<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001

                                       OR

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

                For the transition period from _______ to _______

                         Commission File Number 0-21496

                             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, including Zip Code)

                                 (706) 645-4000
              (Registrant's telephone number, including area code)

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  [ ]

Common shares outstanding at August 3, 2001: 49,556,646 shares of Common Stock,
$.01 par value.


                                       1
<PAGE>   2

                                      INDEX

<TABLE>
<CAPTION>
                                                                                          PAGE NO.
                                                                                          --------
<S>                                                                                       <C>
PART I. FINANCIAL INFORMATION

                  Item 1.  Financial Statements

                  Condensed Consolidated Balance Sheets:
                           June 30, 2001 (Unaudited) and
                           December 31, 2000                                                     3

                  Condensed Consolidated Statements of
                           Operations (Unaudited); Three and
                           Six Months Ended June 30, 2001
                           and June 30, 2000                                                     4

                  Condensed Consolidated Statements of
                           Cash Flows (Unaudited); Six
                           Months Ended June 30, 2001
                           and June 30, 2000                                                     5

                  Condensed Consolidated Statements of
                           Stockholders' Equity (Deficit) (Unaudited);
                           Six Months Ended June 30, 2001                                        6

                  Notes to Condensed Consolidated Financial
                           Statements (Unaudited)                                           7 - 15

                  Item 2.  Management's Discussion and Analysis of
                           Financial Condition and Results of Operations                   16 - 25

PART II. OTHER INFORMATION

                  Item 1.  Legal Proceedings                                                     26

                  Item 4.  Submission of Matters to a Vote of Security Holders                   27

                  Item 5.  Other Information                                                     28

                  Item 6.  Exhibits and Reports on Form 8-K                                      28
</TABLE>


                                       2
<PAGE>   3

                             WESTPOINT STEVENS INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 JUNE 30,          DECEMBER 31,
                                                                   2001                2000
                                                               ------------        ------------
                                                                (UNAUDITED)
<S>                                                            <C>                 <C>
ASSETS
Current Assets
     Cash and cash equivalents ........................        $      6,072        $        167
     Accounts receivable ..............................             137,549              99,191
     Inventories ......................................             424,874             407,332
     Prepaid expenses and other current assets ........              45,201              42,247
                                                               ------------        ------------
Total current assets ..................................             613,696             548,937

Property, Plant and Equipment, net ....................             765,384             772,020

Other Assets
     Deferred financing fees ..........................              36,418              18,497
     Prepaid pension and other assets .................              73,081              72,829
     Goodwill .........................................              45,548              46,166
                                                               ------------        ------------
                                                               $  1,534,127        $  1,458,449
                                                               ============        ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
     Senior Credit Facility ...........................        $    125,948        $    152,849
     Accrued interest payable .........................               4,568               4,734
     Trade accounts payable ...........................              84,122              75,883
     Other accounts payable and accrued liabilities ...             124,079             135,404
                                                               ------------        ------------
Total current liabilities .............................             338,717             368,870

Long-Term Debt ........................................           1,640,000           1,475,000

Noncurrent Liabilities
     Deferred income taxes ............................             220,870             265,812
     Other liabilities ................................              59,304              61,588
                                                               ------------        ------------
Total noncurrent liabilities ..........................             280,174             327,400

Stockholders' Equity (Deficit) ........................            (724,764)           (712,821)
                                                               ------------        ------------
                                                               $  1,534,127        $  1,458,449
                                                               ============        ============
</TABLE>

                             See accompanying notes


                                       3
<PAGE>   4

                             WESTPOINT STEVENS INC.

           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED                   SIX MONTHS ENDED
                                                                    June 30,                            June 30,
                                                          ----------------------------        ----------------------------
                                                             2001              2000              2001              2000
                                                          ----------        ----------        ----------        ----------

<S>                                                       <C>               <C>               <C>               <C>
Net sales ........................................        $  401,659        $  462,039        $  820,272        $  909,854
Cost of goods sold ...............................           329,949           408,741           658,856           740,126
                                                          ----------        ----------        ----------        ----------

     Gross earnings ..............................            71,710            53,298           161,416           169,728

Selling, general and administrative expenses .....            63,801            61,621           127,876           124,170
Restructuring and impairment charge ..............                --            95,876             5,008            95,876
                                                          ----------        ----------        ----------        ----------

     Operating earnings (loss) ...................             7,909          (104,199)           28,532           (50,318)

Interest expense .................................            34,303            30,236            68,533            59,263
Other expense, net ...............................               903             5,799             4,291             6,328
                                                          ----------        ----------        ----------        ----------

     Loss before income tax benefit ..............           (27,297)         (140,234)          (44,292)         (115,909)

Income tax benefit ...............................            (9,800)          (50,450)          (15,895)          (41,675)
                                                          ----------        ----------        ----------        ----------

     Net loss ....................................        $  (17,497)       $  (89,784)       $  (28,397)       $  (74,234)
                                                          ==========        ==========        ==========        ==========

Basic net loss per common share ..................        $     (.35)       $    (1.81)       $     (.57)       $    (1.50)
                                                          ==========        ==========        ==========        ==========

Diluted net loss per common share ................        $     (.35)       $    (1.81)       $     (.57)       $    (1.50)
                                                          ==========        ==========        ==========        ==========

Basic average common shares outstanding ..........            49,593            49,592            49,576            49,613
     Dilutive effect of stock options
            and stock bonus plan .................                --                --                --                --
                                                          ----------        ----------        ----------        ----------

Diluted average common shares outstanding ........            49,593            49,592            49,576            49,613
                                                          ==========        ==========        ==========        ==========
</TABLE>

                             See accompanying notes


                                       4
<PAGE>   5

                             WESTPOINT STEVENS INC.

           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                               SIX MONTHS ENDED
                                                                                   JUNE 30,
                                                                         ----------------------------
                                                                            2001              2000
                                                                         ----------        ----------

<S>                                                                      <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss ...................................................        $  (28,397)       $  (74,234)
     Adjustments to reconcile net loss to net
         cash provided by (used for) operating activities:
           Depreciation and other amortization ..................            40,941            41,188
           Deferred income taxes ................................           (12,130)          (42,556)
           Changes in working capital ...........................           (62,205)          (49,764)
           Other - net ..........................................            (4,332)           (8,850)
           Restructuring and impairment charge ..................             5,008            95,876
                                                                         ----------        ----------
Net cash used for operating activities ..........................           (61,115)          (38,340)
                                                                         ----------        ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital expenditures .......................................           (33,991)          (32,383)
     Net proceeds from sale of assets ...........................               651               402
     Purchase of business .......................................            (8,363)               --
                                                                         ----------        ----------
Net cash used for investing activities ..........................           (41,703)          (31,981)
                                                                         ----------        ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Senior Credit Facility:
           Borrowings ...........................................           719,712           835,735
           Repayments ...........................................          (746,613)         (608,430)
     Net proceeds from Trade Receivables Program ................           (12,600)           (3,000)
     Purchase of common stock for treasury ......................                --           (61,203)
     Proceeds from issuance of stock ............................                --             8,891
     Cash dividends paid ........................................            (2,015)         (101,247)
     Proceeds from Second-Lien Facility .........................           165,000                --
     Fees associated with refinancing ...........................           (14,761)               --
                                                                         ----------        ----------
Net cash provided by financing activities .......................           108,723            70,746
                                                                         ----------        ----------
Net increase in cash and cash equivalents .......................             5,905               425
Cash and cash equivalents at beginning of period ................               167               162
                                                                         ----------        ----------

Cash and cash equivalents at end of period ......................        $    6,072        $      587
                                                                         ==========        ==========
</TABLE>

                             See accompanying notes


                                       5
<PAGE>   6

                             WESTPOINT STEVENS INC.

