other
expense-net for the years ended December 31, 1996 and 1995 are the amortization
of deferred financing fees of $3.9 million in each period less certain
miscellaneous income items.

INCOME TAX EXPENSE. The Company's effective tax rate differed from the federal
statutory rate primarily due to state income taxes, nondeductible items and the
effects of amortization of excess reorganization value in 1995.

INCOME FROM CONTINUING/DISCONTINUED OPERATIONS. Income from continuing
operations for the year ended December 31, 1996 was $58 million, or $.91 per
share diluted. For the year ended December 31, 1995, the loss from continuing
operations was $102.3 million, or $1.57 per share diluted, including
amortization of excess reorganization value of $152.4 million, or $2.34 per
share diluted.

Loss from discontinued operations for the year ended December 31, 1996 was $0.3
million. For the year ended December 31, 1995, the loss from discontinued
operations was $27.5 million, or $.42 per share diluted, including amortization
of excess reorganization value of $25.3 million, or $.38 per share diluted.

NET INCOME. Net income for the year ended December 31, 1996 was $57.7 million,
or $.91 per share diluted. For the year ended December 31, 1995, the net loss
was $129.8 million, or $1.99 per share diluted, including amortization of
excess reorganization value of $177.7 million, or $2.72 per share diluted.
Excess reorganization value was completely amortized in 1995.

Diluted per share amounts are based on 63.7 million and 65.4 million average
shares outstanding for the 1996 and 1995 periods, respectively. The decrease in
the average shares outstanding was primarily the result of the purchase by the
Company of shares under the stock repurchase programs.

OPERATING EARNINGS BEFORE CERTAIN CHARGES. Operating earnings for the year
ended December 31, 1996 were $188.5 million, or 12.6% of sales, and increased
$9.8 million, or 5.5%, compared with operating earnings (before the
amortization of excess reorganization value) of $178.7 million, or 12.6% of
sales, for the same period of 1995. The increase resulted from the increase in
gross earnings offset somewhat by the increase in selling, general and
administrative expenses discussed above.


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

The Company's principal sources of liquidity are expected to be cash from its
operations and funds available under the Senior Credit Facility. At February
20, 1998, the maximum commitment under the Senior Credit Facility was
approximately $350 million and the Company had unused borrowing availability
under the Senior Credit Facility totaling approximately $100 million. The
Senior Credit Facility contains covenants which, among other things, limit
indebtedness and require the maintenance of certain financial ratios and
minimum net worth as defined.

The Company's principal uses of cash for the next several years will be
operating expenses, capital expenditures and debt service requirements related
primarily to interest payments. The Company spent approximately $152 million in
1997 on capital expenditures and intends to invest an additional $140 million
in 1998.



                                       13
<PAGE>   16

LIQUIDITY AND CAPITAL RESOURCES--CONTINUED

During 1997 the Company purchased approximately 3.4 million shares (on a split
basis) under the various stock repurchase programs, at an average price of
$19.64 per share. In August 1997 the Board of Directors approved the purchase
of up to three million additional shares of the Company's common stock, subject
to the Company's debt limitations, which brings the total shares that have been
approved for purchase to eight million shares (sixteen million shares on a
split basis). At December 31, 1997, approximately 5.8 million shares (on a
split basis) remained to be purchased.

Cash contributions in 1998 to the Company's pension plans are estimated to
total approximately $3 million, compared with actual cash contributions in 1997
of $17.3 million.

The Company, through a "bankruptcy remote" receivables subsidiary, has a Trade
Receivables Program which provides for the sale of accounts receivable, on a
revolving basis. At December 31, 1997 and 1996, $111.8 million and $133
million, respectively, had been sold under this program and the sale is
reflected as a reduction of accounts receivable in the Company's Consolidated
Balance Sheets. The cost of the Trade Receivables Program in 1998 is estimated
to total approximately $7 million, compared with $7.6 million in 1997, and will
be charged to selling, general and administrative expenses.

Debt service requirements for interest payments in 1998 are estimated to total
approximately $108 million (excluding amounts related to the Trade Receivables
Program) compared with payments of $107.4 million in 1997. Debt service
requirements in 1998 related to required principal amortization total
approximately $3.8 million.

Management believes that cash from the Company's operations and borrowings
under its credit agreements will provide the funding necessary to meet the
Company's anticipated requirements for capital expenditures and operating
expenses and to enable it to meet its anticipated debt service requirements.



                                       14
<PAGE>   17

          ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



          Consolidated Financial Statements for the years ended December 31,
          1997, 1996 and 1995

          <TABLE>
          <S>                                                                      <C>
          Report of Ernst & Young LLP, Independent Auditors....................       16
          Consolidated Balance Sheets..........................................    17-18
          Consolidated Statements of Income....................................       19
          Consolidated Statements of Stockholders' Equity (Deficit)............       20
          Consolidated Statements of Cash Flows................................       21
          Notes to Consolidated Financial Statements...........................    22-35
          </TABLE>



                                       15
<PAGE>   18

               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. as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity (deficit), and cash flows for each
of the three years in the period ended December 31, 1997. Our audits also
included the financial statement schedule listed in the index at Item 14 (a).
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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
WestPoint Stevens Inc. at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted accounting
principles. 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.





                                                  /s/Ernst & Young LLP


Columbus, Georgia
February 5, 1998



                                       16
<PAGE>   19



                             WESTPOINT STEVENS INC.

                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)



<TABLE>
<CAPTION>
                                                                                         DECEMBER 31,
                                                                                ----------------------------
                                                                                  1997               1996
                                                                                ----------        ----------
<S>                                                                             <C>               <C>
ASSETS
Current Assets
         Cash and cash equivalents .....................                        $   17,433        $   14,029
         Accounts receivable (less allowances of $21,894
              and $22,861, respectively) ...............                            92,990            66,949
         Inventories ...................................                           340,818           299,651
         Prepaid expenses and other current assets .....                            22,227            14,939
                                                                                ----------        ----------

                   Total current assets ................                           473,468           395,568



Property, Plant and Equipment
         Land ..........................................                             6,463             8,271
         Buildings and improvements ....................                           270,360           276,935
         Machinery and equipment .......................                           779,867           737,253
         Leasehold improvements ........................                            11,257            13,902
                                                                                ----------        ----------
                                                                                 1,067,947         1,036,361
         Less accumulated depreciation and amortization                           (360,796)         (330,393)
                                                                                ----------        ----------

                   Net property, plant and equipment ...                           707,151           705,968



Other Assets
         Deferred financing fees .......................                            19,231            23,108
         Prepaid pension and other assets ..............                            49,033            32,355
         Goodwill ......................................                            37,223                 -
                                                                                ----------        ----------
                   Total other assets ..................                           105,487            55,463
                                                                                ----------        ----------

                                                                                $1,286,106         1,156,999
                                                                                ==========        ==========
</TABLE>




                            See accompanying notes.



                                      17
<PAGE>   20

                             WESTPOINT STEVENS INC.

                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>

                                                                                           DECEMBER 31,
                                                                                -------------------------------
                                                                                    1997                1996
                                                                                -----------          ----------

<S>                                                                             <C>                  <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
         Senior Credit Facility........................................         $   37,683           $   24,000
         Current portion of long-term debt.............................              3,750                   --
         Accrued interest payable......................................              6,820                6,525
         Accounts payable..............................................             75,655               73,475
         Other accrued liabilities ....................................            137,382              150,715
                                                                                ----------           ----------
                         Total current liabilities.....................            261,290              254,715


Long-Term Debt.........................................................          1,146,250            1,075,000


Noncurrent Liabilities
         Deferred income taxes.........................................            217,178              179,057
         Other liabilities ............................................             84,402               98,625
                                                                                ----------           ----------
                         Total noncurrent liabilities..................            301,580              277,682


Stockholders' Equity (Deficit)
         Common Stock and capital in excess of par value:
                   Common Stock, $.01 par value; 75,000,000
                   shares authorized; 70,296,310 and
                   69,414,500 shares issued, respectively..............            337,069              329,394
         Accumulated deficit ..........................................           (625,047)            (703,068)
         Treasury stock; 10,895,242 and 7,711,098 shares
                   at cost, respectively...............................           (134,223)             (70,316)
         Minimum pension liability adjustment, net of taxes
                   of $478 and $3,763, respectively ...................               (813)              (6,408)
                                                                                ----------           ----------
                         Total stockholders' equity (deficit) .........           (423,014)            (450,398)
                                                                                ----------           ----------
                                                                                $1,286,106           $1,156,999
                                                                                ==========           ==========
</TABLE>




                            See accompanying notes.



                                       18



<PAGE>   21


                             WESTPOINT STEVENS INC.

                        CONSOLIDATED STATEMENTS OF INCOME
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED DECEMBER 31,
                                                                   -------------------------------------------------
                                                                        1997                1996               1995
                                                                   -------------------------------------------------
<S>                                                                <C>               <C>                 <C>
Net sales .......................................................  $1,657,511        $ 1,501,795         $ 1,418,157
Cost of goods sold ..............................................   1,237,657          1,129,386           1,059,044
                                                                   ----------        -----------         -----------
      Gross earnings ............................................     419,854            372,409             359,113

Selling, general and administrative expenses ....................     204,981            183,891             180,391
Amortization of excess reorganization value .....................          --                 --             152,446
                                                                   ----------        -----------         -----------
      Operating earnings ........................................     214,873            188,518              26,276
Interest expense ................................................     102,172             94,505              93,488
Other expense-net ...............................................       2,461              2,976               3,154
                                                                   ----------        -----------         -----------
      Income (loss) from continuing operations
         before income tax expense ..............................     110,240             91,037             (70,366)

Income tax expense ..............................................      40,982             33,085              31,970
                                                                   ----------        -----------         -----------
Income (loss) from continuing operations ........................      69,258             57,952            (102,336)

Income (loss) from discontinued operations ......................       2,625               (287)            (27,512)
Gain on sale of discontinued operations .........................       6,138                 --                  --
                                                                   ----------        -----------         -----------
      Net income (loss) .........................................  $   78,021        $    57,665         $  (129,848)
                                                                   ==========        ===========         ===========


Basic net income (loss) per common share:
      Continuing operations .....................................  $     1.14        $       .92         $     (1.57)
      Discontinued operations ...................................         .04                 --                (.42)
      Gain on sale of discontinued operations ...................         .10                 --                  --
                                                                   ----------        -----------         -----------
      Net income (loss) per common share ........................  $     1.28        $       .92         $     (1.99)
                                                                   ==========        ===========         ===========

Diluted net income (loss) per common share:
      Continuing operations .....................................  $     1.11        $       .91         $     (1.57)
      Discontinued operations ...................................         .04                 --                (.42)
      Gain on sale of discontinued operations ...................         .10                 --                  --
                                                                   ----------        -----------         -----------
      Net income (loss) per common share ........................  $     1.25        $       .91         $     (1.99)
                                                                   ==========        ===========         ===========


Basic average common shares outstanding .........................      61,078             62,656              65,398
      Dilutive effect of stock options and stock bonus plan .....       1,576              1,018                  --
                                                                   ----------        -----------         -----------
Diluted average common shares outstanding .......................      62,654             63,674              65,398
                                                                   ==========        ===========         ===========
</TABLE>


                             See accompanying notes.

