PARAGON TRADE BRANDS INC, 10-Q, 1997-08-11

PARAGON TRADE BRANDS INC
10-Q, 1997-08-11
CONVERTED PAPER & PAPERBOARD PRODS (NO CONTANERS/BOXES)

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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 thirteen week period ended June 29, 1997

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

For the transition period from ______________________ to _____________________

Commission File No. 1-11368

PARAGON TRADE BRANDS, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 91-1554663
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

180 Technology Parkway
NORCROSS, GEORGIA 30092
(Address of principal executive offices)

(770) 300-4000
(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

The number of shares outstanding of the registrant's common stock was 11,940,582
shares ($.01 par value) as of June 29, 1997.

Page 1 of 24
Exhibit Index on Page 22

1
<PAGE>

PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q FILING
FOR THE THIRTEEN WEEK PERIOD ENDED JUNE 29, 1997

PAGE NO.
--------

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
Consolidated Statements of Operations 3
Consolidated Balance Sheets 4
Consolidated Statements of Changes in Shareholders'Equity 5
Consolidated Statements of Cash Flows 6
Notes to Financial Statements 7-11

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-17

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 18
Item 2. Changes in Securities (not applicable)
Item 3 Defaults in Senior Securities (not applicable)
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information (not applicable)
Item 6. Exhibits and Reports on Form 8-K 19-20

Signature Page 21

Exhibit Index 22-23

Exhibits 24

2
<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
<TABLE>

PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(NOTE 1)

THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-------------------- ----------------------
JUNE 29, 1997 JUNE 30, 1996 JUNE 29, 1997 JUNE 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales, net of discounts and allowances $ 135,819 $ 150,717 $ 271,504 $ 287,931
Cost of sales......................... 111,890 113,071 219,737 225,832
--------- --------- --------- ----------
Gross profit.......................... 23,929 37,646 51,767 62,099
Selling, general and administrative
expense....................... 17,941 27,218 38,382 51,172
Research and development expense...... 982 906 1,906 1,837
--------- --------- --------- ----------
Operating profit...................... 5,006 9,522 11,479 9,090
Equity in earnings of unconsolidated
subsidiary.................... - 49 59 141
Interest expense...................... 1,210 1,089 2,091 1,903
Other income.......................... 480 146 926 276
--------- --------- --------- ----------
Earnings before income taxes.......... 4,276 8,628 10,373 7,604
Provision for income taxes............ 1,624 3,260 3,919 2,836
--------- --------- --------- ----------
Net earnings.......................... $ 2,652 $ 5,368 $ 6,454 $ 4,768
========= ========= ========= ==========

Primary earnings per common share..... $ .22 $ .44 $ .54 $ .40
========= ========= ========= ==========
Dividends paid........................ $ - $ - $ - $ -
========= ========= ========= ==========
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

3
<PAGE>

<TABLE>
PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(NOTE 1)

JUNE 29, 1997 DECEMBER 29, 1996
------------- -----------------
<S> <C> <C>
ASSETS
Cash and short-term investments.............. $ 5,182 $ 8,297
Receivables.................................. 46,181 56,888
Inventories.................................. 45,079 44,055
Current portion of deferred income taxes..... 9,814 10,575
Prepaid expenses............................. 2,576 957
--------- ---------
Total current assets................. 108,832 120,772
Property and equipment....................... 117,685 116,338
Construction in progress..................... 23,481 10,117
Assets held for sale......................... 13,067 14,421
Patents and trademarks....................... 423 676
Deferred income taxes........................ 23,614 26,293
Investment in unconsolidated subsidiary, at 16,531 16,531
cost.................................
Investment in and advances to unconsolidated
subsidiary, at equity................ 40,295 29,484
Goodwill..................................... 35,699 36,658
Other assets................................. 7,390 1,800
--------- ---------
Total assets......................... $ 387,017 $ 373,090
========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings........................ $ 6,500 $ -
Checks issued but not cleared................ 8,988 10,233
Accounts payable............................. 42,160 37,067
Accrued liabilities.......................... 29,251 38,495
--------- ---------
Total current liabilities............ 86,899 85,795
Long-term debt............................... 73,000 70,000
Deferred income taxes........................ 2,193 2,260
Other long-term liabilities.................. 738 330
--------- ---------
Total liabilities.................... 162,830 158,385

Commitments and contingencies (Note 6)
Shareholders' equity:
Preferred stock: Authorized 10,000,000 shares,
no shares issued, $.01 par value..... - -
Common stock: Authorized 25,000,000 shares,
issued 12,339,727 and 12,288,293
shares, $.01 par value............... 123 123
Capital surplus.............................. 144,283 143,205
Foreign currency translation adjustment...... (763) (614)
Retained earnings............................ 90,795 84,341
Less: Treasury stock, 399,145 and 535,250
shares, at cost....................... (10,251) (12,350)
--------- ---------
Total shareholders' equity........... 224,187 214,705
--------- ---------
Total liabilities and shareholders'
equity............................... $ 387,017 $ 373,090
========= =========
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

4
<PAGE>

<TABLE>

PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
(NOTE 1)

<CAPTION>
Foreign
Common Capital Currency Retained Treasury
Stock Surplus Translation Earnings Stock
----- ------- ----------- -------- -----
<S> <C> <C> <C> <C>
BALANCE, December 29, 1996.... $ 123 $ 143,205 $ (614) $ 84,341 $ (12,350)
Net earnings.......... - - - 6,454 -
Issue common stock.... - 1,078 - - 2,099
Translation adjustment - - (149) - -
----- --------- ------- -------- ----------
BALANCE, June 29, 1997........ $ 123 $ 144,283 $ (763) $ 90,795 $ (10,251)
===== ========= ======= ======== ==========