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

<TABLE>
<CAPTION>
                                                COMMON
                                                 STOCK
                                              AND CAPITAL
                                                  IN                                          ACCUMULATED
                                               EXCESS OF     TREASURY STOCK                      OTHER
                                       COMMON     PAR     --------------------   ACCUMULATED COMPREHENSIVE    UNEARNED
                                       SHARES    VALUE     SHARES     AMOUNT      DEFICIT    INCOME (LOSS)  COMPENSATION   TOTAL
                                       ------ ----------- --------  ----------   ----------- -------------  ------------ ----------

<S>                                    <C>    <C>         <C>       <C>          <C>         <C>            <C>          <C>
Balance, January 1, 2001.............. 71,100   $367,515   (21,686) $ (420,421)  $ (650,943)    $ (1,774)     $ (7,198)  $ (712,821)
  Comprehensive income (loss):
     Net income (loss)................     --         --        --          --      (28,397)          --            --      (28,397)
     Foreign currency
        translation adjustment........                                                               727                        727
     Cash flow hedges:
         Cumulative effect of
             change in accounting,
             net of tax of $544.......                                                              (968)                      (968)
          Net derivative losses,
           net of tax of $6,460.......                                                           (11,485)                   (11,485)
                                                                                                                         ----------
  Comprehensive income (loss).........                                                                                      (40,123)
                                                                                                                         ----------
  Issuance of stock pursuant
       to Stock Bonus Plan
       including tax expense..........     --      1,418       132       1,412           --           --            --        2,830
  Issuance of Restricted Stock........               (19)       11          75           --           --           (76)         (20)
  Amortization of compensation........     --         --        --          --           --           --         1,004        1,004
  Net operating loss benefit..........            26,818        --          --           --           --            --       26,818
  Stock dividends pursuant
      to Stock Bonus Plan.............     --         --        --          --         (437)          --            --         (437)
  Cash dividends......................     --         --        --          --       (2,015)          --            --       (2,015)
                                       ------   --------  --------  ----------   ----------     --------      --------   ----------

Balance, June 30, 2001                 71,100   $395,732   (21,543) $ (418,934)  $ (681,792)    $(13,500)     $ (6,270)  $ (724,764)
                                       ======   ========  ========  ==========   ==========     ========      ========   ==========
</TABLE>

                             See accompanying notes


                                       6
<PAGE>   7

                             WESTPOINT STEVENS INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the six month period ended June 30,
2001 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2001. For further information, refer to the
consolidated financial statements and footnotes thereto included in the annual
report on Form 10-K for WestPoint Stevens Inc. (the "Company") for the year
ended December 31, 2000.

2. INVENTORIES

The Company uses the last-in, first-out ("LIFO") method of accounting for
substantially all inventories for financial reporting purposes. Interim
determinations of LIFO inventories are necessarily based on management's
estimates of year-end inventory levels and costs. Subsequent changes in these
estimates, including the final year-end LIFO determination, and the effect of
such changes on earnings are recorded in the interim periods in which they
occur.

Inventories consisted of the following at June 30, 2001 and December 31, 2000
(in thousands of dollars):

<TABLE>
<CAPTION>
                                           JUNE 30,   DECEMBER 31,
                                             2001         2000
                                          ----------  ------------
         <S>                              <C>         <C>
         Finished goods                   $  215,265   $  183,660
         Work in progress                    161,041      169,745
         Raw materials and supplies           53,380       55,569
         LIFO reserve                         (4,812)      (1,642)
                                          ----------   ----------
                                          $  424,874   $  407,332
                                          ==========   ==========
</TABLE>


                                       7
<PAGE>   8

                             WESTPOINT STEVENS INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

3. INDEBTEDNESS AND FINANCIAL ARRANGEMENTS

Indebtedness is as follows (in thousands of dollars):

<TABLE>
<CAPTION>
                                                JUNE 30,   DECEMBER 31,
                                                  2001         2000
                                               ----------  ------------

         <S>                                   <C>         <C>
         Short-term indebtedness
               Senior Credit Facility
                     Revolver                  $  125,948   $  152,849
                                               ==========   ==========

         Long-term indebtedness
               Senior Credit Facility
                     Revolver                  $  475,000   $  475,000
           7.875% Senior Notes due 2005           525,000      525,000
           7.875% Senior Notes due 2008           475,000      475,000
               Second-Lien Facility               165,000           --
                                               ----------   ----------
                                               $1,640,000   $1,475,000
                                               ==========   ==========
</TABLE>

The Company has included $475 million of the Senior Credit Facility in long-term
debt at June 30, 2001 because the Company intends that at least that amount
would remain outstanding during the next twelve months.

At June 30, 2001 and December 31, 2000, $127.4 million and $140.0 million,
respectively, of accounts receivable had been sold pursuant to a trade
receivables program (the "Trade Receivables Program") and the sale is reflected
as a reduction of accounts receivable in the accompanying Condensed Consolidated
Balance Sheets.

On June 29, 2001, the Company announced the closing of a $165 million
second-lien senior credit facility ("Second-Lien Facility") with a maturity date
of February 28, 2005. Net proceeds from the transaction, after payment of
approximately $15 million of related transaction fees and expenses, were used to
reduce outstanding borrowings under the Senior Credit Facility as well as
provide additional liquidity for working capital and general corporate purposes.
Interest under the Second-Lien Facility is payable quarterly at an interest rate
of prime plus 8% increasing each quarter after June 30, 2002 by .375% but in no
event less than 15%. The loans under the Second-Lien Facility are secured by a
second priority lien on the assets securing the existing Senior Credit Facility.

During the first and second quarters of 2001, the Company's Senior Credit
Facility was amended primarily to modify certain financial ratios, add a minimum
EBITDA covenant, limit restricted debt and equity payments including dividends,
limit capital expenditures, permit the Second-Lien Facility transaction and
provide for scheduled reductions of the revolving commitment. Effective with the
closing of the Second-Lien Facility, the revolving commitment was reduced to
$717.5 million from $800 million. The latest amendment to the Senior Credit
Facility provides for a $25 million


                                       8
<PAGE>   9

                             WESTPOINT STEVENS INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

3. INDEBTEDNESS AND FINANCIAL ARRANGEMENTS--CONTINUED

reduction in the revolver commitment on each of the following dates: November 1,
2002, February 1, 2003, August 1, 2003 and November 1, 2003 and further provides
for a $17.5 million reduction in the revolver commitment on February 1, 2004 at
which time the revolver commitment will be $600 million. The amendments further
provide that any increase in the Trade Receivables Program above the current
$160 million limit, up to a $200 million limit, would reduce the revolving
commitment under the Senior Credit Facility by a similar amount.