                                       19

<PAGE>   22


                             WESTPOINT STEVENS INC.

            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                               COMMON
                                                               STOCK
                                                             AND CAPITAL
                                                                 IN
                                                              EXCESS OF       TREASURY STOCK
                                                    COMMON       PAR        ---------------------
                                                    SHARES      VALUE        SHARES      AMOUNT
                                                    ------    ---------     -------     ---------
<S>                                                 <C>       <C>           <C>         <C>
Balance, January 1, 1995 .......................    34,319    $ 324,393        (663)    $  (6,794)
     Stock split effected as a stock dividend ..    34,319           --        (662)           --
                                                    ------    ---------     -------     ---------

Balance, January 1, 1995, as restated ..........    68,638      324,393      (1,325)       (6,794)
     Exercise of management stock options
          including tax benefit ................       556        3,490          --            --
     Purchase of treasury shares ...............        --           --      (3,917)      (34,257)
     Redemption of purchase rights .............        --          (33)         --            --
     Net loss ..................................        --           --          --            --
     Change in minimum pension liability
          adjustment ...........................        --           --          --            --
                                                    ------    ---------     -------     ---------

Balance, December 31, 1995 .....................    69,194      327,850      (5,242)      (41,051)
     Exercise of management stock options
          including tax benefit ................       220        1,532          --            --
     Issuance of stock pursuant to Stock Bonus
          Plan including tax benefit ...........        --           12         116         1,226
     Purchase of treasury shares ...............        --           --      (2,585)      (30,491)
     Net income ................................        --           --          --            --
     Change in minimum pension liability
          adjustment ...........................        --           --          --            --
                                                    ------    ---------     -------     ---------

Balance, December 31, 1996 .....................    69,414      329,394      (7,711)      (70,316)
     Exercise of management stock options
          including tax benefit ................       882        7,367         (13)           --
     Issuance of stock pursuant to Stock Bonus
          Plan including tax benefit ...........        --          308         198         2,240
     Purchase of treasury shares ...............        --           --      (3,369)      (66,147)
     Net income ................................        --           --          --            --
     Change in minimum pension liability
         adjustment ............................        --           --          --            --
                                                    ------    ---------     -------     ---------

Balance, December 31, 1997 .....................    70,296    $ 337,069     (10,895)    $(134,223)
                                                    ======    =========     =======     =========

<CAPTION>
                                                                   MINIMUM
                                                                   PENSION
                                                    ACCUMULATED   LIABILITY
                                                      DEFICIT     ADJUSTMENT      TOTAL
                                                    -----------  -----------   ----------
<S>                                                 <C>         <C>           <C>
Balance, January 1, 1995 .......................    $(630,885)    $(23,914)    $(337,200)
     Stock split effected as a stock dividend ..           --           --            --
                                                    ---------     --------     ---------

Balance, January 1, 1995, as restated ..........     (630,885)     (23,914)     (337,200)
     Exercise of management stock options
          including tax benefit ................           --           --         3,490
     Purchase of treasury shares ...............           --           --       (34,257)
     Redemption of purchase rights .............           --           --           (33)
     Net loss ..................................     (129,848)          --      (129,848)
     Change in minimum pension liability
          adjustment ...........................           --       (8,089)       (8,089)
                                                    ---------     --------     ---------

Balance, December 31, 1995 .....................     (760,733)     (32,003)     (505,937)
     Exercise of management stock options
          including tax benefit ................           --           --         1,532
     Issuance of stock pursuant to Stock Bonus
          Plan including tax benefit ...........           --           --         1,238
     Purchase of treasury shares ...............           --           --       (30,491)
     Net income ................................       57,665           --        57,665
     Change in minimum pension liability
          adjustment ...........................           --       25,595        25,595
                                                    ---------     --------     ---------

Balance, December 31, 1996 .....................     (703,068)      (6,408)     (450,398)
     Exercise of management stock options
          including tax benefit ................           --           --         7,367
     Issuance of stock pursuant to Stock Bonus
          Plan including tax benefit ...........           --           --         2,548
     Purchase of treasury shares ...............           --           --       (66,147)
     Net income ................................       78,021           --        78,021
     Change in minimum pension liability
         adjustment ............................           --        5,595         5,595
                                                    ---------     --------     ---------

Balance, December 31, 1997 .....................    $(625,047)    $   (813)    $(423,014)
                                                    =========     ========     =========
</TABLE>


                             See accompanying notes.


                                       20

<PAGE>   23



                             WESTPOINT STEVENS INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                               YEAR ENDED DECEMBER 31,
                                                                                   ------------------------------------------
                                                                                       1997             1996           1995
                                                                                   -----------       ---------      ---------
<S>                                                                                <C>               <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss) .........................................................    $    78,021       $  57,665      $(129,848)
    Adjustments to reconcile net income (loss) to net
       cash provided by (used for) operating activities:
          Amortization of excess reorganization value .........................             --              --        177,675
          Depreciation and other amortization .................................         77,225          76,988         80,379
          Gain on sale of discontinued operations .............................         (6,138)             --             --
          Deferred income taxes ...............................................         34,508          26,153         26,172

          Changes in assets and liabilities excluding the effect of
               acquisitions, dispositions and the Trade Receivables Program:
                Accounts receivable ...........................................          1,566           3,939         (2,694)
                Inventories ...................................................        (54,024)         20,817        (23,105)
                Prepaid expenses and other current assets .....................         (6,760)          4,567         (5,522)
                Accrued interest payable ......................................            283            (118)           113
                Accounts payable and other accrued liabilities ................        (18,113)        (10,046)        15,971
                Other-net .....................................................        (22,976)         (8,964)       (34,398)
                                                                                   -----------       ---------      ---------

    Total adjustments .........................................................          5,571         113,336        234,591
                                                                                   -----------       ---------      ---------
Net cash provided by operating activities .....................................         83,592         171,001        104,743
                                                                                   -----------       ---------      ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures ......................................................       (152,137)        (99,943)      (102,197)
    Net proceeds from sale of business ........................................        120,840              --             --
    Net proceeds from sale of assets ..........................................          1,081           1,098          3,066
    Purchase of businesses ....................................................        (57,170)             --             --
                                                                                   -----------       ---------      ---------
Net cash used for investing activities ........................................        (87,386)        (98,845)       (99,131)
                                                                                   -----------       ---------      ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Senior Credit Facility:
       Borrowings .............................................................      1,177,299         645,500        564,500
       Repayments .............................................................     (1,088,616)       (694,500)      (499,500)

    Net proceeds from Trade Receivables Program ...............................        (21,233)         12,045           (391)
    Proceeds from issuance of Common Stock ....................................          5,895           1,332          2,600
    Purchase of Common Stock for treasury .....................................        (66,147)        (30,491)       (34,257)
    Payment of deferred taxes .................................................             --              --        (32,500)
    Redemption of purchase rights .............................................             --              --            (33)
                                                                                   -----------       ---------      ---------
Net cash provided by (used for) financing activities ..........................          7,198         (66,114)           419
                                                                                   -----------       ---------      ---------
Net increase in cash and cash equivalents .....................................          3,404           6,042          6,031
Cash and cash equivalents at beginning of period ..............................         14,029           7,987          1,956
                                                                                   -----------       ---------      ---------

Cash and cash equivalents at end of period ....................................    $    17,433       $  14,029      $   7,987
                                                                                   ===========       =========      =========
</TABLE>


                             See accompanying notes.

                                       21

<PAGE>   24

                             WESTPOINT STEVENS INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

BUSINESS. WestPoint Stevens Inc. (the "Company") is a manufacturer and marketer
of bed and bath products, including sheets, pillowcases, comforters, blankets,
bedspreads, towels and related products. The Company conducts its operations in
the consumer home fashions (bed and bath products) industry.

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
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

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, 1997, substantially all of the Company's
receivables were from companies in the retail industry.

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 $17 million and $14 million are
included in cash and cash equivalents at December 31, 1997 and 1996,
respectively. 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, 1997 and 1996, approximately 84% and 85%, 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 remainder of the
inventories (approximately $53.4 million and $44.1 million at December 31, 1997
and 1996, respectively) are valued at the lower of cost (substantially first-in,
first-out method) or market.

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

<TABLE>
<CAPTION>
                                                         DECEMBER 31,
                                                  -------------------------
                                                    1997            1996
                                                  ---------      ---------
<S>                                               <C>            <C>
Finished goods.............................       $154,539       $134,690
Work in progress...........................        139,410        114,140
Raw materials and supplies.................         58,876         71,038
LIFO reserve...............................        (12,007)       (20,217)
                                                  --------       --------
                                                  $340,818       $299,651
                                                  ========       ========
</TABLE>

PROPERTY, PLANT AND EQUIPMENT. As a result of the adoption of Fresh Start
reporting, as of September 30, 1992, property, plant and equipment were adjusted
to their estimated fair values and historical accumulated depreciation was
eliminated. Additions since September 30, 1992 are stated at cost.