</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

5
<PAGE>

<TABLE>

PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(NOTE 1)

TWENTY-SIX WEEKS ENDED
----------------------
JUNE 29, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.................................. $ 6,454 $ 4,768
Non-cash charges (benefits) to earnings:
Depreciation and amortization.......... 16,971 20,689
Deferred income taxes.................. 3,373 (7,173)
Changes in working capital:
Accounts receivable.................... 11,507 (10,550)
Inventories and prepaid expenses....... (2,643) 15,920
Accounts payable....................... 5,093 817
Checks issued but not cleared.......... (1,245) (1,735)
Accrued liabilities.................... (7,567) 17,191
Other ......................................... (360) 268
--------- ---------
Net cash provided by operating activities 31,583 40,195
--------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment........ (29,650) (27,149)
Proceeds from sale of property and equipment... 875 41
Acquired assets - Pope & Talbot Disposable
Diaper Business........................ - (57,205)
Investment in Grupo P.I. Mabe, S.A. de C.V..... - (15,908)
Investment in and advances to unconsolidated
subsidiary, at equity.................. (10,149) (3,885)
Other ......................................... (5,485) (850)
--------- ---------
Net cash used by investing activities.. (44,409) (104,956)
--------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings.......... 6,500 9,113
Proceeds from U.S. bank credit facility........ 15,000 55,000
Repayments of U.S. bank credit facility........ (12,000) (5,000)
Sale of common stock........................... 211 -
--------- ---------
Net cash provided by financing
activities........................ 9,711 59,113
--------- ---------
NET INCREASE (DECREASE) IN CASH................ (3,115) (5,648)
Cash at beginning of period.................... 8,297 11,890
--------- ---------
Cash at end of period.......................... $ 5,182 $ 6,242
========= =========

Cash paid (refunded) during the period for:
Interest, net of amounts capitalized... $ 1,735 $ 2,088
========= =========
Income taxes........................... $ (2,528) $ 7,407
========= =========
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

6
<PAGE>

PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE THIRTEEN AND TWENTY-SIX WEEK PERIODS
ENDED JUNE 29, 1997 AND JUNE 30, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE FIGURES)

NOTE 1: BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING AND
REPORTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Paragon Trade
Brands, Inc. ("Paragon" or the "Company") and its wholly-owned subsidiaries. All
significant intercompany transactions and accounts are eliminated.

The accompanying consolidated balance sheet as of December 29, 1996, which has
been derived from audited financial statements, and the unaudited interim
consolidated financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
note disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to those rules and regulations, although the Company believes
that the disclosures made are adequate to make the information presented not
misleading. It is suggested that these consolidated financial statements be read
in conjunction with the financial statements and the notes thereto included in
the Company's latest annual report on Form 10-K.

In the opinion of management, all adjustments necessary for a fair statement of
the results of the interim periods have been included. All such interim
adjustments, with the exception of the costs associated with the Pope & Talbot,
Inc. ("P&T") integration and the relocation of the Company's corporate offices
to Atlanta, are of a normal recurring nature. The charge for the P&T integration
and relocation of the corporate offices for the twenty-six week period ending
June 30, 1996 was $8.3 million, net of the effect of income taxes. The results
of operations for the twenty-six week period ending June 29, 1997 should not be
regarded as necessarily indicative of the results that may be expected for the
full year.

NEW ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share," effective for fiscal years and interim periods ending
after December 15, 1997. The adoption of this statement will not have a
significant impact on the Company's results of operations. The Company's
historical primary earnings per share calculations are equivalent to the basic
earnings per share calculations called for by SFAS 128.

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," effective for fiscal years beginning after
December 15, 1997. The adoption of this statement will not have a significant
impact on the Company's results of operations.

7
<PAGE>

PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

<TABLE>

NOTE 2: RECEIVABLES
<CAPTION>
Receivables consist of the following:
JUNE 29, 1997 DECEMBER 29, 1996
------------- -----------------
<S> <C> <C>
Accounts receivable-trade.................... $ 46,960 $ 51,634
Other receivables............................ 6,413 12,891
---------- ---------
53,373 64,525
Less: allowance for doubtful accounts....... (7,192) (7,637)
---------- ---------

Net receivables.............................. $ 46,181 $ 56,888
========== =========
</TABLE>

<TABLE>

NOTE 3: INVENTORIES
<CAPTION>
Inventories consist of the following:
JUNE 29, 1997 DECEMBER 29, 1996
------------- -----------------
<S> <C> <C>
LIFO:
Raw materials - pulp................. $ 297 $ 407
Finished goods....................... 24,188 21,090

FIFO:
Raw materials - other................ 8,869 9,131
Materials and supplies............... 19,563 21,230
-------- ---------
52,917 51,858

Reserve for excess and
obsolete items................... (7,838) (7,803)
-------- ---------
Net inventories.............................. $ 45,079 $ 44,055
======== =========
</TABLE>

<TABLE>

NOTE 4: ACCRUED LIABILITIES

<CAPTION>
Accrued liabilities are as follows:
JUNE 29, 1997 DECEMBER 29, 1996
------------- -----------------
<S> <C> <C>
Payroll-related.............................. $ 9,924 $ 14,975
Coupons outstanding.......................... 4,922 6,230
Integration/relocation reserves.............. 4,243 5,943
Income taxes payable-current ................ - 1,327
Other ....................................... 10,162 10,020
-------- ---------
$ 29,251 $ 38,495
======== =========
</TABLE>

8
<PAGE>

PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

NOTE 5: NET EARNINGS PER COMMON SHARE

Net earnings per common share is based on the weighted average number of common
and common equivalent shares outstanding for each of the thirteen and twenty-six
week periods ending June 29, 1997 and June 30, 1996. For the twenty-six week
period ended June 30, 1996, the calculation assumes that shares issued to P&T,
pursuant to the purchase of P&T's disposable diaper business assets, were issued
and outstanding as of February 8, 1996.