At the option of the Company, interest under the Senior Credit Facility will be
payable monthly, either at the prime rate plus 1.25% or at LIBOR plus 3%. The
Company pays a facility fee in an amount equal to 0.50% 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.

4. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES

In 2000, the Company announced that its Board of Directors had approved the new
Eight Point Plan, which was created to be the guiding discipline for the Company
in a global economy. The Board also approved a $222 million pretax charge for
restructuring, impairment and other charges to cover the cost of implementing
the Eight Point Plan that is designed to streamline operations and improve
profitability. The Eight Point Plan addresses the following points: 1) expand
brands; 2) explore new licensing opportunities; 3) rationalize manufacturing; 4)
reduce overhead; 5) increase global sourcing; 6) improve inventory utilization;
7) enhance supply chain and logistics; and 8) improve capital structure.

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

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


                                       9
<PAGE>   10

                             WESTPOINT STEVENS INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

4. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES--CONTINUED

The cost of the manufacturing rationalization and certain overhead reduction
costs were reflected in a restructuring and impairment charge of $109.2 million,
before taxes, in 2000 and a restructuring and impairment charge of $5 million,
before taxes, in 2001. The components of the restructuring and impairment charge
in 2000 included $66.8 million for the impairment of fixed assets, $23.7 million
for the impairment of goodwill and other assets and $18.7 million in reserves to
cover cash expenses related to severance benefits of $14.7 million and other
exit costs, including lease terminations, of $4 million. The components of the
restructuring and impairment charge in 2001 included $5 million in reserves to
cover cash expenses related to severance benefits.

Since the adoption of the Eight Point Plan, the Company has terminated and paid
severance (including continuing termination benefits) to approximately 1,600
employees. No further significant terminations under the current restructuring
plan are contemplated at this time.

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

<TABLE>
<CAPTION>
                                                                  EMPLOYEE       OTHER
                                                    WRITEDOWN    TERMINATION     EXIT         TOTAL
                                                     ASSETS       BENEFITS       COSTS       CHARGE
                                                    ---------    -----------     -----       ------

<S>                                                 <C>          <C>             <C>         <C>
2000 Restructuring and Impairment Charge:
         Second Quarter                              $ 87.9        $  4.6        $3.4        $ 95.9
         Third Quarter                                   --           5.8         0.3           6.1
         Fourth Quarter                                 2.6           4.3         0.3           7.2
                                                     ------        ------        ----        ------
Total 2000 Charge                                      90.5          14.7         4.0         109.2
2001 Restructuring and Impairment Charge:
         First Quarter                                   --           5.0          --           5.0
                                                     ------        ------        ----        ------
Total 2001 Charge                                        --           5.0          --           5.0
Writedown Assets to Net Recoverable Value             (90.5)           --          --         (90.5)
2000 Cash Payments                                       --          (4.7)       (0.3)         (5.0)
2001 Cash Payments                                       --          (9.9)       (0.1)        (10.0)
                                                     ------        ------        ----        ------
Balance at June 30, 2001                             $   --        $  5.1        $3.6        $  8.7
                                                     ======        ======        ====        ======
</TABLE>

During 2000, other costs of the Eight Point Plan and other charges of $94
million, before taxes, were recognized including inventory writedowns of $74.2
million, claims of $5 million and other expenses of $6.1 million consisting
primarily of $2.2 million for the relocation of machinery, $2.4 million of
related unabsorbed overhead and other expenses of $1.5 million all reflected in
cost of goods sold and other costs of $8.7 million consisting primarily of $5.7
million of unusual contractual severance and other expenses of $3 million
reflected in other expense, net. During 2001, other costs of the Eight Point
Plan of $9.7 million, before taxes, were recognized (of which $5.7 million were
recognized in the second quarter) consisting primarily of $6.1 million for the
relocation of machinery, $3.0 million of related unabsorbed overhead and other
expenses of $0.6 million all reflected in cost of goods sold.


                                       10
<PAGE>   11

                             WESTPOINT STEVENS INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

4. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES--CONTINUED

The Company expects to incur additional charges of approximately $4 million
during the third and fourth quarter of 2001 related primarily to the relocation
of machinery and other costs in connection with the Eight Point Plan and expects
to complete its restructuring plan in the fourth quarter of 2001.

5. DERIVATIVES

Effective January 1, 2001, the Company adopted the Financial Accounting
Standards Board Statement of Financial Accounting Standard No. 133 "Accounting
for Derivative Instruments and Hedging Activities" SFAS No. 133 as amended by
SFAS No. 137 and SFAS No. 138. These statements require the Company to recognize
all derivative instruments on the balance sheet at fair value. These statements
also establish new accounting rules for hedging instruments, which depend on the
nature of the hedge relationship. A fair value hedge requires that the effective
portion of the change in the fair value of a derivative instrument be offset
against the change in the fair value of the underlying asset, liability, or firm
commitment being hedged through earnings. A cash flow hedge requires that the
effective portion of the change in the fair value of a derivative instrument be
recognized in Other Comprehensive Income (OCI), a component of Stockholders'
Equity, and reclassified into earnings in the same period or periods during
which the hedged transaction affects earnings. The ineffective portion of a
derivative instrument's change in fair value is immediately recognized in
earnings. The first and second quarters of 2001 unaudited condensed consolidated
financial statements include the provisions required by SFAS No. 133, while the
first and second quarters of 2000 unaudited condensed consolidated financial
statements were prepared in accordance with the applicable professional
literature for derivatives and hedging instruments in effect at that time.
Although the Company believes that these statements will not have a material
impact on the annual consolidated financial results, the requirements of these
statements may result in slightly increased volatility in the Company's future
quarterly unaudited condensed consolidated financial results.

The adoption of SFAS No. 133 resulted in the Company recording transition
adjustments to recognize its derivative instruments at fair value and to
recognize the ineffective portion of the change in fair value of its
derivatives. The cumulative effect of these transition adjustments was an
after-tax net decrease to OCI approximating $968,000. There was no cumulative
effect of transition adjustments on the Company's consolidated statement of
operations due to the adoption of SFAS No. 133.

The Company uses derivative financial instruments primarily to reduce exposure
to adverse fluctuations in interest rates and cotton prices. When entered into,
the Company formally designates and documents the financial instrument as a
hedge of a specific underlying exposure, as well as the risk management
objectives and strategies for undertaking the hedge transaction. Because of the
high degree of effectiveness between the hedging instrument and the underlying
exposure being hedged, fluctuations in the value of the derivative instruments
are generally offset by changes in the


                                       11
<PAGE>   12

                             WESTPOINT STEVENS INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

5. DERIVATIVES--CONTINUED

value or cash flows of the underlying exposures being hedged. Derivatives are
recorded in the Condensed Consolidated Balance Sheet at fair value in either
Prepaid expenses and other current assets or Other accounts payable and accrued
liabilities, depending on whether the amount is an asset or liability. The fair
values of derivatives used to hedge or modify the Company's risks fluctuate over
time. These fair value amounts should not be viewed in isolation, but rather in
relation to the fair values or cash flows of the underlying hedged transactions
and other exposures and to the overall reduction in Company risk relating to
adverse fluctuations in interest rates, commodity prices and other market
factors. In addition, the earnings impact resulting from the effective portion
of the Company's derivative instruments is recorded in the same line item within
the Condensed Consolidated Statement of Operations as the underlying exposure
being hedged. The Company also formally assesses, both at the inception and at
least quarterly thereafter, whether the financial instruments that are used in
hedging transactions are effective at offsetting changes in either the fair
value or cash flows of the related underlying exposures. Any material
ineffective portion of a financial instrument's change in fair value is
immediately recognized in earnings.