                                       22

<PAGE>   25

                             WESTPOINT STEVENS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES--CONTINUED

PROPERTY, PLANT AND EQUIPMENT (CONTINUED). 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 $76.5 million, $77.0 million, and $80.4 million in the years
ended December 31, 1997, 1996 and 1995, respectively.

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

<TABLE>
<S>                                                                                 <C>
Buildings and improvements......................................................    10 to 40 Years
Machinery and equipment.........................................................     3 to 18 Years
Leasehold improvements..........................................................       Lease Terms
</TABLE>

REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCATED TO IDENTIFIABLE ASSETS
("Excess Reorganization Value"). In September 1992, the Company completed a
"prepackaged" plan of reorganization (the "Plan") and in accordance with SOP
90-7 the Company established a new basis of accounting ("Fresh Start"). In Fresh
Start reporting, the Company's assets and liabilities were adjusted to their
fair values as of September 30, 1992. The excess of the reorganization value
over the value of identifiable assets, $637.5 million, was reported as Excess
Reorganization Value at September 30, 1992. Excess Reorganization Value has been
amortized on a straight-line basis over three years and was fully amortized by
September 1995.

HEDGING TRANSACTIONS. The Company engages in hedging activities within the
normal course of its business. Management has been authorized to manage exposure
to price fluctuations relevant to the purchase of cotton through the use of a
variety of derivative nonfinancial instruments. Derivative nonfinancial
instruments require or permit settlement by the delivery of commodities and
include exchange traded commodity futures contracts and options. Gains and
losses on these hedges, which were not material at December 31, 1997 and 1996,
are deferred and subsequently recognized in income as cost of goods sold in the
same period as the hedged item. The Company does not hold or issue derivative
instruments for trading purposes.

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.

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 which are required by
the Employee Retirement Income Security Act of 1974.

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 3 "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.

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.

FAIR VALUE DISCLOSURES. Cash and cash equivalents: The carrying amounts reported
in the balance sheets for cash and cash equivalents approximates its fair value.


                                       23

<PAGE>   26

                             WESTPOINT STEVENS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES--CONTINUED

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 or on the
current rates offered to the Company for debt of similar issues. The fair value
of the $1,188 million and $1,099 million of outstanding debt at December 31,
1997 and 1996 was approximately $1,235 million and $ 1,127 million,
respectively.

ACQUISITIONS AND GOODWILL. The Company's acquisitions are accounted for under
the purchase method of accounting. Under the purchase method of accounting, the
results of operations of the acquired businesses are included in the
accompanying consolidated financial statements as of their respective
acquisition dates. The assets and liabilities of acquired businesses are
included based on an allocation of the purchase price. The excess of the
purchase price over identified assets is classified as goodwill and is amortized
on a straight-line basis over a forty year period.

During the year ended December 31, 1997, the Company acquired certain
manufacturing facilities and other operations for approximately $57 million. The
assets acquired consisted of property and equipment, inventories and other
related assets. The excess of the purchase price over the assets acquired was
approximately $38 million.

Pro forma results have not been presented as they are not significantly
different than reported amounts.

IMPAIRMENT OF LONG-LIVED ASSETS. Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of,
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted Statement 121 in
the first quarter of 1996, and the effect of adoption was not material.

COMMON STOCK. On February 2, 1998, the Board of Directors declared a two-for-one
split of the Company's common stock, effected in the form of a stock dividend
payable on March 2, 1998 to stockholders of record on February 16, 1998. All
agreements concerning stock options and other commitments payable in shares of
the Company's common stock provide for the issuance of additional shares due to
the declaration of the stock split. This stock split has been reflected in the
Consolidated Statements of Stockholders' Equity (Deficit) at January 1, 1995.
All references to number of shares, except shares authorized, and to per share
information in the accompanying consolidated financial statements have been
adjusted to reflect the stock split on a retroactive basis.

ACCOUNTING POLICIES NOT YET ADOPTED. In June 1997, the Financial Accounting
Standards Board issued Statement No. 130, Reporting Comprehensive Income, and
Statement No. 131, Disclosures About Segments of an Enterprise and Related
Information. Statement 130 establishes standards for the reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements. Statement 131 generally requires that companies report
segment information for operating segments which are revenue producing
components and for which separate financial information is produced internally.

The Company plans to adopt Statement 130 and Statement 131 in 1998, but has not
yet completed its analysis of the impact, if any, that these statements may have
on its financial statements.

EARNINGS PER COMMON SHARE. In 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per Share. Statement 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where appropriate, restated to conform to
the Statement 128 requirements.


                                       24

<PAGE>   27

                             WESTPOINT STEVENS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2.  INDEBTEDNESS AND FINANCIAL ARRANGEMENTS

Indebtedness is as follows (in thousands of dollars):

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                           ------------------------------
                                                              1997                 1996
                                                           ----------          ----------
<S>                                                        <C>                 <C>
Short-term indebtedness
    Senior Credit Facility
         Revolver ....................................     $   37,683          $   24,000
    9% Sinking Fund Debentures due 2017 ..............          3,750                  --
                                                           ----------          ----------
                                                           $   41,433          $   24,000
                                                           ==========          ==========
Long-term indebtedness
    Senior Credit Facility
         Revolver ....................................     $  125,000          $   50,000
    8-3/4% Senior Notes due 2001 .....................        400,000             400,000
    9-3/8% Senior Subordinated Debentures
       due 2005 ......................................        550,000             550,000
    9% Sinking Fund Debentures due 2017 ..............         71,250              75,000
                                                           ----------          ----------
                                                           $1,146,250          $1,075,000
                                                           ==========          ==========
</TABLE>

The Company's Senior Credit Facility with certain lenders (collectively, the
"Banks") consists of a $349.6 million revolving credit facility ("Revolver") due
May 23, 2001. The Company has included $125 million of Revolver in long-term
debt at December 31, 1997 because the Company intends that at least that amount
would remain outstanding during 1998. Availability under the Senior Credit
Facility was reduced by approximately $27.2 million of outstanding letters of
credit at December 31, 1997.

At the option of the Company, interest under the Senior Credit Facility will be
payable either at the prime rate or at LIBOR plus 1.25%. Upon the Company
achieving certain ratios of EBITDA (as defined) to cash interest expense,
interest rates can be reduced up to 0.5%. Based on the achievement of certain
ratios of EBITDA for the period ended September 30, 1997, the interest rates
under this facility were reduced .25% to LIBOR plus 1% at December 31, 1997. The
Company pays a commitment fee in an amount equal to 0.375% of the unused portion
of each Bank's commitment under the Revolver. 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, other than the Company's accounts receivable.

The 8-3/4% Senior Notes due 2001 (the "Notes") are general unsecured obligations
of the Company and rank senior in right of payment to the 9-3/8% Senior
Subordinated Debentures due 2005 (the "Debentures") and pari passu in right of
payment with all indebtedness of the Company under the Senior Credit Facility
and all other existing or future Senior Indebtedness of the Company. The
Debentures are general unsecured obligations of the Company and subordinate in
right of payment to the Notes and all other existing and future Senior
Indebtedness of the Company, including indebtedness under the Senior Credit
Facility, pari passu with any future senior subordinated indebtedness and senior
to any future subordinated indebtedness of the Company.

The Notes bear interest at the rate of 8-3/4% per annum, payable semi-annually
on June 15 and December 15 of each year. The Notes are redeemable, in whole or
in part at any time on or after December 15, 1998, at the option of the Company,
at the redemption prices, as defined, together with accrued and unpaid interest
to the date of redemption. The Debentures bear interest at the rate of 9-3/8%
per annum, payable semi-annually on June 15 and December 15 of each year. The
Debentures are redeemable, in whole or in part at any time on or after December
15, 1998, at the option of the Company, at the redemption prices, as defined,
together with accrued and unpaid interest to the date of the redemption.

In addition, in the event of a Change of Control (as defined), the Company will
be obligated to make an offer to redeem a holder's Notes or Debentures at a
redemption price of 101% of the principal amount thereof plus accrued and unpaid
interest thereon to the date of redemption. The Company may also redeem each of
the Notes or Debentures upon a Change of Control at a redemption price equal to
the greater of 101% of the principal amount thereof, together with accrued
interest thereon to the date of redemption or 100% of the principal amount
thereof, plus a Make-Whole Premium (as defined).


                                       25

<PAGE>   28

                             WESTPOINT STEVENS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2.  INDEBTEDNESS AND FINANCIAL ARRANGEMENTS--CONTINUED

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. Certain provisions
require the Company to maintain certain financial ratios, such as a minimum
current ratio, and a minimum interest coverage ratio. A minimum consolidated net
worth, as defined, is also mandated. At December 31, 1997, the Company could
make restricted payments aggregating approximately $27.4 million.

The Company, through a "bankruptcy remote" receivables subsidiary ("Receivables
Subsidiary"), has a trade receivables program ("Trade Receivables Program")
which provides for the sale of accounts receivable, on a revolving basis. At
December 31, 1997 and 1996, $111.8 million and $133 million, respectively, had
been sold under this program and the sale is reflected as a reduction of
accounts receivable in the accompanying Consolidated Balance Sheets. The Trade
Receivables Program was financed through the issuance of (a) $115 million of
Floating Rate Class A Trade Receivables Participation Certificates ("Class A
Certificates"); (b) $18 million of Floating Rate Class B Trade Receivables
Participation Certificates ("Class B Certificates"); and (c) $27 million of
Investor Revolving Certificates. The Class A Certificates and Class B
Certificates bear interest at LIBOR plus .27% and LIBOR plus .57%, respectively,
and the Investor Revolving Certificates bear interest at LIBOR plus .375%. The
expected final payment date of amounts outstanding under the Trade Receivables
Program is May 18, 1999, but earlier termination could occur upon the occurrence
of certain defined events. The cost of the Trade Receivables Program is charged
to selling and administrative expense.