<TABLE>

<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-------------------- ----------------------
JUNE 29, 1997 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
PRIMARY
- -------
Net earnings.................. $ 2,652 $ 5,368 $ 6,454 $ 4,768

Weighted average common and
common equivalent
shares outstanding (000's).... 11,935 12,087 11,877 11,984

Net earnings per common
share......................... $ .22 $ .44 $ .54 $ .40

FULLY DILUTED
- -------------
Net earnings.................. $ 2,652 $ 5,368 $ 6,454 $ 4,768

Weighted average common and
common equivalent
shares outstanding (000's).... 11,976 12,204 11,947 12,108

Net earnings per
common share fully diluted.... $ .22 $ .44 $ .54 $ .39

</TABLE>

This calculation is submitted in accordance with Regulation S-K item 601(b)(11),
although not required by footnote 2 to paragraph 14 of APB Opinion No. 15,
because it results in dilution of less than 3 percent.

9
<PAGE>

PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

NOTE 6: LEGAL PROCEEDINGS

The Procter & Gamble Company ("P&G") filed a claim in the District Court for the
District of Delaware that the Company's disposable baby diaper products infringe
two of P&G's inner-leg gather patents. The lawsuit seeks injunctive relief, lost
profit and royalty damages totaling approximately $100 million, treble damages
and attorneys' fees and costs. The Company has denied liability under the
patents and has counterclaimed for patent infringement and violation of
antitrust laws by P&G. In March 1996, the District Court granted P&G's motion
for summary judgment to dismiss the Company's antitrust counterclaim. The
Company intends to appeal the District Court's decision at the appropriate time.
In September 1996, P&G filed two motions for summary judgment with respect to
the Company's patent infringement counterclaim. In December 1996, the District
Court denied both of P&G's motions for summary judgment. The trial has
concluded, the parties have completed post-trial briefing and closing arguments
are scheduled for October 22, 1997. The ultimate outcome cannot be predicted at
this time. Legal fees and costs for this litigation have been significant. If
P&G were to prevail on its claims, award of all or a substantial amount of the
relief requested by P&G could have a material adverse effect on the Company's
financial condition and its results of operations. Based on the advice of patent
counsel, the Company believes that P&G's claims are not well founded.

On October 26, 1995, Kimberly-Clark Corporation ("K-C") filed a lawsuit against
the Company in U.S. District Court in Dallas, Texas, alleging infringement by
the Company's products of two K-C patents relating to inner-leg gathers. The
lawsuit seeks injunctive relief, royalty damages, treble damages and attorneys'
fees and costs. The Company has denied liability under the patents and has
counterclaimed for patent infringement and violation of antitrust laws by K-C.
In October 1996, K-C filed a motion for summary judgment with respect to the
Company's antitrust counterclaim along with a motion to stay discovery pending
resolution of such motion for summary judgment. On April 18, 1997, K-C filed a
motion for summary judgment of noninfringement of two patents asserted by the
Company and a motion for partial summary judgment construing the claims of one
of the K-C patents-in-suit. The Company intends to vigorously defend each of its
claims. In addition, K-C has sued the Company on another patent issued to K-C
which is based upon further continuation of one of the K-C patents asserted in
the case. That action has been consolidated with the pending action. The Court
intends to appoint a special master to rule on the various pending motions. A
trial date has not been set. Legal fees and costs in connection with this
litigation will be significant. Should K-C prevail on its claims, award of all
or a substantial portion of the relief requested by K-C could have a material
adverse effect on the Company's financial condition and its results of
operations. Based on the advice of patent counsel, the Company has taken the
position that the patent coverage claimed by K-C is not applicable to the
Company's products.

The Company is also a party to other legal activities generally incidental to
its activities. Although the final outcome of any legal proceeding or dispute is
subject to a great many variables and cannot be predicted with any degree of
certainty, the Company presently believes that any ultimate liability resulting
from any or all legal proceedings or disputes to which it is a party, except for
the P&G and K-C matters discussed above, will not have a material adverse effect
on its financial condition or results of operations.

NOTE 7: FINANCIAL INSTRUMENTS - FOREIGN CURRENCY FORWARD CONTRACTS

The Company occasionally enters into forward contracts to hedge certain foreign
currency denominated purchase commitments for periods consistent with the terms
of the underlying transactions. While the forward contracts affect the Company's
results of operations, they do so only in connection with the underlying
transactions. Gains and losses on these contracts are deferred and offset
exchange gains and losses on the transactions hedged. At June 29, 1997 and
December 29, 1996, the Company did not have any forward contracts outstanding.

10
<PAGE>

PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

NOTE 8: UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

The following pro forma consolidated earnings statement has been prepared to
reflect the February 8, 1996 purchase of substantially all of the assets of
P&T's disposable diaper business. The purchase price was approximately $63.5
million, consisting of cash of $55.3 million and 387,800 shares of the Company's
common stock. The Company also announced plans on February 8, 1996 to close the
disposable diaper operations acquired from P&T in Eau Claire, Wisconsin; and the
Porterville, California and Shenandoah, Georgia facilities.