At June 30, 2001, the Company had only entered into cash flow hedges.

Cash Flow Hedging Strategy

Management has been authorized to manage the Company's exposure to adverse
changes in interest rates. During January 2001, the Company entered into an
interest rate swap agreement that effectively converted a portion of its
floating-rate bank debt to a fixed-rate basis, thus reducing the impact of
interest-rate changes on future interest expense. At June 30, 2001, $250
million of the Company's Senior Credit Facility was designated as the hedged
item to an interest rate swap agreement through January 2002.

Management has also been authorized to manage exposure to price fluctuations
relevant to the forecasted purchase of cotton through the use of a variety of
derivative nonfinancial instruments. At June 30, 2001 and December 31, 2000,
these instruments covered a portion of the Company's 2001 cotton needs and
include exchange traded cotton futures contracts and options.

The fair value of the Company's interest rate swap agreement is estimated by
obtaining quotes from a bank and is the estimated amount that the Company would
receive or pay to terminate the agreement at the reporting date. At June 30,
2001, the fair value of this instrument was a $2 million liability. The fair
values of exchange traded cotton futures contracts and options are estimated by
obtaining quotes from brokers. At June 30, 2001 only the Company's cotton
futures contracts qualified for hedge accounting. The fair value related to
cotton futures contracts was a liability of $17.4 million for which the Company
has provided cash margins. The fair value of the


                                       12
<PAGE>   13

                             WESTPOINT STEVENS INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

5. DERIVATIVES--CONTINUED

Cash Flow Hedging Strategy--Continued

cotton option contracts was a liability of $2.3 million for which the Company
has also provided cash margins. Such amount related to cotton options is
classified as other expense in the accompanying Condensed Consolidated Statement
of Operations. The fair values of the Company's interest rate swap and cotton
futures contracts have been recorded as a component of OCI, net of tax. At June
30, 2001, the Company expects to reclassify all net losses on derivative
instruments from OCI to earnings during the next twelve months.

6. COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) for the three and six months ended June 30, 2001 and
2000 is as follows:

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED               SIX MONTHS ENDED
                                                             JUNE 30,                        JUNE 30,
                                                     ------------------------        ------------------------
                                                       2001            2000            2001            2000
                                                     --------        --------        --------        --------

<S>                                                  <C>             <C>             <C>             <C>
Net income (loss)                                    $(17,497)       $(89,784)       $(28,397)       $(74,234)
Foreign currency translation adjustment                   422              96             727              80
Gain (loss) on derivative instruments,
      net of taxes                                      3,099              --         (12,453)             --
                                                     --------        --------        --------        --------

Comprehensive income (loss)                          $(13,976)       $(89,688)       $(40,123)       $(74,154)
                                                     ========        ========        ========        ========
</TABLE>

7. INCOME TAXES

The Company has federal and state net operating loss carryovers ("NOL's"), a
portion of which were generated prior to an ownership change that took place in
1992. Because of the complex tax rules related to these carryforwards and the
uncertainty of ultimately realizing benefit from the losses, the Company did not
record full benefit for these NOL's.

During the second quarter of 2001, certain contingencies related to the NOL's
were resolved and the Company reevaluated its position on the tax benefits
associated with these carryforwards. As a result of this analysis, the Company
has recorded a $26.8 million benefit in the second quarter. Because the NOL's
involved were generated prior to emergence from bankruptcy, the accounting rules
of Statement of Position 90-7 (Financial Reporting by Entities in Reorganization
under the Bankruptcy Code) require that the benefit be recorded in equity rather
than in the income statement.


                                       13
<PAGE>   14

                             WESTPOINT STEVENS INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

8. DEFERRED FINANCING FEES

Included in "Other expense, net in the accompanying Condensed Consolidated
Statement of Operations for the three and six months ended June 30, 2001 is the
amortization of deferred financing fees of $1.2 million and $2.2 million,
respectively, compared with $0.8 million and $1.5 million, respectively, for the
three and six months ended June 30, 2000.

9. Stockholder Rights Plan

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

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

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

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


                                       14
<PAGE>   15
10. RECENTLY ISSUED ACCOUNTING STANDARDS

Effective April 1, 2001, the Company adopted the requirements of Financial
Accounting Standards Board Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, that replaces,
in its entirety, Statement No. 125. Accordingly, the Company has modified
several agreements to meet the new requirements to enable it to continue
recognizing transfers of certain receivables to special-purpose entities as
sales. As a result, the impact of adoption on net income in 2001 was immaterial.

In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill (and intangible assets deemed
to have indefinite lives) will no longer be amortized but will be subject to
periodic impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives. The Company will
apply the new rules on accounting for goodwill and other intangible assets
beginning in the first quarter of 2002 and, during 2002, will perform the first
of the required impairment tests of goodwill and indefinite lived intangible
assets as of January 1, 2002. The Company will be reviewing the statements to
determine their effect.


                                       15
<PAGE>   16

                             WESTPOINT STEVENS INC.

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

SECOND-LIEN FACILITY AND SENIOR CREDIT FACILITY

On June 29, 2001, the Company announced the closing of a $165 million
Second-Lien Facility with a maturity date of February 28, 2005. Net proceeds
from the transaction, after payment of approximately $15 million of related
transaction fees and expenses, were used to reduce outstanding borrowings under
the Senior Credit Facility as well as provide additional liquidity for working
capital and general corporate purposes. Interest under the Second-Lien Facility
is payable quarterly at an interest rate of prime plus 8% increasing each
quarter after June 30, 2002 by .375% but in no event less than 15%. The loans
under the Second-Lien Facility are secured by a second priority lien on the
assets securing the existing Senior Credit Facility.

During the first and second quarters of 2001, the Company's Senior Credit
Facility was amended primarily to modify certain financial ratios, add a minimum
EBITDA covenant, limit restricted debt and equity payments including dividends,
limit capital expenditures, permit the Second-Lien Facility transaction and
provide for scheduled reductions of the revolving commitment. Effective with the
closing of the Second-Lien Facility, the revolving commitment was reduced to
$717.5 million from $800 million. The latest amendment to the Senior Credit
Facility provides for a $25 million reduction in the revolver commitment on each
of the following dates: November 1, 2002, February 1, 2003, August 1, 2003 and
November 1, 2003 and further provides for a $17.5 million reduction in the
revolver commitment on February 1, 2004 at which time the revolver commitment
will be $600 million. The amendments further provide that any increase in the
Trade Receivables Program above the current $160 million limit, up to a $200
million limit, would reduce the revolver commitment under the Senior Credit
Facility by a similar amount.

At the option of the Company, interest under the Senior Credit Facility will be
payable monthly, either at the prime rate plus 1.25% or at LIBOR plus 3%. The
Company pays a facility fee in an amount equal to 0.50% 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.