The Trade Receivables Program requires the Company and Receivables Subsidiary to
perform certain servicing obligations with respect to the existing and future
trade receivables sold by the Company. The Company is not subject to any
financial covenants under the Trade Receivables Program, but the documentation
for the Trade Receivables Program provides for early termination of the Trade
Receivables Program and early payment of the securities issued thereunder upon
certain events, which include the incurrence of losses or delinquencies on the
receivables in excess of certain levels or the bankruptcy or insolvency of the
Company.

Excluding amounts related to the Revolver, maturities of long-term debt for
1998, 1999 and 2000 are $3.75 million per year, $403.75 million in 2001, and
$3.75 million in 2002.

3.  EMPLOYEE BENEFIT PLANS

PENSION PLANS

Pension expense related to the Company's defined benefit plans, is comprised of
the following (in thousands of dollars):

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED DECEMBER 31,
                                                                     -------------------------------------------------
                                                                         1997               1996              1995
                                                                     ----------         -----------        -----------
<S>                                                                  <C>                <C>                <C>
Service cost-benefits earned during period ................          $    7,138         $     8,244        $     6,174
Interest cost on projected benefit obligation .............              24,410              24,255             23,757
Deferred actuarial gains (losses) .........................              24,580              (1,170)            33,038
                                                                     ----------         -----------        -----------
Subtotal ..................................................              56,128              31,329             62,969
Actual returns on plan assets .............................             (53,483)            (22,276)           (49,969)
                                                                     ----------         -----------        -----------
Total defined benefit plan expense ........................          $    2,645         $     9,053        $    13,000
                                                                     ==========         ===========        ===========
Actuarial assumptions for pension expense:
        Discount rate .....................................                8.25%               7.25%               8.5%
        Average rate of increase in compensation
                  levels ..................................                 3.5%                  4%                 4%
        Expected long-term rate of return on plan
                  assets ..................................                  10%                 10%               8.5%
</TABLE>



                                       26

<PAGE>   29

                             WESTPOINT STEVENS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3.  EMPLOYEE BENEFIT PLANS

PENSION PLANS--CONTINUED

The following table sets forth the funded status of the Company's pension plans
and amounts recognized in the accompanying Consolidated Balance Sheets at
December 31, 1997 and 1996 (in thousands of dollars):

<TABLE>
<CAPTION>
                                                                                       DECEMBER 31,
                                                                     --------------------------------------------------
                                                                        1997                      1996
                                                                     ----------         ------------------------------
                                                                       ASSETS             ASSETS           ACCUMULATED
                                                                       EXCEED             EXCEED             BENEFITS
                                                                     ACCUMULATED        ACCUMULATED          EXCEED
                                                                       BENEFITS           BENEFITS           ASSETS
                                                                     ----------         -----------        -----------
<S>                                                                  <C>                <C>                <C>
Actuarial present value of projected benefit obligation:
        Vested ............................................          $  286,334         $    85,620        $   200,902
        Nonvested .........................................               8,259               3,835              5,706
                                                                     ----------         -----------        -----------
Accumulated benefit obligation ............................             294,593              89,455            206,608
Effect of projected future salary increases ...............              16,408                  --             16,918
                                                                     ----------         -----------        -----------
Projected benefit obligation ..............................             311,001              89,455            223,526
Plan assets at fair value .................................             331,396             102,718            197,174
                                                                     ----------         -----------        -----------
Projected benefit obligation less than (in excess of)
        plan assets .......................................              20,395              13,263            (26,352)
Unrecognized net actuarial losses .........................              21,740              15,458             27,089
Minimum pension liability adjustment ......................              (1,291)                 --            (10,171)
                                                                     ----------         -----------        -----------
Pension related asset (liability)  included in
         Consolidated Balance Sheets ......................          $   40,844         $    28,721        $    (9,434)
                                                                     ==========         ===========        ===========
Actuarial assumptions for funded status information:
        Discount rate .....................................                7.75%               8.25%              8.25%
        Average rate of increase in compensation levels ...                 3.5%                 --                3.5%
</TABLE>


At December 31, 1997, the Company changed the discount rate to 7.75% from 8.25%
which increased the projected benefit obligation by approximately $20.5 million.
At December 31, 1996, the Company changed the discount rate to 8.25% from 7.25%
which decreased the projected benefit obligation by approximately $38.5 million.

The provisions of Financial Accounting Standards Board Statement No. 87,
Employee Accounting for Pensions, require recognition in the balance sheet of an
additional minimum liability for pension plans with accumulated benefits in
excess of plan assets. At December 31, 1997 and 1996, minimum pension liability
adjustments of $1.3 million ($0.8 million after related income taxes) and $10.2
million ($6.4 million after related income taxes), respectively, are included in
the accompanying Consolidated Balance Sheets.

Plan assets are primarily invested in United States Government and corporate
debt securities, equity securities and fixed income insurance contracts. At
December 31, 1997 and 1996, the Company's pension plans held Notes and
Debentures of the Company with a market value of $14.2 million and $17.0
million, respectively.

                                       27

<PAGE>   30

                             WESTPOINT STEVENS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3.  EMPLOYEE BENEFIT PLANS--CONTINUED

RETIREMENT SAVINGS PLAN

The Company matches fifty percent of each employee's before-tax contributions up
to two percent of the employee's compensation. Company contributions may be made
either in cash or in shares of Common Stock of the Company. During 1997, 1996
and 1995, the Company charged $2.2 million, $2.4 million and $2.4 million,
respectively, to expense in connection with the 401(k) 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 following table presents the
status of post-retirement plans (in thousands of dollars):

<TABLE>
<CAPTION>
                                                                                                DECEMBER 31,
                                                                                            -----------------------
                                                                                             1997            1996
                                                                                            -------         -------
<S>                                                                                         <C>             <C>
Accumulated post-retirement benefit obligation:
        Retirees................................................................            $17,164         $17,815
        Fully eligible active plan participants.................................                242             209
        Other active plan participants..........................................                111              87
        Unrecognized net gain...................................................              4,559           4,627
                                                                                            -------         -------
Accrued post-retirement benefit obligation......................................            $22,076         $22,738
                                                                                            =======         =======
</TABLE>

Net periodic post-retirement benefit plans expense is not material during the
three year period ended December 31, 1997.

As of December 31, 1997, the actuarial assumptions include a discount rate of
7.75% and a medical care trend rate of 7.8% for 1998, grading down to 6% by
2000. These trend rates reflect the Company's prior experience and management's
expectation of future rates. Increasing the assumed health care cost trend rates
by one percentage point in each year would increase the accumulated
post-retirement benefit plans obligations as of December 31, 1997 by
approximately $0.5 million, and the aggregate service and interest cost
components of net periodic post-retirement benefit cost for the year ended
December 31, 1997 by an immaterial amount.

4.  OTHER EXPENSE--NET

Included in "Other expense-net" in the accompanying Consolidated Statements of
Operations for each of the years in the three year period ended December 31,
1997, 1996 and 1995, are the amortization and write-off of deferred financing
fees of $3.9 million less certain miscellaneous income items.


                                       28

<PAGE>   31

                             WESTPOINT STEVENS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5.  INCOME TAXES

The Company accounts for income taxes under Statement 109. Under Statement 109,
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):

<TABLE>
<CAPTION>
                                                                                            YEAR ENDED DECEMBER 31,
                                                                                         -----------------------------
                                                                                          1997      1996         1995
                                                                                         -------   -------     -------
<S>                                                                                      <C>       <C>         <C>
Current
        Federal.................................................................         $ 2,945   $   957     $ 2,311
        State...................................................................           5,302       630       2,475
        Foreign.................................................................             461       621        (145)
Deferred........................................................................          37,247    30,492      25,809
                                                                                         -------   -------     -------
                                                                                         $45,955   $32,700     $30,450
                                                                                         =======   =======     =======
</TABLE>


Income tax expense (benefit) is included in the financial statements as follows
(in thousands of dollars):

<TABLE>
<CAPTION>
                                                                                            YEAR ENDED DECEMBER 31,
                                                                                         -----------------------------
                                                                                          1997      1996         1995
                                                                                         -------   -------     -------
<S>                                                                                      <C>       <C>         <C>
Continuing operations...........................................................         $40,982   $33,085     $31,970
Discontinued operations.........................................................           1,368      (385)     (1,520)
Gain on sale of discontinued operations.........................................           3,605        --          --
                                                                                         -------   -------     -------
                                                                                         $45,955   $32,700     $30,450
                                                                                         =======   =======     =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                            YEAR ENDED DECEMBER 31,
                                                                                         -----------------------------
                                                                                          1997      1996         1995
                                                                                         -------   -------     -------
<S>                                                                                      <C>       <C>         <C>
Income tax expense (benefit) at federal statutory income
    tax rate....................................................................         $43,391   $ 31,628    $(34,789)
State income taxes (net of effect of federal
    income tax).................................................................           2,264      1,183       1,586
Interest on prior years' taxes..................................................              --         --       2,051
Amortization of Excess Reorganization Value....................................               --         --      62,187
Other-net.......................................................................             300       (111)       (585)
                                                                                         -------   --------    --------
Income tax expense..............................................................         $45,955   $ 32,700    $ 30,450
                                                                                         =======   ========    ========
</TABLE>


                                       29

<PAGE>   32

                             WESTPOINT STEVENS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5.  INCOME TAXES--CONTINUED

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

<TABLE>
<CAPTION>
                                                                                                     DECEMBER 31,
                                                                                             -------------------------
                                                                                                1997            1996
                                                                                             ---------       ---------
<S>                                                                                          <C>             <C>
Deferred tax liabilities:
        Basis differences resulting from reorganization.........................             $(137,783)      $(108,634)
        Accelerated depreciation................................................               (69,620)        (75,930)
        Income taxes related to prior years, including interest.................               (16,989)        (18,755)
        Nondeductible expenses..................................................               (44,774)        (42,503)
        Other...................................................................                (1,716)         (4,715)

Deferred tax assets:
        Reserves for litigation, environmental, employee benefits and other.....                45,244          62,057
        Other...................................................................                 8,460           9,423
                                                                                             ---------       ---------
                                                                                             $(217,178)      $(179,057)
                                                                                             =========       =========
</TABLE>


At December 31, 1997, the Company has estimated operating loss carryforwards
("NOLs") expiring in 2004-2009 of approximately $301 million available to reduce
future federal taxable income. Due to the ownership change which occurred
September 16, 1992 in connection with a reorganization, the utilization of NOLs
generated prior to this date are subject to limitation under Internal Revenue
Code Section 382.