The pro forma consolidated earnings statement has been prepared as if the
transaction occurred January 1, 1996. Pro forma adjustments reflect increased
sales, costs, goodwill amortization, interest on borrowings and the income tax
effects of these adjustments for the period of January 1, 1996 to February 7,
1996.

<TABLE>

<CAPTION>
TWENTY-SIX WEEKS ENDED JUNE 30, 1996
------------------------------------
PARAGON ADJUSTMENTS PRO-FORMA
------- ----------- ---------
<S> <C> <C> <C>

Net sales................................... $ 287,931 $ 11,391 1 $ 299,322
Cost of sales............................... 225,832 $ 8,718 1 234,550
--------- -------- ----------
Gross profit................................ 62,099 2,673 64,772
Selling, general and administrative expense. 51,172 445 2 51,617
Research and development expense............ 1,837 1,837
--------- -------- ----------
Operating profit ........................... 9,090 2,228 11,318
Equity in earnings of subsidiary............ 141 141
Other expense, net.......................... 1,627 398 3 2,025
--------- -------- ----------
Earnings before income taxes................ 7,604 1,830 9,434
Provision for income taxes.................. 2,836 690 4 3,526
--------- -------- ----------

Net earnings................................ $ 4,768 $ 1,140 $ 5,908
========= ======== ==========
Net earnings per common share............... $ .40 $ .49
Weighted average common shares outstanding.. 11,984 12,049 5

<FN>

1 To reflect incremental sales and related costs, including overhead and
depreciation, for the period of January 1, 1996 to February 7, 1996.
2 To reflect the incremental costs of goodwill amortization and sales
commissions during the period of January 1, 1996 to February 7, 1996.
Goodwill is being amortized over a 20 year period.
3 To reflect interest on borrowings under the Company's revolving credit
facility. The interest is based on the first quarter 1996 average 12 month
LIBOR rate plus .75% for the period of January 1, 1996 to February 7, 1996.
4 To provide for the federal, state and local tax effects of the pro forma
adjustments described in Notes (1), (2), and (3) above.
5 Assumes that the 387,800 shares issued for the purchase were issued on
January 1, 1996.

</FN>
</TABLE>

11
<PAGE>

PART I. FINANCIAL INFORMATION

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

PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES

THIRTEEN WEEKS ENDED JUNE 29, 1997
COMPARED TO THIRTEEN WEEKS ENDED JUNE 30, 1996

RESULTS OF OPERATIONS

Net earnings were $2.7 million in the second quarter of 1997 compared with net
earnings of $5.4 million in the second quarter of 1996. Included in the results
in the second quarter of 1996 were charges of $2.6 million, net of the effect of
income taxes, associated with costs to relocate the corporate headquarters to
Atlanta. Excluding these charges, net income in the second quarter of 1996 was
$8.0 million. The decrease in profits in the second quarter of 1997 compared to
the same period in 1996, excluding these charges, was primarily due to continued
price pressure in the baby diaper business, operating losses associated with the
feminine care business start-up, decreased unit volume, inefficiencies and
packaging artwork associated with the introduction of new baby diaper product
innovations and legal costs associated with patent litigation with The Procter &
Gamble Company ("P&G") and Kimberly-Clark Corporation ("K-C"). See "Legal
Proceedings." These negative impacts were partially offset by decreased trade
merchandising expenses, lower packaging prices and lower manufacturing overhead
in the baby diaper business.

Net earnings per share in the second quarter of 1997 were $.22 compared to net
earnings per share of $.44 in the second quarter of 1996. Net earnings per share
were $.65 in the second quarter of 1996, excluding the relocation charges.

The net earnings per share of $.22 in the second quarter of 1997 included a net
loss per share of $.18 related to the start-up of the feminine care and adult
businesses. These losses are expected to continue at similar rates throughout
1997.

REVENUES

Net sales were $135.8 million in the second quarter of 1997, a 9.9 percent
decrease from the $150.7 million reported in the second quarter of 1996. Diaper
unit sales decreased 7.0 percent to 902 million diapers in the second quarter of
1997 from 970 million diapers in the second quarter of 1996. Volume has been
negatively impacted by increased discounts and promotional allowances by the
branded manufacturers and value segment competitors, especially through the use
of multiple packs. Multiple packs represent a package configuration that
provides the consumer 2, 3 or 4 times the amount of diapers found in a standard
convenience count package. Volume has been further impacted by product
improvements added by the branded manufacturers. The Company will complete the
rollout of an improved product during the third quarter of 1997 which should
increase the competitiveness of the Company's products. Volume may continue to
be negatively impacted until the improved product is fully introduced.

Excluding the effect of a favorable product mix, average sales prices during the
second quarter of 1997 decreased approximately 7.0 percent compared to the
second quarter of 1996. The decrease in prices was primarily due to the
increased discounts and promotional allowances, discussed above, the use of
multiple packs by the branded manufacturers and value segment competitors and
the entrance of a new competitor to the store brand diaper business. The
negative trend in prices is expected to continue throughout the remainder of
1997. See "Risks and Uncertainties."