IMPAIRMENT, RESTRUCTURING AND OTHER CHARGES

As a result of a strategic review of the Company's businesses, manufacturing and
other facilities, and products in the second quarter of 2000, the Company's
Board of Directors approved a $222 million pretax charge to cover the cost of
implementing an Eight Point Plan that is designed to streamline operations and
improve profitability.


                                       16
<PAGE>   17

                             WESTPOINT STEVENS INC.

       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

IMPAIRMENT, RESTRUCTURING AND OTHER CHARGES--CONTINUED

The Eight Point Plan addresses the following points: 1) expansion of brands; 2)
exploration of new licensing opportunities; 3) rationalization of manufacturing
operations; 4) reduction in overhead expense; 5) increase in global sourcing; 6)
improvement of inventory utilization; 7) enhancement of supply chain and
logistics functions; and 8) improvement in capital structure. The Company
estimates the implementation of the Eight Point Plan will generate annual
savings of $38 million pretax starting in 2002. Given the disruptive nature of
the restructuring activity which includes significant machinery relocation and
realignment, the Company does not anticipate any significant benefit from the
restructuring plan until the first quarter of 2002.

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

As of August 3, 2001, four plant closings have been announced under the Eight
Point Plan. On October 2, 2000, the Rosemary greige plant, a towel plant located
in Roanoke Rapids, North Carolina, and the Liebhardt basic bedding plant in
Union, South Carolina, were scheduled for closing. On January 29, 2001, the
Seneca plant, a sheeting plant in Seneca, South Carolina, was scheduled for
closing. On March 1, 2001, the Whitmire yarn plant in Whitmire, South Carolina,
was scheduled for closing. In addition to these closings, a reduction in the
workforce of the remaining finishing and fabricating facilities at the Rosemary
complex was announced on February 5, 2001. These plant closings will enable the
Company to consolidate its manufacturing in locations that allow the most
efficient work flow.

The cost of the manufacturing rationalization and certain overhead reduction
costs were reflected in a restructuring and impairment charge of $109.2 million,
before taxes, in 2000 and a restructuring and impairment charge of $5 million,
before taxes, in 2001. The components of the restructuring and impairment charge
in 2000 included $66.8 million for the impairment of fixed assets, $23.7 million
for the impairment of goodwill and other assets and $18.7 million in reserves to
cover cash expenses related to severance benefits of $14.7 million and other
exit costs, including lease terminations, of $4 million. The components of the
restructuring and impairment charge in 2001 included $5 million in reserves to
cover cash expenses related to severance benefits.

Since the adoption of the Eight Point Plan, the Company has terminated and paid
severance (including continuing termination benefits) to approximately 1,600
employees. No further significant terminations under the current restructuring
plan are contemplated at this time.


                                       17
<PAGE>   18

                             WESTPOINT STEVENS INC.

       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

IMPAIRMENT, RESTRUCTURING AND OTHER CHARGES--CONTINUED

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

<TABLE>
<CAPTION>
                                                                  EMPLOYEE       OTHER
                                                    WRITEDOWN    TERMINATION     EXIT         TOTAL
                                                     ASSETS       BENEFITS       COSTS       CHARGE
                                                    ---------    -----------     -----       ------

<S>                                                 <C>          <C>             <C>         <C>
2000 Restructuring and Impairment Charge:
         Second Quarter                              $ 87.9        $  4.6        $ 3.4       $ 95.9
         Third Quarter                                   --           5.8          0.3          6.1
         Fourth Quarter                                 2.6           4.3          0.3          7.2
                                                     ------        ------        -----       ------
Total 2000 Charge                                      90.5          14.7          4.0        109.2
2001 Restructuring and Impairment Charge:
         First Quarter                                   --           5.0           --          5.0
                                                     ------        ------        -----       ------
Total 2001 Charge                                        --           5.0           --          5.0
Writedown Assets to Net Recoverable Value             (90.5)           --           --        (90.5)
2000 Cash Payments                                       --          (4.7)        (0.3)        (5.0)
2001 Cash Payments                                       --          (9.9)        (0.1)       (10.0)
                                                     ------        ------        -----       ------
Balance at June 30, 2001                             $   --        $  5.1        $ 3.6       $  8.7
                                                     ======        ======        =====       ======
</TABLE>

During 2000, other costs of the Eight Point Plan and other charges of $94
million, before taxes, were recognized including inventory writedowns of $74.2
million, claims of $5 million and other expenses of $6.1 million consisting
primarily of $2.2 million for the relocation of machinery, $2.4 million of
related unabsorbed overhead and other expenses of $1.5 million all reflected in
cost of goods sold and other costs of $8.7 million consisting primarily of $5.7
million of unusual contractual severance and other expenses of $3 million
reflected in other expense, net. During 2001, other costs of the Eight Point
Plan of $9.7 million, before taxes, were recognized (of which $5.7 million were
recognized in the second quarter) consisting primarily of $6.1 million for the
relocation of machinery, $3.0 million of related unabsorbed overhead and other
expenses of $0.6 million all reflected in cost of goods sold.

The Company expects to incur additional charges of approximately $4 million
during the third and fourth quarter of 2001 related primarily to the relocation
of machinery and other costs in connection with the Eight Point Plan and expects
to complete its restructuring plan in the fourth quarter of 2001.


                                       18
<PAGE>   19

                             WESTPOINT STEVENS INC.

       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS: THREE AND SIX MONTHS ENDED JUNE 30, 2001

The tables below are a summary of the Company's operating results for the three
and six months ended June 30, 2001 and June 30, 2000 (in thousands of dollars).

<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED JUNE 30,
                                        -------------------------------------------------------------------------------------
                                                          2001                                        2000
                                        ----------------------------------------    -----------------------------------------
                                           PROFORMA    RESTRUCTURING                   PROFORMA   RESTRUCTURING
                                            BEFORE       AND OTHER                      BEFORE       AND OTHER
                                        RESTRUCTURING     ITEMS         ACTUAL      RESTRUCTURING     ITEMS          ACTUAL
                                        -------------  -------------  ----------    ------------- -------------    ----------

<S>                                     <C>            <C>            <C>           <C>           <C>              <C>
Net Sales                                 $  401,659     $     --     $  401,659       $462,039     $       --     $  462,039
Cost of goods sold                           324,206        5,743        329,949        341,538         67,203        408,741
                                          ----------     --------     ----------       --------     ----------     ----------
        Gross earnings (loss)                 77,453       (5,743)        71,710        120,501        (67,203)        53,298
Selling, general and
    administrative expenses                   63,801           --         63,801         61,621             --         61,621
Restructuring and impairment
    charge                                        --           --             --             --         95,876         95,876
                                          ----------     --------     ----------       --------     ----------     ----------
        Operating earnings (loss)             13,652       (5,743)         7,909         58,880       (163,079)      (104,199)
Interest expense                              34,303           --         34,303         30,236             --         30,236
Other expense, net                               903           --            903            679          5,120          5,799
                                          ----------     --------     ----------       --------     ----------     ----------
        Income (loss) before income
            tax expense (benefit)            (21,554)      (5,743)       (27,297)        27,965       (168,199)      (140,234)
Income tax expense (benefit)                  (7,733)      (2,067)        (9,800)        10,100        (60,550)       (50,450)
                                          ----------     --------     ----------       --------     ----------     ----------
        Net income (loss)                 $  (13,821)    $ (3,676)    $  (17,497)      $ 17,865     $ (107,649)    $  (89,784)
                                          ==========     ========     ==========       ========     ==========     ==========