During prior years, the Internal Revenue Service (the "Service") issued Revenue
Agent's Reports to Cluett, Peabody & Co., Inc., J. P. Stevens & Co., Inc., and
West Point - Pepperell, Inc. asserting income tax deficiencies and additions to
tax totaling approximately $89 million related to tax years 1979 and 1982
through 1989. This amount did not include interest which accrues from the dates
the taxes were due until the dates of the payments. During 1995, the Company
reached agreements with the Service concerning all of the Revenue Agent's
Reports. As a result, the Company made payments in December 1995, totaling
approximately $33 million, which includes interest of approximately $19 million
that was tax deductible. This liability had been accrued in previous periods
and, accordingly, no additional income tax expense has been recognized in 1995
related to the agreements.

6.  STOCKHOLDERS' EQUITY

STOCK OPTIONS

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 which were not granted pursuant to any plan. The Omnibus Stock
Incentive Plan (the "Omnibus Stock Plan") an amendment and restatement of the
1993 Management Stock Option Plan covers approximately 5.4 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 with contractual arrangements or pursuant to the various
plans have been at a price which is approximately equal to fair market value on
the date of grant. Such options are exercisable on the date of grant for a
period of ten years. 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, requires use of
option valuation models

                                       30

<PAGE>   33

                             WESTPOINT STEVENS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6.  STOCKHOLDERS' EQUITY--CONTINUED

STOCK OPTIONS--CONTINUED

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 the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.

Pro forma information regarding net income and earnings per share is required by
Statement 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted using the fair
value method of that Statement. The fair value for these options was estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for 1997, 1996 and 1995, respectively:
risk-free interest rates of 6.1%, 6.2% and 7%; no dividend yield; volatility
factors of the expected market price of the Company's common stock of .25, .29
and .29; and a weighted-average expected life of the option of 8 years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which 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.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Pro forma stock based
compensation costs resulted in 1997 pro forma net income of $75.5 million (or
pro forma diluted net income per share of $1.20), 1996 pro forma net income of
$57.2 million (or pro forma diluted net income per share of $.90) and 1995 pro
forma net loss of $130.2 million (or pro forma diluted net loss per share of
$1.99).

Changes in outstanding options were as follows:

<TABLE>
<CAPTION>
                                                                NUMBER OF SHARES
                                                                 (IN THOUSANDS)                      WEIGHTED AVERAGE
                                                   ------------------------------------------           OPTION PRICE
                                                   QUALIFIED PLANS      CONTRACTUAL      TOTAL           PER SHARE
                                                   ---------------      -----------      -----       ----------------
<S>                                                <C>                  <C>              <C>         <C>
Options outstanding at December 31, 1994                 1,626             1,020          2,646            $ 6.11
Granted                                                    188                --            188            $ 7.48
Exercised and terminated                                   (76)             (500)          (576)           $ 4.73
                                                        ------             -----         ------            ------
Options outstanding at December 31, 1995                 1,738               520          2,258            $ 6.57
Granted                                                  1,776                --          1,776            $13.34
Exercised and terminated                                  (134)             (110)          (244)           $ 6.07
                                                        ------             -----         ------            ------
Options outstanding at December 31, 1996                 3,380               410          3,790            $ 9.78
Granted                                                  1,176                20          1,196            $20.07
Exercised and terminated                                  (514)             (390)          (904)           $ 7.15
                                                        ------             -----         ------            ------
Options outstanding at December 31, 1997                 4,042                40          4,082            $13.37
                                                        ======             =====         ======            ======

</TABLE>


At December 31, 1997, options for 2,146,270 shares were exercisable.

                                       31

<PAGE>   34

                             WESTPOINT STEVENS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

STOCK BONUS PLAN

During 1995, the Company's Board of Directors approved the WestPoint Stevens
Inc. 1995 Key Employee Stock Bonus Plan (the "Stock Bonus Plan") covering
1,000,000 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. For 1997, 1996 and 1995, respectively, bonus awards were deemed
earned by forty-seven, fifty-three and thirty-nine employees covering an
aggregate of 398,456 shares, 643,464 shares and 676,936 shares of Common Stock.
The Stock Bonus Plan provides for vesting of the bonus awards of 20 percent in
the year of award and 20 percent in each of the next four years if the employee
continues employment with the Company. The Company charged $4.4 million, $3.4
million and $1.4 million to expense in 1997, 1996 and 1995, respectively, in
connection with the Stock Bonus Plan.

7.  LEASE COMMITMENTS

The Company's operating leases, including sublease arrangements with divested
operations, consist of land, sales offices, manufacturing equipment, warehouses
and data processing equipment with expiration dates at various times during the
next thirteen 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. Some of the Company's leases,
principally sales office space and manufacturing equipment, are sublet to others
under leases expiring over the next four years.

The following is a schedule, by year, of future minimum lease payments as of
December 31, 1997 under operating leases, including sublease arrangements, that
have initial or remaining noncancelable lease terms in excess of one year (in
thousands of dollars):

<TABLE>
<CAPTION>
        YEAR ENDING DECEMBER 31,
        ------------------------
                  <S>                                                                    <C>
                  1998..........................................................         $ 25,404
                  1999..........................................................           23,987
                  2000..........................................................           17,318
                  2001..........................................................           12,571
                  2002..........................................................            9,650
                  Years subsequent to 2002......................................           22,336
                                                                                         --------
                  Total minimum lease payments..................................          111,266
                  Minimum sublease rentals......................................           (9,680)
                                                                                         --------
                  Net minimum lease payments required for
                                operating leases................................         $101,586
                                                                                         ========
</TABLE>


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):

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                                                   -----------------------
                                                                        1997                1996               1995
                                                                     ----------         -----------        -----------
<S>                                                                  <C>                <C>                <C>
Minimum lease payments ....................................          $   30,662         $    40,217        $    42,070
Less sublease rentals .....................................              (3,986)             (4,761)            (7,464)
                                                                     ----------         -----------        -----------

Rent expense ..............................................          $   26,676         $    35,456        $    34,606
                                                                     ==========         ===========        ===========
</TABLE>


                                       32

<PAGE>   35

                             WESTPOINT STEVENS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

8.  LITIGATION AND CONTINGENT LIABILITIES

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 non-hazardous 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.

9.  CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                                     -------------------------------------------------
                                                                        1997                1996               1995
                                                                     ----------         -----------        -----------
<S>                                                                  <C>                <C>                <C>
(In thousands of dollars)

Supplemental disclosures of cash flow information:
  Cash paid during the period:
       Interest ...........................................          $  107,410         $   102,565        $   101,195
                                                                     ==========         ===========        ===========

       Income taxes .......................................          $    9,444         $     5,733        $     4,433
                                                                     ==========         ===========        ===========
</TABLE>


10.  DISCONTINUED OPERATIONS

On August 27, 1997 the Company closed a transaction pursuant to which WestPoint
Stevens sold its subsidiaries AIH Inc., Alamac Knit Fabrics, Inc. and Alamac
Enterprises Inc. (collectively, "Alamac Knit Fabrics subsidiary" or "Alamac"),
other than cash, accounts receivable of approximately $42.5 million and a yarn
mill located in Whitmire, S.C., to Dyersburg Corporation for approximately $126
million. The Whitmire facility was transferred by the Company to Home Fashions
to support the Company's expansion of its sheeting production capacity. As a
result of the transaction, the Company now accounts for the Alamac Knit Fabrics
subsidiary as a discontinued operation and the accompanying financial statements
have been adjusted and restated accordingly.

                                       33

<PAGE>   36

                             WESTPOINT STEVENS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

10.  DISCONTINUED OPERATIONS--CONTINUED

Data relative to Alamac Knit Fabrics subsidiary is as follows (in thousands of
dollars):

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31,
                                                                    PERIOD ENDED       -------------------------------
                                                                  AUGUST 27, 1997            1996             1995
                                                                  ----------------     -------------      ------------
<S>                                                               <C>                  <C>                <C>
Net sales .................................................          $  162,428         $   222,019        $   231,721
                                                                     ==========         ===========        ===========

Operating earnings before amortization of excess
     reorganization value .................................          $    9,189         $     7,051        $     3,962
                                                                     ==========         ===========        ===========

Operating earnings (loss) .................................          $    9,189         $     7,051        $   (21,267)
                                                                     ==========         ===========        ===========

Net income (loss) .........................................          $    2,625         $      (287)       $   (27,512)
                                                                     ==========         ===========        ===========

Gain on sale, net of taxes of $3,605 ......................          $    6,138
                                                                     ==========

Capital expenditures, including capital leases ............          $    3,237         $     4,998        $     9,757
                                                                     ==========         ===========        ===========

Amortization of excess reorganization value ...............                                                $    25,229
                                                                                                           ===========

Depreciation and other amortization .......................          $    5,501         $     8,059        $    11,117
                                                                     ==========         ===========        ===========
</TABLE>


11.  MAJOR CUSTOMER INFORMATION

The Company's consumer home fashions products are sold primarily to domestic
chain stores, mass merchants, department and specialty stores. Sales to two
customers as a percent of net sales, amounted to approximately 13% and 10% for
the year ended December 31, 1997. Sales to three customers as a percent of net
sales, amounted to approximately 13%, 12% and 10% for the year ended December
31, 1996. Sales to three customers as a percent of net sales, amounted to
approximately 12%, 12% and 11% for the year ended December 31, 1995. During
1997, 1996 and 1995, the Company's six largest customers accounted for
approximately 52%, 55% and 54%, respectively, of the Company's net sales.