COST OF SALES

Cost of sales in the second quarter of 1997 was $111.9 million compared to
$113.1 million in the second quarter of 1996, a 1.1 percent decrease. As a
percentage of net sales, cost of sales was 82.4 percent in 1997 compared to
75.0 percent in the comparable 1996 period. Costs, as a percentage of sales,
were higher in the second quarter of 1997 compared to the same period
of 1996 primarily due to costs associated with the feminine care business
start-up, increased pulp prices, a higher cost product mix and higher costs
associated with the baby diaper product introduction, including start-up
inefficiencies and added product design costs. These higher costs

12
<PAGE>

were partially offset by lower packaging costs and baby diaper manufacturing
overhead costs, including depreciation.

Pulp prices were approximately 9 percent higher in the second quarter of 1997
compared to the same period in 1996. Pulp prices, which decreased throughout
1996 have started to increase and are expected to increase during the second
half of 1997. Other raw material prices were generally at similar price levels
in the second quarter of 1997 compared to 1996. Packaging costs, including bags
and corrugated boxes, were lower during the second quarter of 1997 compared to
the second quarter of 1996.

Baby diaper labor costs were slightly higher in the second quarter of 1997
compared to the second quarter of 1996. These higher costs reflect the
inefficiencies related to the new product rollout. These inefficiencies should
improve during the second half of the year. Baby diaper overhead costs were
lower during the second quarter of 1997 compared to the same period in 1996 due
to the closure during 1996 of the manufacturing facilities acquired from P&T.
Overall labor and overhead costs were higher in the second quarter of 1997 due
to the costs related to the feminine care business startup.

Baby diaper depreciation costs were lower in the second quarter of 1997 compared
to the same period of 1996. The decrease is partially due to the closure, during
1996, of the acquired P&T facilities. Depreciation costs were higher in 1996 due
to accelerated depreciation attributable to obsolescence caused by product
innovations. The decrease in baby diaper depreciation during the second quarter
of 1997 was partially offset by increased depreciation costs associated with the
feminine care business.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

SG&A expenses were $17.9 million in the second quarter of 1997 compared to $27.2
million in the second quarter of 1996. As a percentage of net sales, these
expenses were 13.2 percent in 1997 compared to 18.1 percent for the same period
in 1996. Included in the second quarter of 1996 were charges of $4.0 million
primarily for the headquarters relocation to Atlanta.

Excluding the charges discussed above, SG&A expenses were $17.9 million in the
second quarter of 1997 compared to $23.2 million in the second quarter of 1996.
As a percentage of net sales these expenses, excluding the charges, were 13.2
percent in the second quarter of 1997 compared to 15.4 percent in the second
quarter of 1996. The decrease in costs is primarily attributable to a decrease
in trade merchandising expenses and incentive-based compensation. These lower
costs were partially offset by increased legal expenses, packaging artwork and
design costs, and information system costs. The lower trade merchandising
expenses are primarily related to a decrease in coupon-related expenses. These
trade merchandising expenses, however, are expected to increase during the
remainder of 1997 in conjunction with new product introductions.

The increase in legal expenses is related to the P&G and K-C patent litigation.
Legal expenses are expected to continue at higher rates than 1996 throughout
1997. See "Legal Proceedings." Information system costs were higher in the
second quarter of 1997 compared to the same period of 1996 and are expected to
remain at higher levels for the foreseeable future. The Company will begin
installation of a new enterprise information system in 1997. Packaging artwork
and design costs were higher during the second quarter of 1997 compared to the
same period of 1996 as a result of product rollouts and changes in package
counts. These higher packaging costs are expected to continue during the third
quarter of 1997.

RESEARCH AND DEVELOPMENT

Research and development expenses were at $1.0 million in the second quarter
of 1997 compared to $.9 million in the second quarter of 1996.

INTEREST EXPENSE

Interest expense was $1.2 million in the second quarter of 1997 compared to $1.1
million in the second quarter of 1996. The increase resulted from higher average
borrowings during the second quarter of 1997 that were partially offset by
higher capitalized interest.

13
<PAGE>

OTHER INCOME

Other income was $.5 million in the second quarter of 1997 compared to $.1
million in the second quarter of 1996. The increase in income reflects higher
interest income from loans to Paragon-Mabesa International, S.A. de C.V.
("PMI"), an unconsolidated subsidiary accounted for on the equity basis.

TWENTY-SIX WEEKS ENDED JUNE 29, 1997
COMPARED TO TWENTY-SIX WEEKS ENDED JUNE 30, 1996

RESULTS OF OPERATIONS

Net earnings were $6.5 million in the first half of 1997 compared with net
earnings of $4.8 million in the first half of 1996. Included in the results in
the first half of 1996 were charges of $8.3 million, net of the effect of income
taxes, associated with integrating the acquisition of Pope & Talbot, Inc.'s
("P&T") disposable diaper business and costs to relocate the corporate
headquarters to Atlanta. Excluding these charges, net income in the first half
of 1996 was $13.1 million. The decrease in profits in the first half of 1997
compared to the same period in 1996, excluding these charges, was primarily due
to operating losses associated with the feminine care business start-up,
continued price pressure in the baby diaper business, lower unit volumes,
inefficiencies associated with the introduction of new baby diaper product
innovations and legal costs associated with patent litigation with P&G and K-C.
See "Legal Proceedings." These negative impacts were partially offset by lower
raw material prices, lower trade merchandising expenses and lower manufacturing
overhead in the baby diaper business.

Net earnings per share in the first half of 1997 were $.54 compared to net
earnings per share of $.40 in the first half of 1996. Net earnings per share
were $1.08 in the first half of 1996, excluding the charges for the P&T
disposable diaper business integration and the corporate relocation.