Basic net income (loss) per
    common share                          $     (.28)                 $     (.35)      $    .36                    $    (1.81)
                                          ==========                  ==========       ========                    ==========

Diluted net income (loss) per
    common share                          $     (.28)                 $     (.35)      $    .36                    $    (1.81)
                                          ==========                  ==========       ========                    ==========

Basic average common shares
    outstanding                               49,593                      49,593         49,592                        49,592
        Dilutive effect of stock
            options and stock
            bonus plan                            --                          --            251                            --
                                          ----------                  ----------       --------                    ----------
Diluted average common
    shares outstanding                        49,593                      49,593         49,843                        49,592
                                          ==========                  ==========       ========                    ==========
</TABLE>

                             See accompanying notes.


                                       19
<PAGE>   20

                             WESTPOINT STEVENS INC.

       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS: THREE AND SIX MONTHS ENDED JUNE 30, 2001 (CONTINUED)

<TABLE>
<CAPTION>
                                                                         SIX MONTHS ENDED JUNE 30,
                                            ----------------------------------------------------------------------------------
                                                              2001                                     2000
                                            ---------------------------------------  -----------------------------------------
                                              PROFORMA    RESTRUCTURING                 PROFORMA   RESTRUCTURING
                                               BEFORE       AND OTHER                    BEFORE      AND OTHER
                                            RESTRUCTURING    ITEMS         ACTUAL    RESTRUCTURING     ITEMS          ACTUAL
                                            ------------- -------------  ----------  ------------- -------------    ----------

<S>                                         <C>           <C>            <C>         <C>           <C>              <C>
Net Sales                                    $  820,272     $     --     $  820,272     $909,854     $       --     $  909,854
Cost of goods sold                              649,122        9,734        658,856      672,923         67,203        740,126
                                             ----------     --------     ----------     --------     ----------     ----------
        Gross earnings (loss)                   171,150       (9,734)       161,416      236,931        (67,203)       169,728
Selling, general and
    administrative expenses                     127,876           --        127,876      124,170             --        124,170
Restructuring and impairment
    charge                                           --        5,008          5,008           --         95,876         95,876
                                             ----------     --------     ----------     --------     ----------     ----------
        Operating earnings (loss)                43,274      (14,742)        28,532      112,761       (163,079)       (50,318)
Interest expense                                 68,533           --         68,533       59,263             --         59,263
Other expense, net                                4,291           --          4,291        1,208          5,120          6,328
                                             ----------     --------     ----------     --------     ----------     ----------
        Income (loss) before income
            tax expense (benefit)               (29,550)     (14,742)       (44,292)      52,290       (168,199)      (115,909)
Income tax expense (benefit)                    (10,588)      (5,307)       (15,895)      18,875        (60,550)       (41,675)
                                             ----------     --------     ----------     --------     ----------     ----------
        Net income (loss)                    $  (18,962)    $ (9,435)    $  (28,397)    $ 33,415     $ (107,649)    $  (74,234)
                                             ==========     ========     ==========     ========     ==========     ==========

Basic net income (loss) per
    common share                             $     (.38)                 $     (.57)    $    .67                    $    (1.50)
                                             ==========                  ==========     ========                    ==========

Diluted net income (loss) per
    common share                             $     (.38)                 $     (.57)    $    .67                    $    (1.50)
                                             ==========                  ==========     ========                    ==========

Basic average common shares
    outstanding                                  49,576                      49,576       49,613                        49,613
        Dilutive effect of stock
            options and stock
            bonus plan                               --                          --          364                            --
                                             ----------                  ----------     --------                    ----------
Diluted average common
    shares outstanding                           49,576                      49,576       49,977                        49,613
                                             ==========                  ==========     ========                    ==========
</TABLE>

                             See accompanying notes.


                                       20
<PAGE>   21

                             WESTPOINT STEVENS INC.

       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS: THREE MONTHS ENDED JUNE 30, 2001

NET SALES. Net sales for the three months ended June 30, 2001 decreased $60.4
million, or 13.1%, to $401.7 million compared with net sales of $462.0 million
for the three months ended June 30, 2000. On a pro forma basis, excluding sales
from the acquired Chatham blankets unit, sales declined 14% in the period. On
going weak retail demand for home fashions products during the quarter led to
continued promotional activity. As a result, sales declined in all product
categories.

GROSS EARNINGS/MARGINS. Excluding charges associated with the Eight Point Plan,
gross earnings for the three months ended June 30, 2001 decreased $43.0 million,
or 35.7%, to $77.5 million compared with $120.5 million for the same period of
2000 and reflect gross margins of 19.3% in 2001 versus 26.1% in 2000. Gross
earnings decreased primarily as a result of the lower sales volume and increased
promotional activity. Gross margins declined due to a less favorable product mix
coupled with increases in other manufacturing costs, primarily raw material and
energy costs. Included in the cost of goods sold in the second quarter of 2001
are charges associated with the Eight Point Plan of $5.7 million, the majority
of which reflect costs for equipment relocation, versus charges in 2000
associated with the Eight Point Plan of $67.2 million, the majority of which
reflected inventory write-offs and $5 million in reserves for accounts
receivable. Including the charges, gross earnings for the three months ended
June 30, 2001 increased $18.4 million, or 34.6%, to $71.7 million compared with
$53.3 million for the same period of 2000.

OPERATING EARNINGS/MARGINS. Selling, general and administrative expenses
increased $2.2 million, or 3.5%, in the second quarter of 2001 compared with the
same period of last year, and as a percentage of net sales represent 15.9% in
the 2001 period and 13.3% in the 2000 period. The increase in selling, general
and administrative expenses in the second quarter of 2001 was primarily due to
the acquisition of Chatham and costs associated with expansion of the retail
stores division.

Before charges associated with the Eight Point Plan, operating earnings for the
second quarter of 2001 decreased 76.8% to $13.7 million, or 3.4% of sales,
compared with operating earnings of $58.9 million, or 12.7% of sales, for the
same period in 2000. This decline reflected the sales decline, promotional
product mix, and increased raw material and energy costs as well as increased
selling, general and administrative expenses discussed above. Including the
charges, operating earnings for the three months ended June 30, 2001 increased
$112.1 million to $7.9 million compared with a loss of $104.2 million for the
same period of 2000. Operating earnings for the three months ended June 30,
2000, included a separate line item for restructuring and impairment charges of
$95.9 million to reflect a reduction in goodwill and fixed assets in addition to
severance benefits and other exit costs.

INTEREST EXPENSE. Interest expense for the three months ended June 30, 2001 of
$34.3 million increased $4.1 million compared with interest expense of $30.2
million for the three months ended June 30, 2000. The increase was due primarily
to higher interest rates on the Company's variable rate bank debt and higher
average debt levels in the second quarter of 2001 compared with corresponding
2000 average debt levels.


                                       21
<PAGE>   22

                             WESTPOINT STEVENS INC.