                                       34

<PAGE>   37

                             WESTPOINT STEVENS INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

12.  QUARTERLY FINANCIAL SUMMARY (UNAUDITED)


<TABLE>
<CAPTION>
                                                                           QUARTER
                                                     -------------------------------------------------
                                                     FIRST          SECOND       THIRD          FOURTH
                                                     -----          ------       -----          ------
<S>                                                  <C>            <C>           <C>           <C>
(in millions of dollars, except per share data)

YEAR ENDED DECEMBER 31, 1997
----------------------------
Net sales .................................          $  357.1       $ 395.8       $ 459.0       $ 445.6
Gross earnings ............................              89.2          96.2         122.1         112.3
Operating earnings ........................              38.5          43.1          69.2          64.1

Income from continuing operations .........               9.0          10.7          26.5          23.1
Income from discontinued operations .......               1.1           1.1           0.4            --
Gain on sale of discontinued operations ...                --            --           6.1            --
                                                     --------       -------       -------       -------
Net income ................................              10.1          11.8          33.0          23.1

Basic net income per common share (1):
    Continuing operations .................               .14           .18           .43           .39
    Discontinued operations ...............               .02           .01           .01            --
    Gain on sale of discontinued operations                --            --           .10            --
                                                     --------       -------       -------       -------
    Net income per common share ...........               .16           .19           .54           .39

Diluted net income per common share (1):
    Continuing operations .................                14           .17           .42           .38
    Discontinued operations ...............                02           .01           .01            --
    Gain on sale of discontinued operations                --            --           .10            --
                                                     --------       -------       -------       -------
    Net income per common share ...........                16           .18           .53           .38


YEAR ENDED DECEMBER 31, 1996
----------------------------

Net sales .....................................      $  327.5     $   362.5     $   412.7     $   399.1
Gross earnings ................................          82.8          85.4         106.5          97.7
Operating earnings ............................          37.6          39.0          59.3          52.6

Income from continuing operations .............           8.3           9.1          22.2          18.4
Income (loss) from discontinued operations ....          (0.3)         (0.4)         (0.5)          0.9
                                                       ------       -------       -------       -------
Net income ....................................           8.0           8.7          21.7          19.3

Basic net income (loss) per common share (1):
    Continuing operations .....................           .13           .14           .36           .29
    Discontinued operations ...................          (.01)           --          (.01)          .02
                                                       ------       -------       -------        -------
    Net income per common share ...............           .12           .14           .35           .31

Diluted net income (loss) per common share (1):
    Continuing operations .....................           .13           .14           .35           .29
    Discontinued operations ...................          (.01)           --          (.01)          .02
                                                       ------       -------       -------       -------
    Net income per common share ...............           .12           .14           .34           .31
</TABLE>


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

                                       35

<PAGE>   38

                                    PART III

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

         None.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         IDENTIFICATION OF DIRECTORS

The information called for in this item is incorporated by reference from the
Company's 1998 definitive proxy statement (under the caption "Board of
Directors") to be filed with the Securities and Exchange Commission by April 10,
1998 (the "1998 Proxy Statement").

         IDENTIFICATION OF EXECUTIVE OFFICERS

The information called for in this item is incorporated by reference from the
Company's 1998 Proxy Statement (under the caption "Management").

ITEM 11.  EXECUTIVE COMPENSATION

The information called for by this item is incorporated by reference from the
Company's 1998 Proxy Statement (under the caption "Executive Compensation").

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information called for by this item is incorporated by reference from the
Company's 1998 Proxy Statement (under the caption "Security Ownership of Certain
Beneficial Owners and Management").

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for by this item is incorporated by reference from the
Company's 1998 Proxy Statement (under the captions "Security Ownership of
Certain Beneficial Owners and Management" and "Certain Relationships and Related
Transactions").

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A)  FINANCIAL STATEMENTS AND SCHEDULES

         FINANCIAL STATEMENTS.

         Consolidated Financial Statements for the three years ended December
31, 1997.

<TABLE>
<CAPTION>
                                                                                                          PAGE
                                                                                                          ----
                  <S>                                                                                     <C>
                  Report of Ernst & Young LLP,  Independent Auditors....................................   16
                  Consolidated Balance Sheets...........................................................  17-18
                  Consolidated Statements of Income ....................................................   19
                  Consolidated Statements of Stockholders' Equity (Deficit).............................   20
                  Consolidated Statements of Cash Flows.................................................   21
                  Notes to Consolidated Financial Statements............................................  22-35
</TABLE>

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."

                                       36

<PAGE>   39

FINANCIAL STATEMENT SCHEDULES.

<TABLE>
                                                                                                          PAGE
                                                                                                          ----
                  <S>                                                                                     <C>
                  Schedule II -- Valuation and Qualifying Accounts......................................   44
</TABLE>

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.

(B) REPORTS ON FORM 8-K

The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1997.



EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                          DESCRIPTION OF EXHIBIT
-------                          ----------------------
<S>      <C>
    2.1  Debtors' Joint Plan of Reorganization, dated June 9, 1992, proposed by
         West Point Acquisition Corp. (since renamed WestPoint Stevens Inc.),
         West Point Subsidiary Corp. (since renamed Valley Fashions Subsidiary
         Corp.) and West Point Tender Corp. (since renamed Valley Fashions
         Tender Corp.), incorporated by reference to the  Current Report on
         Form 8-K (Commission File No. 1-4990) filed by West Point-Pepperell,
         Inc. with the Commission on October 1, 1992.

    3.1  Restated Certificate of Incorporation of WestPoint Stevens Inc., as
         currently in effect, incorporated by reference to the Post-Effective
         Amendment No. 1 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.

    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    Form 15 (Commission File No. 0-21496) filed by the Company with the
         Commission on May 25, 1995, incorporated by reference herein.

   10.1  Indenture, dated as of December 10, 1993, between the Company and
         First Trust National Association, as trustee, for the 8 3/4% Senior
         Notes due 2001, incorporated by reference to the Annual Report on Form
         10-K for the fiscal year ended December 31, 1993 (Commission File No.
         0-21496) filed by the Company with the Commission.

   10.2  Form of 8 3/4% Senior Notes due 2001 (included in the Indenture filed
         as Exhibit 10.1), incorporated by reference to the Annual Report on
         Form 10-K for the fiscal year ended December 31, 1993 (Commission File
         No. 0-21496) filed by the Company with the Commission.

   10.3  Indenture, dated as of December 10, 1993, between the Company and the
         Bank of New York, as trustee, for the 9 3/8% Subordinated Debentures due
         2005, incorporated by reference to the Annual Report on Form 10-K for
         the fiscal year ended December 31, 1993 (Commission File No. 0-21496)
         filed by the Company with the Commission.

   10.4  Form of 9 3/8% Subordinated Debentures due 2005 (included in the
         Indenture filed as Exhibit 10.3), incorporated by reference to the
         Annual Report on Form 10-K for the fiscal year ended December 31, 1993
         (Commission File No. 0-21496) filed by the Company with the
         Commission.
</TABLE>



                                       37
<PAGE>   40



<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                          DESCRIPTION OF EXHIBIT
-------                          ----------------------
<S>      <C>
   10.5  Rights Agreement, dated as of September 16, 1992, between the Company,
         The Bank of New York, as rights agent, as amended by Amendment No. 1
         to Rights Agreement, dated as of March 12, 1993, and Amendment No. 2
         to Rights Agreement, dated as of December 10, 1993, incorporated by
         reference to the Registration Statement on Form 10/A (Commission File
         No. 0-21496) filed by the Company on January 6, 1994.

   10.6  Form of Restated Plan Registration Rights Agreement dated as of May 7,
         1993, among the Company and the Existing Holders (as defined therein),
         incorporated by reference to the Registration Statement on Form 10
         (Commission File No. 0-21496) filed by the Company on July 1, 1993.

   10.7  Form of Registration Rights Agreement, dated as of May 7, 1993, among
         the Company and the Purchaser (as defined therein) incorporated by
         reference to Exhibit 1 to the Form of Securities Purchase Agreement
         filed as Exhibit 10.13 to the Registration Statement on Form 10
         (Commission File No. 0-21496) filed by the Company with the Commission
         on July 1, 1993.

   10.8  Amended and Restated Credit Agreement, dated as of May 7, 1993, by and
         among West Point-Pepperell, Inc., the banks listed on the signature
         pages thereof, Bankers Trust Company, as administrative agent, and The
         Chase Manhattan Bank, N.A., Citicorp USA, Inc., NationsBank of North
         Carolina, Inc., The Bank of New York and The Bank of Nova Scotia, as
         co-agents, incorporated by reference to the Registration Statement on
         Form 10 (Commission File No. 0-21496) filed by Valley Fashions Corp.
         with the Commission on July 1, 1993.

   10.9  Employment Agreement, dated as of March 8, 1993, between West
         Point-Pepperell, Inc. and Holcombe T. Green, Jr., together with
         Letter, dated as of March 8, 1993, from the Company to Holcombe T.
         Green, Jr., incorporated by reference to the Registration Statement on
         Form 10 (Commission File No. 0-21496) filed by Valley Fashions Corp.
         (since renamed WestPoint Stevens Inc.) with the Commission on July 1,
         1993.

  10.10  Employment Agreement, dated as of April 1, 1993, between West
         Point-Pepperell, Inc. and Morgan M. Schuessler, together with Letter,
         dated as of April 1, 1993, from the Company to Morgan M. Schuessler,
         incorporated by reference to the Registration Statement on Form 10
         (Commission File No. 0-21496) filed by Valley Fashions Corp. (since
         renamed WestPoint Stevens Inc.) with the Commission on July 1, 1993.

  10.11  Employment Agreement, dated as of February 1, 1993, between West
         Point-Pepperell, Inc. and Joseph L. Jennings, Jr., 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.

  10.12  Employment Agreement, dated as of March 8, 1993, between West
         Point-Pepperell, Inc. and Thomas J. Ward, 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.