The net earnings per share of $.54 in the first half of 1997 included a net loss
per share of $.48 related to the start-up of the feminine care and adult
businesses. These losses are expected to continue at similar rates throughout
1997.

REVENUES

Net sales were $271.5 million in the first half of 1997, a 5.7 percent decrease
from the $287.9 million reported in the first half of 1996. Diaper unit sales
decreased 3.0 percent to 1,804 million diapers in the first half of 1997 from
1,859 million diapers in the first half of 1996. Volume has been negatively
impacted by increased discounts and promotional allowances by the branded
manufacturers and value segment competitors, especially the use of multiple
packs. Volume has been further impacted by product improvements added by the
branded manufacturers. The Company will complete the rollout of an improved
product during the third quarter of 1997 which should increase the
competitiveness of the Company's products. Volume may continue to be negatively
impacted until the improved product is fully introduced.

Excluding the effect of a favorable product mix, average sales prices during the
first half of 1997 decreased approximately 7.5 percent compared to the first
half of 1996. The decrease in prices was primarily due to the increased
discounts and promotional allowances discussed above, the use of multiple packs
by the branded manufacturers and value segment competitors and the entrance of a
new competitor to the store brand diaper business. The negative trend in prices
is expected to continue throughout the remainder of 1997. See "Risks and
Uncertainties."

COST OF SALES

Cost of sales in the first half of 1997 was $219.7 million compared to
$225.8 million in the first half of 1996, a 2.7 percent decrease. As a
percentage of net sales, cost of sales was 80.9 percent in 1997 compared to
78.4 percent in the comparable 1996 period. The first half 1996 costs
included $3.8 million in charges for costs associated with the integration
of the P&T disposable diaper business into the Company's existing business.
As a percentage of sales, excluding such charges, cost of sales was 77.1
percent in the first half of 1996. Costs were higher in the first half of
1997 compared to the same period of 1996 primarily due to costs associated
with the feminine care business start-up and inefficiencies associated with
the new product introductions in the baby diaper business. These higher costs
were partially offset by lower raw material and packaging costs. Baby

14
<PAGE>

diaper manufacturing costs, including depreciation, were also lower in the
first half of 1997 compared to the same period of 1996.

Pulp prices were approximately 15 percent lower in the first half of 1997
compared to the same period in 1996. Pulp prices, which decreased throughout
1996, started to increase during the second quarter of 1997 and are expected to
increase during the second half of 1997. Packaging costs, including bags and
corrugated boxes, were also lower during the first half of 1997 compared to the
first half of 1996. Other raw material prices were generally at similar price
levels in the first half of 1997 compared to 1996.

Baby diaper labor costs were slightly higher in the first half of 1997 compared
to the first half of 1996. These higher costs reflect the inefficiencies related
to the new product rollouts. These inefficiencies should improve during the
second half of the year. Baby diaper overhead costs, excluding the charges
discussed below, were lower during the first half of 1997 compared to the same
period in 1996 due to the closure during 1996 of the manufacturing facilities
acquired from P&T. Overall labor and overhead costs were higher in the second
quarter of 1997 due to the costs related to the feminine care business startup.
During the first half of 1996, $1.9 million of charges were incurred to support
the integration of the P&T disposable diaper business.

Baby diaper depreciation costs, excluding charges discussed below, were lower in
the first half of 1997 compared to the same period of 1996. The decrease is
partially due to the closure during 1996 of the acquired P&T facilities.
Depreciation costs were higher in 1996 due to accelerated depreciation
attributable to obsolescence caused by product innovations. The decreases in the
first half of 1997 were partially offset by increased depreciation costs
associated with the feminine care business. During the first half of 1996, $1.6
million of charges were incurred due to the accelerated depreciation of existing
Company equipment that was to be replaced by equipment acquired from P&T.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

SG&A expenses were $38.4 million in the first half of 1997 compared to $51.2
million in the first half of 1996. As a percentage of net sales, these expenses
were 14.1 percent in 1997 compared to 17.8 percent for the same period in 1996.
Included in the first half of 1996 were charges of $9.7 million. These charges
included $6.7 million for the corporate headquarters relocation to Atlanta,
primarily severance, outplacement and relocation expenses, and $3.0 million in
costs associated with the integration of the P&T disposable diaper business.

Excluding the charges discussed above, SG&A expenses were $38.4 million in the
first half of 1997 compared to $41.5 million in the first half of 1996. As a
percentage of net sales these expenses, excluding the charges, were 14.1 percent
in the first half of 1997 compared to 14.4 percent in the first half of 1996.
The decrease in costs is primarily attributable to a decrease in trade
merchandising expenses, lower incentive-based compensation and bad debt
expenses. These costs were partially offset by an increase in legal expenses,
packaging artwork and design costs and information system costs. The lower trade
merchandising expenses are primarily related to a decrease in coupon-related
expenses. These trade merchandising expenses, however, are expected to increase
during the remainder of 1997 in conjunction with new product introductions.

The increase in legal expenses is related to the P&G and K-C patent litigation.
Legal expenses are expected to continue at higher rates than 1996 throughout
1997. See "Legal Proceedings." Information system costs were higher in the first
half of 1997 compared to the same period of 1996 and are expected to remain at
higher levels for the foreseeable future. The Company will begin installation of
a new enterprise information system in 1997. Packaging artwork and design costs
were higher during the first half of 1997 compared to the same period of 1996 as
a result of product rollouts and changes in package counts. These higher
packaging costs are expected to continue during the third quarter of 1997.

RESEARCH AND DEVELOPMENT

Research and development expenses were $1.9 million in the first half of 1997
compared to $1.8 million in the first half of 1996.