       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS: THREE MONTHS ENDED JUNE 30, 2001 (CONTINUED)

OTHER EXPENSE, NET. Other expense, net in the second quarter of 2001 consisted
primarily of the amortization of deferred financing fees of $1.2 million, less
certain miscellaneous income items compared with amortization of deferred
financing fees of $0.8 million in the second quarter of 2000.

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

NET INCOME. Net income, before charges associated with the Eight Point Plan,
decreased $31.7 million, to a loss of $13.8 million, or ($0.28) per share
diluted, from net income of $17.9 million, or $0.36 per share diluted, in the
same period of last year. After the charges, net income for the second quarter
of 2001 was a loss of $17.5 million, or ($0.35) per share diluted, compared with
a net loss of $89.8 million, or ($1.81) per share diluted, for the same period
of last year.

Diluted per share amounts are based on 49.6 million average shares outstanding
for both the 2001 and 2000 periods.

RESULTS OF OPERATIONS: SIX MONTHS ENDED JUNE 30, 2001

NET SALES. Net sales for the six months ended June 30, 2001 decreased $89.6
million, or 9.9%, to $820.3 million compared with net sales of $909.9 million
for the six months ended June 30, 2000. The decrease in net sales resulted
primarily from ongoing weak retail demand for home fashions products during the
period and continued promotional activity. As a result, sales declined in all
product categories.

GROSS EARNINGS/MARGINS. Excluding charges associated with the Eight Point Plan,
gross earnings for the six months ended June 30, 2001 decreased $65.8 million,
or 27.8%, to $171.2 million compared with $236.9 million for the same period of
2000 and reflect margins of 20.9% in the 2001 period and 26.0% in the 2000
period. Gross earnings and margins decreased primarily as a result of the lower
sales volume and increased promotional activity as well as a less favorable
product mix coupled with increases in other manufacturing costs, primarily raw
material and energy costs. Gross earnings for the six months ended June 30,
2001, after charges associated with the Eight Point Plan, decreased $8.3
million, or 4.9%, to $161.4 million compared with $169.7 million for the same
period of 2000. Included in cost of goods sold for the first six months of 2001
are charges associated with the Eight Point Plan of $9.7 million, the majority
of which are equipment relocation costs as well as roughly $3 million in
unabsorbed overhead costs, as compared with $95.9 million in 2000 to reflect a
reduction in goodwill and fixed assets in addition to severance benefits and
other exit costs.


                                       22
<PAGE>   23

                             WESTPOINT STEVENS INC.

       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS: SIX MONTHS ENDED JUNE 30, 2001 (Continued)

OPERATING EARNINGS/MARGINS. Selling, general and administrative expenses
increased by $3.7 million, or 3.0%, in the first six months of 2001 compared
with the same period of last year, and as a percentage of net sales represent
15.6% in the 2001 period and 13.7% in the 2000 period. The increase in selling,
general and administrative expenses in the first six months of 2001 was
primarily due to the acquisition of Chatham and costs associated with expansion
of the retail stores division.

Before charges associated with the Eight Point Plan, operating earnings for the
six months ended June 30, 2001 decreased 61.6% to $43.3 million, or 5.3% of
sales, compared with operating earnings of $112.8 million, or 12.4% of sales,
for the same period in 2000. The decrease in operating earnings reflected the
sales decline, promotional product mix, and increased raw material and energy
costs and increased selling, general and administrative expenses discussed
above. Including charges associated with the Eight Point Plan, operating
earnings for the first six months of 2001 were $28.5 million, compared to a loss
of $50.3 million in the same period of 2000. A separate line item reflected
restructuring and impairment costs of $5 million for severance benefits compared
with a charge of $95.9 million last year to reflect a reduction in goodwill and
fixed assets in addition to severance benefits and other exit costs.

INTEREST EXPENSE. Interest expense for the six months ended June 30, 2001 of
$68.5 million increased $9.3 million compared with interest expense of $59.3
million for the six months ended June 30, 2000. The increase was due primarily
to higher interest rates on the Company's variable rate bank debt and higher
average debt levels in the first six months of 2001 compared with corresponding
2000 average debt levels.

OTHER EXPENSE, NET. Other expense, net in the first six months of 2001 consisted
primarily of a $2.3 million charge for cotton derivatives in accordance with
FASB 133, Accounting for Derivative Instruments and Hedging Activities. Other
expense, net also includes the amortization of deferred financing fees of $2.2
million, less certain miscellaneous income items compared with amortization of
deferred financing fees of $1.5 million in the first six months of 2000.

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

NET INCOME. Before charges associated with the Eight Point Plan, net income for
the first six months of 2001 decreased $52.4 million, to a loss of $19.0
million, or ($0.38) per share diluted, from $33.4 million, or $0.67 per share
diluted, in the same period of last year. Net income for the first six months of
2001, including the charges, was a loss of $28.4 million, or ($0.57) per share
diluted, compared with a net loss of $74.2 million, or ($1.50) per share
diluted, for the same period of last year.

Diluted per share amounts are based on 49.6 million average shares outstanding
for both the 2001 and 2000 periods.


                                       23
<PAGE>   24

                             WESTPOINT STEVENS INC.

       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

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 August 3,
2001, the maximum commitment under the Senior Credit Facility was $717.5 million
and the Company had unused borrowing availability under the Senior Credit
Facility totaling approximately $102 million. The Senior Credit Facility
contains covenants which, among other things, limit indebtedness and require the
maintenance of certain financial ratios, minimum EBITDA 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 $76.7 million in
2000 on capital expenditures and intends to invest approximately $65 million in
2001. The Board of Directors approved the payment of quarterly cash dividends of
$.02 per share which were paid on March 1, 2001 and June 1, 2001 totaling
approximately $2 million. The latest amendment of the Senior Credit Facility
does not permit future cash dividends.

The Board of Directors has approved the purchase of up to twenty-seven million
shares of the Company's common stock, subject to the Company's debt limitations.
At June 30, 2001, approximately 3.6 million shares remained to be purchased
under these programs. At the present time, the Company has suspended its stock
repurchases.

The Company has a Trade Receivables Program which provides for the sale of
accounts receivable, on a revolving basis. At June 30, 2001 and December 31,
2000, $127.4 million and $140 million, respectively, had been sold under this
program and the sale is reflected as a reduction of accounts receivable in the
accompanying Condensed Consolidated Balance Sheets. The cost of the Trade
Receivables Program in 2001 is estimated to total approximately $7.4 million,
compared with $9.6 million in 2000, and will be charged to selling, general and
administrative expenses.

Debt service requirements for interest payments in 2001 are estimated to total
approximately $145 million (excluding amounts related to the Trade Receivables
Program) compared with interest payments of $122.9 million in 2000. The
Company's long-term indebtedness has no scheduled principal payment requirement
during 2001.


                                       24
<PAGE>   25

                             WESTPOINT STEVENS INC.

       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

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


                                       25
<PAGE>   26

                             WESTPOINT STEVENS INC.