  10.13  Form of directors and officers Indemnification Agreement with West
         Point-Pepperell, Inc., incorporated by reference to the Registration
         Statement on Form S-1 (Commission File No. 33-69858) filed by the
         Company with the Commission on October 1, 1993.

  10.14  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.

  10.15  Description of 1993 Senior Management Incentive Plan, incorporated by
         reference to the Company's 1994 Proxy Statement (Commission File No.
         0-21496) filed by the Company with the Commission.
</TABLE>



                                       38
<PAGE>   41


<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                          DESCRIPTION OF EXHIBIT
-------                          ----------------------
<S>      <C>
  10.16  West Point-Pepperell, Inc. Supplemental Retirement Plan for Eligible
         Executives, as amended, incorporated by reference to the Schedule
         14D-9 dated November 3, 1988 (Commission File No. 1-4490) filed by
         West Point-Pepperell, Inc. with the Commission.

  10.17  West Point-Pepperell, Inc. Supplemental Executive Retirement Plan, as
         amended, incorporated by reference to the Schedule 14D-9 dated
         November 3, 1988 (Commission File No. 1-4490) filed by West
         Point-Pepperell, Inc. with the Commission.

  10.18  Indenture, dated as of March 1, 1987, between J.P. Stevens & Co., Inc.
         and The Bank of New York, as trustee, for the 9% Sinking Fund
         Debentures due 2017 including the First and Second Supplemental
         Indentures thereto, incorporated by reference to the Registration
         Statement on Form S-1 (Commission File No. 33-69858) filed by the
         Company with the Commission on October 1, 1993.

  10.19  Credit Agreement, dated as of December 1, 1993, among Valley Fashions
         Corp., Bankers Trust Company as Administrative Agent, the Co-Agents
         parties thereto and the other financial institutions parties thereto
         as amended on December 10, 1993, incorporated by reference to the
         Annual Report on Form 10-K for the fiscal year ended December 31, 1993
         (Commission File No. 0-21496) filed by the Company with the
         Commission.

  10.20  Revolving Certificate Purchase Agreement, dated as of December 1,
         1993, among WPS Receivables Corporation, the Company, the Co-Agents
         and Revolving Purchasers named therein, Bankers Trust Company, as
         Administrative Agent, and NationsBank of North Carolina, N.A., as
         Agent, incorporated by reference to the Annual Report on Form 10-K for
         the fiscal year ended December 31, 1993 (Commission File No. 0-21496)
         filed by the Company with the Commission.

  10.21  Amendment No. 1 to the Revolving Certificate Purchase Agreement, dated
         as of December 10, 1993, among WPS Receivables Corporation, the
         Company, the Co-Agents and Revolving Purchasers named therein, Bankers
         Trust Company, as Administrative Agent, and NationsBank of North
         Carolina, N.A., as Agent, incorporated by reference to the Annual
         Report on Form 10-K for the fiscal year ended December 31, 1993
         (Commission File No. 0-21496) filed by the Company with the
         Commission.

  10.22  Pooling and Servicing Agreement, dated as of December 10, 1993, among,
         WPS Receivables Corporation, as transferor, the Company, as the
         initial Servicer, and Chemical Bank, as Trustee, incorporated by
         reference to the Current Report on Form  8-K (Commission File No.
         0-21496) filed by the Company with the Commission on December 10,
         1993.

  10.23  Receivables Purchase Agreement, dated as of December 10, 1993, among
         WPS Receivables Corporation, as Purchaser, and the Company and Alamac
         Knit Fabrics, Inc., as Sellers, incorporated by reference to the
         Current Report on Form 8-K (Commission File No. 0-21496) filed by the
         Company with the Commission on December 10, 1993.

  10.24  Form of Securities Purchase Agreement, dated as of March 12, 1993,
         among the Company, New Street Capital Corporation, Magten Asset
         Management Corporation and each Other Holder (as defined therein),
         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.

  10.25  Amended and Restated Credit Agreement dated November 23, 1994, among
         the Company, NationsBank of North Carolina, N.A. as Administrative
         Agent, the Co-Agents parties thereto and the other financial
         institutions parties thereto, 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.

  10.26  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.
</TABLE>



                                       39
<PAGE>   42


<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                          DESCRIPTION OF EXHIBIT
-------                          ----------------------
<S>      <C>
  10.27  Amended and Restated Pooling and Servicing Agreement, dated as of May
         27, 1994, among WPS Receivables Corporation, the Company and Chemical
         Bank, incorporated by reference to the Registration Statement on Form
         S-1, Amendment No. 2 (Commission File No. 33-76956) filed by WPS
         Receivables Corporation with the Commission on May 24, 1994.

  10.28  Revolving Certificate Purchase Agreement, dated as of May 27, 1994,
         among WPS Receivables Corporation, the Company, the Co-Agents and
         Revolving Purchasers named therein, Bankers Trust Company, as
         Administrative Agent, and NationsBank of North Carolina, N.A., as
         Agent, incorporated by reference to the Registration Statement on Form
         S-1, Amendment No. 3 (Commission File No. 33-76956) filed by WPS
         Receivables Corporation with the Commission on May 16, 1994.

  10.29  Amended and Restated Receivables Purchase Agreement, dated as of May
         27, 1994, among WPS Receivables Corporation, as Purchaser, and the
         Company and Alamac Knit Fabrics, Inc., as Sellers, incorporated by
         reference to the Registration Statement on Form S-1, Amendment No. 3
         (Commission File No. 33-76956) filed by WPS Receivables Corporation
         with the Commission on May 16, 1994.

  10.30  Series 1994-1 Supplement, dated as of May 27, 1994, to the Amended and
         Restated Pooling and Servicing Agreement, among WPS Receivables
         Corporation, the Company and Chemical Bank, incorporated by reference
         to the Registration Statement on Form S-1, Amendment No. 3 (Commission
         File 33-76956) filed by WPS Receivables Corporation with the
         Commission on May 16, 1994.

  10.31  Series 1994-R Supplement, dated as of May 27, 1994, to the Amended and
         Restated Pooling and Servicing Agreement, among WPS Receivables
         Corporation, the company and Chemical Bank, incorporated by reference
         to the Registration Statement on Form S-1, Amendment No. 3 (Commission
         File No. 33-76956) filed by WPS Receivables Corporation with the
         Commission on May 16, 1994.

  10.32  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.

  10.33  Description of Senior Management Incentive Plan, incorporated by
         reference to the Company's 1995 Proxy Statement (Commission File No.
         0-21496) filed by the Company with the Commission on April 7, 1995.

  10.34  WestPoint Stevens Inc. 1995 Key Employee Stock Bonus Plan,
         incorporated by reference to the Registration Statement Form S-8
         (Registration No. 33-95580) filed by the Company on August 11, 1995.

  10.35  Credit Agreement dated December 4, 1995, among Alamac Knit Fabrics,
         Inc., as Borrower, Alamac Enterprises Inc. and AIH Inc., as
         Guarantors, the Lenders identified therein and NationsBank, N.A., as
         agent, 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.

  10.36  Amendment Agreement dated December 4, 1995 among the Company,
         NationsBank, N.A., The Bank of New York, The First National Bank of
         Boston, The First National Bank of Chicago, The Nippon Credit Bank,
         Ltd., Wachovia Bank of Georgia, N.A., Trust Company Bank, AmSouth Bank
         of Alabama and ABN AMRO Bank, N.V., 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.
</TABLE>



                                       40
<PAGE>   43


<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                          DESCRIPTION OF EXHIBIT
-------                          ----------------------
<S>      <C>
  10.37  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.

  10.38  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.

  10.39  Tax Settlement Form 870-AD between WestPoint Stevens Inc.
         (successor-in-interest to Cluett, Peabody & Co., Inc.) and the
         Internal Revenue Service dated December 11, 1995, 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.

  10.40  Tax Settlement Form 870-AD between WestPoint Stevens Inc.
         (successor-in-interest to West Point-Pepperell, Inc.) and the Internal
         Revenue Service dated August 29, 1995, 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.

  10.41  Tax Settlement Form 870-AD between J.P. Stevens & Co., Inc. and the
         Internal Revenue Service dated August 29, 1995, 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.

  10.42  Second Amendment and Waiver Agreement dated as of January 23, 1997,
         among the Company, NationsBank, N.A. (formerly known as NationsBank of
         North Carolina, N.A., the Bank of New York, The First National Bank of
         Boston, The First National Bank of Chicago, The Nippon Credit Bank,
         Ltd., Wachovia Bank of Georgia, N.A., SunTrust Bank, Atlanta (formerly
         known as Trust Company Bank), AmSouth Bank of Alabama, and ABN AMRO
         Bank, N.V., incorporated by reference to the Annual Report on Form
         10-K/A for the fiscal year ended December 31, 1996 (Commission File
         No. 0-21496) filed by the Company with the Commission.

  10.43  Credit Agreement dated as of January 23, 1997, among WestPoint Stevens
         (UK) Limited, P.J. Flower & Co. Limited, as the Borrowers, the Company
         as Guarantor, the several lenders identified on the signature pages
         thereto and such other lenders as may from time to time become a party
         thereto and NationsBank, N.A., as agent for the Lenders, incorporated
         by reference to the Annual Report on Form 10-K/A for the fiscal year
         ended December 31, 1996 (Commission File No. 0-21496) filed by the
         Company with the Commission.

  10.44  First Amendment to the WestPoint Stevens Inc. Supplemental Retirement
         Plan dated as of September 6, 1996, incorporated by reference to the
         Annual Report on Form 10-K/A for the fiscal year ended December 31,
         1996 (Commission File No. 0-21496) filed by the Company with the
         Commission.

  10.45  Employment Agreement effective January 1, 1997 between the Company and
         Joseph L. Jennings superseding the Employment Agreement of February 1,
         1993, incorporated by reference to the Annual Report on Form 10-K/A
         for the fiscal year ended December 31, 1996 (Commission File No.
         0-21496) filed by the Company with the Commission.