15
<PAGE>

INTEREST EXPENSE

Interest expense was $2.1 million in the first half of 1997 compared to $1.9
million in the first half of 1996. The increase resulted from higher average
borrowings during the first half of 1997 that were partially offset by higher
capitalized interest.

OTHER INCOME

Other income was $.9 million in the first half of 1997 compared to $.3 million
in the first half of 1996. The increase in income reflects higher interest
income from loans to PMI, an unconsolidated subsidiary accounted for on the
equity basis.

LIQUIDITY AND CAPITAL RESOURCES

During the first half of 1997, cash flow from earnings and non-cash charges to
earnings was $26.8 million compared to $18.3 million in the same period in 1996.

During the first half of 1997, working capital, exclusive of cash, short-term
borrowings, and current deferred taxes, decreased $4.8 million. This was
primarily due to a decrease in accounts receivable and an increase in payables
that was partially offset by an increase in inventories and a decrease in
accrued liabilities.

The decrease in receivables reflects a decrease in overall business activity
since the end of the year. The decrease in receivables also reflects the receipt
of refundable income taxes during the first quarter. Cash flow was also
favorably impacted by $3.0 million as the Company issued treasury stock to
settle certain payroll liabilities.

The increase in inventories partially reflects the increase in finished good
inventories in anticipation of product rollouts. These inventories are expected
to decrease during the second half of the year. The decrease in accrued
liabilities primarily reflects a reduction in income taxes payable. Accrued
liabilities also decreased due to a drop in coupon and promotion-related
liabilities.

The cash produced from operations supported capital expenditures of $33.5
million, including computer software, in the first half of 1997 compared to
$27.1 million in the same period of 1996. The expenditures were primarily in
support of the baby diaper business, specifically new product enhancements and
diaper packaging technology, and to support the entry into the adult
incontinence business. Capital spending is expected to be approximately $60
million during 1997 and will include further expenditures for packaging
technology, a company-wide information system upgrade and the investment of
capital to support potential new business initiatives.

The Company has access to an unsecured, revolving bank credit facility of $150
million. The Company has an additional Cdn $5 million revolving credit facility
available in Canada. In addition to the revolving credit facilities, the Company
has $50 million in uncommitted lines of credit with various banks. Borrowings
against these lines bear interest at rates that vary with each lending bank's
base and LIBOR interest rates. As of the end of the second quarter there was
$73.0 million in debt outstanding against the credit facilities and $6.5 million
in debt outstanding under the uncommitted lines of credit. The Company had $5.2
million in cash and short-term investments at the end of the second quarter.

The Company may utilize the credit facilities for expenditures to exercise its
option to acquire up to an additional 34% of Grupo P.I. Mabe, S.A. de C.V., to
support initiatives to enter the baby wipes business, to enter into other
international business ventures or to repurchase stock. The current credit
facilities and lines of credit in combination with internally generated funds
are anticipated to be adequate to finance these needs.

RISKS AND UNCERTAINTIES

P&G and K-C have announced changes to their product and packaging offerings
including price increases through lower package counts. The Company is currently
implementing product and packaging changes in response to these offerings. The
Company expects to incur further costs associated with new product rollouts
including manufacturing inefficiencies, packaging design and packaging
obsolescence. The remaining costs will be incurred primarily during the third
quarter of 1997. P&G has recently announced a product innovation including skin
care ingredients. The Company is currently assessing its response to this
product innovation.

16
<PAGE>

P&G and K-C have also heavily promoted diapers in the multiple pack
configuration. These packages offer a lower unit price to the retailer and
consumer. It is possible that the Company will realize lower selling prices
and/or lower volumes as a result of these initiatives.

A privately-held manufacturer of feminine sanitary products has entered the
store-brand baby diaper business. Although the overall impact is hard to
predict, it is likely that the additional competition could lead to lower
volumes and selling prices.

The Company is currently assessing its risk associated with the year 2000 issue.
It appears that the majority of the risk associated with the issue will be
addressed by the enterprise-wide information system discussed above. The Company
currently anticipates that the system will be fully implemented by 1999 and the
expenditures for this system are expected to be significant. There are other
internal applications that may be subject to the year 2000 issue which the
Company is currently assessing but is unable to predict how such applications
may be impacted.

FORWARD-LOOKING STATEMENTS

When used in this discussion the words "believes," "anticipates," "expects" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those expressed in the Company's
forward-looking statements. Factors which could affect the Company's financial
results, including but not limited to: increasing raw material prices; new
product and packaging introductions by competitors; increased price and
promotion pressure from competitors; new competitors in the market; and patent
litigation, are described in the preceding paragraphs and in the Company's
latest Annual Report on Form 10-K filed with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

NEW ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share," effective for fiscal years ending after December 15, 1997.
The adoption of this statement will not have a significant impact on the
Company's results of operations. The Company's historical primary earnings per
share calculations are equivalent to the basic earnings per share calculations
called for by SFAS 128.