PART II - OTHER INFORMATION

ITEM 1.  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 nonhazardous substances and wastes
used in or resulting from its operations and potential remediation obligations
thereunder. Certain of the Company's facilities (including certain facilities no
longer owned or utilized by the Company) have been cited or are being
investigated with respect to alleged violations of such laws and regulations.
The Company is cooperating fully with relevant parties and authorities in all
such matters. The Company believes that it has adequately provided in its
financial statements for any expenses and liabilities that may result from such
matters. The Company also is insured with respect to certain of such matters.
The Company's operations are governed by laws and regulations relating to
employee safety and health which, among other things, establish exposure
limitations for cotton dust, formaldehyde, asbestos and noise, and regulate
chemical and ergonomic hazards in the workplace.

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

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


                                       26
<PAGE>   27

                             WESTPOINT STEVENS INC.

PART II - OTHER INFORMATION--CONTINUED

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company's 2001 Annual Meeting of Stockholders was held on May 9, 2001. At
the 2001 Annual Meeting, the following matters were voted upon by the
stockholders:

1.  Election of five directors, three to serve for a term of three years, one to
serve for a term of two years and one to serve for a term of one year.

2.  Approval of the WestPoint Stevens Inc. Restated Certificate of
Incorporation.

3.  Approval of the WestPoint Stevens Inc. Key Employee Stock Bonus Plan (as
amended).

4.  Ratification of appointment of Ernst & Young LLP, independent certified
public accountants, as auditors of the Company for fiscal 2001.

The following is a table setting forth the number of votes cast for, against or
withheld, as well as the number of abstentions and broker non votes, as to each
of the above matters.

1.  Election of Directors

<TABLE>
<CAPTION>
                                              Authority
       Nominee                 For             Withheld
       -------             ----------         ---------
<S>                        <C>                <C>
Hugh M. Chapman            38,980,424         1,930,015
Alfred C. Eckert III       38,914,476         1,995,963
J. Hicks Lanier            38,965,106         1,945,333
John G. Hudson             38,978,635         1,931,804
Joseph R. Gladden Jr.      38,977,649         1,932,790
</TABLE>

2.  Approval of the WestPoint Stevens Restated Certificate of Incorporation

<TABLE>
<CAPTION>
   For           Against        Abstain     Broker, No-Vote
----------      ----------      -------     ---------------
<S>             <C>             <C>         <C>
26,903,113      10,299,446       68,931        3,638,949
</TABLE>

3.  Approval of the WestPoint Stevens Key Employee Stock Bonus Plan (as
amended)

<TABLE>
<CAPTION>
   For             Against       Abstain
----------        ---------      -------
<S>               <C>            <C>
35,319,879        5,544,033       46,527
</TABLE>

4.  Appointment of Ernst & Young LLP

<TABLE>
<CAPTION>
   For            Against      Abstain
----------        -------      -------
<S>               <C>          <C>
40,475,876        372,001       62,562
</TABLE>


                                       27
<PAGE>   28

                             WESTPOINT STEVENS INC.

PART II - OTHER INFORMATION--CONTINUED

ITEM 5. OTHER INFORMATION

On August 13, 2001, WestPoint Stevens Inc. announced the resignation of
Alfred C. Eckert III as a Director of the Company. Mr. Eckert indicated that
his resignation, effective immediately, was made to allow him the pursuit of
his investments without the constraints imposed by his board membership.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a.)

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                 DESCRIPTION OF EXHIBIT
-------                                ----------------------

<S>               <C>
10.1              Second Amended and Restated Collateral Trust Agreement dated
                  as of June 9, 1998 among WestPoint Stevens Inc., certain of
                  its Subsidiaries, NationsBank, N.A. (formerly NationsBank of
                  North Carolina, N.A.) as Trustee, IBJ Schroder Bank & Trust
                  Company as the Stevens Indenture Trustee (as defined therein)
                  and the other financial institutions party thereto

10.2              Separation Agreement and General Release dated as of April 11,
                  2001, between WestPoint Stevens Inc. and David C. Meek

10.3              Employment Agreement dated April 17, 2001, between WestPoint
                  Stevens Inc. and Lester Dupuy Sears

10.4              Credit Agreement dated as of June 29, 2001, among WestPoint
                  Stevens Inc., certain of its Subsidiaries, Bankers Trust
                  Company, as Administrative Agent and the Lenders party thereto

10.5              Amendment Agreement dated as of June 29, 2001, among
                  WestPoint Stevens Inc., WestPoint Stevens (UK) Limited,
                  WestPoint Stevens (Europe) Limited, Bank of America, N.A.
                  (formerly NationsBank, N.A.), as Agent and the other financial
                  institutions party thereto

10.6              Intercreditor and Lien Subordination Agreement dated as of
                  June 29, 2001, among WestPoint Stevens Inc., certain of its
                  Subsidiaries, Bank of America, N.A. (formerly NationsBank,
                  N.A.) as the collateral trustee and Bankers Trust Company, as
                  administrative agent

10.7              Collateral Security Agreement dated as of June 29, 2001, among
                  WestPoint Stevens Inc., certain of its Subsidiaries and
                  Bankers Trust Company, as administrative agent
</TABLE>

b.) The Company filed a Current Report on Form 8-K on May 9, 2001. The item
reported was "Item 5. Other Events" and "Item 7. Financial Statements and
Exhibits."


                                       28
<PAGE>   29

                             WESTPOINT STEVENS INC.

                                    SIGNATURE

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

                             WESTPOINT STEVENS INC.
                             ----------------------
                                   REGISTRANT


                               /s/ L. Dupuy Sears
                          -----------------------------
                                 L. Dupuy Sears
                          Senior Vice President-Finance
                           and Chief Financial Officer

Date: August 14, 2001


                                       29
<PAGE>   30

                                 EXHIBIT INDEX


10.1  Second Amended and Restated Collateral Trust Agreement dated as of June 9,
      1998 among WestPoint Stevens Inc., certain of its Subsidiaries,
      NationsBank, N.A. (formerly NationsBank of North Carolina, N.A.) as
      Trustee, IBJ Schroder Bank & Trust Company as the Stevens Indenture
      Trustee (as defined therein) and the other financial institutions party
      thereto

10.2  Separation Agreement and General Release dated as of April 11, 2001,
      between WestPoint Stevens Inc. and David C. Meek

10.3  Employment Agreement dated April 17, 2001, between WestPoint Stevens Inc.
      and Lester Dupuy Sears

10.4  Credit Agreement dated as of June 29, 2001, among WestPoint Stevens Inc.,
      certain of its Subsidiaries, Bankers Trust Company, as Administrative
      Agent and the Lenders party thereto

10.5  Amendment Agreement dated as of June 29, 2001, among WestPoint
      Stevens Inc., WestPoint Stevens (UK) Limited, WestPoint Stevens (Europe)
      Limited, Bank of America, N.A. (formerly NationsBank, N.A.), as Agent and
      the other financial institutions party thereto

10.6  Intercreditor and Lien Subordination Agreement dated as of June 29, 2001,
      among WestPoint Stevens Inc., certain of its Subsidiaries, Bank of
      America, N.A. (formerly NationsBank, N.A.) as the collateral trustee and
      Bankers Trust Company, as administrative agent

10.7  Collateral Security Agreement dated as of June 29, 2001, among WestPoint
      Stevens Inc., certain of its Subsidiaries and Bankers Trust Company, as
      administrative agent

                                       30