  10.46  WestPoint Stevens Inc. Omnibus Stock Incentive Plan, incorporated by
         reference to the Company's 1997 Proxy Statement for the fiscal year
         ended December 31, 1996 (Commission File No. 0-21496) filed by the
         Company with the Commission.

  10.47  Second Amendment Agreement, dated as of May 22, 1997, by and among
         Alamac Knit Fabrics, Inc., as Borrower, Alamac Enterprises Inc. and
         AIH Inc., as Guarantors, the Lenders identified therein and
         NationsBank, N.A., as Agent, incorporated by reference to the Form
         10-Q for the quarterly period ended June 30, 1997 (Commission File No.
         0-21496) filed by the Company with the Commission.
</TABLE>



                                       41
<PAGE>   44


<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                          DESCRIPTION OF EXHIBIT
-------                          ----------------------
<S>      <C>
  10.48  Third Amendment Agreement, dated as of May 22, 1997, among the
         Company, as Borrower, NationsBank, N.A. (formerly known as NationsBank
         of North Carolina, N.A.), The Bank of New York, The First National
         Bank of Boston, The First National Bank of Chicago, Scotiabank Inc.,
         Wachovia Bank of Georgia, N.A., SunTrust Bank, Atlanta, AmSouth Bank
         of Alabama, and ABN AMRO Bank, N.V., incorporated by reference to the
         Form 10-Q for the quarterly period ended June 30, 1997 (Commission
         File No. 0-21496) filed by the Company with the Commission.

  10.49  Stock Purchase Agreement by and among Dyersburg Corporation, as
         Purchaser, Alamac Sub Holdings Inc., as Seller, AIH Inc. and Company
         dated as of July 15, 1997, incorporated by reference to the Current
         Report on Form 8-K (Commission File No. 0-21496) filed by the Company
         with the Commission on September 11, 1997.

  10.50  Supplemental Agreement relating to Phase II Environmental
         Investigation among Alamac Sub Holdings Inc., AIH Inc., Company and
         Dyersburg Corporation dated as of July 15, 1997, incorporated by
         reference to the Current Report on Form 8-K (Commission File No.
         0-21496) filed by the Company with the Commission on September 11,
         1997.

  10.51  Amendment to Stock Purchase Agreement among Alamac Sub Holdings Inc.,
         AIH Inc., Company and Dyersburg Corporation dated as of August 15,
         1997, incorporated by reference to the Current Report on Form 8-K
         (Commission File No. 0-21496) filed by the Company with the Commission
         on September 11, 1997.

  10.52  Supplemental Environmental Indemnity among Alamac Sub Holdings Inc.,
         AIH Inc., Company and Dyersburg Corporation dated as of August 20,
         1997, incorporated by reference to the Current Report on Form 8-K
         (Commission File No. 0-21496) filed by the Company with the Commission
         on September 11, 1997.

  10.53  Second Supplemental Environmental Indemnity among Alamac Sub Holdings
         Inc., AIH Inc., Company and Dyersburg Corporation dated as of August
         27, 1997, incorporated by reference to the Current Report on Form 8-K
         (Commission File No. 0-21496) filed by the Company with the Commission
         on September 11, 1997.

  10.54  Assignment and Assumption Agreement among Company (the "Assignor"),
         Alamac Knit Fabrics, Inc. (the "Assignee") and Dyersburg Corporation
         dated as of August 27, 1997, incorporated by reference to the Current
         Report on Form 8-K (Commission File No. 0-21496) filed by the Company
         with the Commission on September 11, 1997.

  10.55  Letter Amendment Agreement, dated as of July 18, 1997, by and among
         Alamac Knit Fabrics, Inc., as Borrower, Alamac Enterprises Inc. and
         AIH Inc., as Guarantors, the Lenders identified therein and
         NationsBank, N.A., as Agent, incorporated by reference to the Form
         10-Q for the quarterly period ended September 30, 1997 (Commission
         File No. 0-21496) filed by the Company with the Commission.

  10.56  Letter Amendment Agreement, dated as of July 22, 1997, among the
         Company, as Borrower, NationsBank, N.A. (formerly known as NationsBank
         of North Carolina, N.A.), The Bank of New York, BankBoston, N.A.
         (formerly known as The First National Bank of Boston), The First
         National Bank of Chicago, Scotiabank Inc., Wachovia Bank of Georgia,
         N.A., SunTrust Bank, Atlanta, AmSouth Bank of Alabama and ABN AMRO
         Bank, N.A., incorporated by reference to the Form 10-Q for the
         quarterly period ended September 30, 1997 (Commission File No. 0-21496)
         filed by the Company with the Commission.
</TABLE>



                                       42
<PAGE>   45



<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                          DESCRIPTION OF EXHIBIT
-------                          ----------------------
<S>      <C>
10.57  Letter Amendment Agreement, dated as of August 5, 1997, among the
       Company, as Borrower, NationsBank, N.A. (formerly known as NationsBank
       of North Carolina, N.A.), The Bank of New York, BankBoston, N.A.
       (formerly known as The First National Bank of Boston), The First
       National Bank of Chicago, Scotiabank Inc., Wachovia Bank of Georgia,
       N.A., SunTrust Bank, Atlanta, AmSouth Bank of Alabama, and ABN AMRO
       Bank, N.V., incorporated by reference to the Form 10-Q for the quarterly
       period ended September 30, 1997 (Commission File No. 0-21496) filed by
       the Company with the Commission.

10.58  Termination of Commitments and Release of Liens dated August 27, 1997,
       by and among Alamac Knit Fabrics, Inc., as Borrower, Alamac Enterprises
       Inc. and AIH Inc., as Guarantors, the Lenders identified therein and
       NationsBank, N.A., as Agent, incorporated by reference to the Form 10-Q
       for the quarterly period ended September 30, 1997  (Commission File No.
       0-21496) filed by the Company with the Commission.

   21  List of Subsidiaries of the Registrant.

 23.1  Consent of Ernst & Young LLP, independent auditors.

 27.1  Financial Data Schedule for the period ended December 31, 1997

 27.2  Financial Data Schedule restated for the period ended September 30, 1997

 27.3  Financial Data Schedule restated for the period ended June 30, 1997

 27.4  Financial Data Schedule restated for the period ended March 31, 1997

 27.5  Financial Data Schedule restated for the period ended December 31, 1996

 27.6  Financial Data Schedule restated for the period ended September 30, 1996

 27.7  Financial Data Schedule restated for the period ended June 30, 1996
</TABLE>




                                       43
<PAGE>   46



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

<TABLE>
<CAPTION>
                                                                          ADDITIONS
                                                           BALANCE AT     CHARGED TO                    BALANCE AT
                                                          BEGINNING OF    COSTS AND                       END OF
                                                             PERIOD       EXPENSES       DEDUCTIONS     PERIOD (3)
                                                          ------------    ---------      ----------     ----------
<S>                                                       <C>             <C>            <C>            <C>
   Year Ended December 31, 1997
      Accounts receivable allowances:
          Doubtful accounts.............................       $17,096    $1,602           $1,880(1)        $16,818
          Cash and/or trade discounts
            and returns and allowances...........                5,765      (689)(2)            -             5,076
                                                               -------    ------           ------           -------
                                                               $22,861    $  913           $1,530           $21,894
                                                               =======    ======           ======           =======




   Year Ended December 31, 1996
      Accounts receivable allowances:
          Doubtful accounts.............................       $16,357    $1,913           $1,174(1)        $17,096
          Cash and/or trade discounts
            and returns and allowances...........                6,538      (773)(2)            -             5,765
                                                               -------    ------           ------           -------
                                                               $22,895    $1,140           $1,174           $22,861
                                                               =======    ======           ======           =======




   Year Ended December 31, 1995
      Accounts receivable allowances:
          Doubtful accounts......................              $12,015  $6,486             $2,144(1)        $16,357
          Cash and/or trade discounts
            and returns and allowances........                   5,638     900(2)               -             6,538
                                                               -------  ------             ------           -------
                                                               $17,653  $7,386             $2,144           $22,895
                                                               =======  ======             ======           =======
</TABLE>



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




                                       44
<PAGE>   47
                                   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/ Holcombe T. Green, Jr.
                                                -------------------------------
                                                Holcombe T. Green, Jr.
                                                Chairman of the Board and Chief
                                                Executive Officer


                                                March 30, 1998

     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/ Holcombe T. Green, Jr.                 By /s/ Morgan M. Schuessler
  -------------------------------------         -------------------------------
  Holcombe T. Green, Jr.                        Morgan M. Schuessler
  Chairman of the Board and Chief Executive     Executive Vice President/Finance
  Officer (principal executive officer)         and Chief Financial Officer
                                                (principal financial officer)


  March 30, 1998                                March 30, 1998



By /s/ Joseph L. Jennings, Jr.                By /s/ J. Nelson Griffith
  -------------------------------------         ------------------------------
  Joseph L. Jennings, Jr.                       J. Nelson Griffith
  Vice Chairman of the Board                    Controller
                                                (principal accounting officer)


  March 30, 1998                                March 30, 1998



By /s/ Hugh M. Chapman                        By /s/ M. Katherine Dwyer
  -------------------------------------         -----------------------------
  Hugh M. Chapman                               M. Katherine Dwyer
  Director                                      Director


  March 30, 1998                                March 30, 1998

<PAGE>   48
By /s/ John G. Hudson                         By /s/ Charles W. McCall
  -------------------------------------         ------------------------------
  John G. Hudson                                Charles W. McCall
  Director                                      Director


  March 30, 1998                                March 30, 1998




By /s/ Douglas T. McClure, Jr.                By /s/ Gerald B. Mitchell
  -------------------------------------          -----------------------------
  Douglas T. McClure, Jr.                        Gerald B. Mitchell
  Director                                       Director


  March 30, 1998                                 March 30, 1998




By /s/ Phillip Siegel                         By /s/ John F. Sorte
  -------------------------------------          -----------------------------
  Phillip Siegel                                  John F. Sorte
  Director                                        Director


  March 30, 1998                                  March 30, 1998