17
<PAGE>

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

P&G filed a claim in the District Court for the District of Delaware that the
Company's disposable baby diaper products infringe two of P&G's inner-leg gather
patents. The lawsuit seeks injunctive relief, lost profit and royalty damages
totaling approximately $100 million, treble damages and attorneys' fees and
costs. The Company has denied liability under the patents and has counterclaimed
for patent infringement and violation of antitrust laws by P&G. In March 1996,
the District Court granted P&G's motion for summary judgment to dismiss the
Company's antitrust counterclaim. The Company intends to appeal the District
Court's decision at the appropriate time. In September 1996, P&G filed two
motions for summary judgment with respect to the Company's patent infringement
counterclaim. In December 1996, the District Court denied both of P&G's motions
for summary judgment. The trial has concluded, the parties have completed
post-trial briefing and closing arguments are scheduled for October 22, 1997.
The ultimate outcome cannot be predicted at this time. Legal fees and costs for
this litigation have been significant. If P&G were to prevail on its claims,
award of all or a substantial amount of the relief requested by P&G could have a
material adverse effect on the Company's financial condition and its results of
operations. Based on the advice of patent counsel, the Company believes that
P&G's claims are not well founded.

On October 26, 1995, K-C filed a lawsuit against the Company in U.S. District
Court in Dallas, Texas, alleging infringement by the Company's products of two
K-C patents relating to inner-leg gathers. The lawsuit seeks injunctive relief,
royalty damages, treble damages and attorneys' fees and costs. The Company has
denied liability under the patents and has counterclaimed for patent
infringement and violation of antitrust laws by K-C. In October 1996, K-C filed
a motion for summary judgment with respect to the Company's antitrust
counterclaim along with a motion to stay discovery pending resolution of such
motion for summary judgment. On April 18, 1997, K-C filed a motion for summary
judgment of noninfringement of two patents asserted by the Company and a motion
for partial summary judgment construing the claims of one of the K-C
patents-in-suit. The Company intends to vigorously defend each of its claims. In
addition, K-C has sued the Company on another patent issued to K-C which is
based upon further continuation of one of the K-C patents asserted in the case.
That action has been consolidated with the pending action. The Court intends to
appoint a special master to rule on the various pending motions. A trial date
has not been set. Legal fees and costs in connection with this litigation will
be significant. Should K-C prevail on its claims, award of all or a substantial
portion of the relief requested by K-C could have a material adverse effect on
the Company's financial condition and its results of operations. Based on the
advice of patent counsel, the Company has taken the position that the patent
coverage claimed by K-C is not applicable to the Company's products.

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

(a) The Annual Meeting of Stockholders of the Company was held on May 20, 1997.

(b) Mr. Bobby V. Abraham was elected as a director at the Annual Meeting for
a three-year term expiring in 2000. Messrs. Adrian D.P. Bellamy, Thomas B.
Boklund and Robert L. Schuyler continued in office as directors after the
meeting.

(c) The item of business of the meeting was the election of Bobby V. Abraham
as a director. Votes were tabulated as follows:

Votes For: 10,808,856
Votes Withheld: 43,183
Abstentions: 0
Broker Nonvotes: 0

(d) Not applicable.

18
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>

<CAPTION>
(a) Exhibits

<S> <C>
Exhibit 3.1 Certificate of Incorporation of Paragon Trade Brands, Inc. 4

Exhibit 3.2 By- Laws of Paragon Trade Brands, Inc., as amended through July 31, 1995 5

Exhibit 4.1 Certificate of Incorporation of Paragon Trade Brands, Inc. (see Exhibit 3.1)

Exhibit 10.1 Asset Transfer Agreement, dated as of January 26, 1993, by and between Weyerhaeuser and Paragon 1

Exhibit 10.2 Intellectual Property Agreement, dated as of February 2, 1993, between Weyerhaeuser and Paragon 1

Exhibit 10.3 License, dated as of February 2, 1993, between Weyerhaeuser and Paragon 1

Exhibit 10.4 Sublicense, dated as of February 2, 1993, between Weyerhaeuser and Paragon 1

Exhibit 10.5 Technology Agreement, dated as of October 15, 1987, by and between Weyerhaeuser and Johnson and Johnson,
as amended 1

Exhibit 10.6 Critical Supply Agreement, dated as of February 2, 1993, between Weyerhaeuser and Paragon 1

Exhibit 10.7* Stock Option Plan for Non-Employee Directors 1

Exhibit 10.8* Annual Incentive Compensation Plan 1

Exhibit 10.9* 1993 Long-Term Incentive Compensation Plan 1

Exhibit 10.10* Employment Agreement, dated as of February 2, 1993, between Paragon and Bobby V. Abraham 1

Exhibit 10.11* Employment Agreement, dated as of February 2, 1993, between Paragon and David W. Cole 1

Exhibit 10.12* 1995 Incentive Compensation Plan 5

Exhibit 10.13 Amended and Restated Credit Agreement, dated as of February 6, 1996 7

Exhibit 10.13.1 Amendment Agreement, dated December 13, 1996, to Amended and Restated Credit Agreement, dated as of
February 6, 1996 8

Exhibit 10.14 Revolving Canadian Credit Facility and Parent Guarantee 2

Exhibit 10.15 Indemnification Agreements, dated as of February 2, 1993, between Weyerhaeuser and Bobby V. Abraham and
Gary M. Arnts 1

Exhibit 10.16 Rights Agreement dated December 14, 1994 between Paragon Trade Brands, Inc. and Chemical Bank, as Rights
Agent 3

Exhibit 10.17 Asset Purchase Agreement dated December 11, 1995 by and among Paragon Trade Brands, Inc., PTB Acquisition
Sub, Inc., Pope & Talbot, Inc. and Pope & Talbot, Wis., Inc. 6

Exhibit 10.18** Sales Contract, dated as of January 30, 1996, between Hoechst Celanese Corporation and Paragon Trade
Brands, Inc. 7

19
<PAGE>

Exhibit 10.19 Lease Agreement between Cherokee County, South Carolina and Paragon Trade Brands, Inc., dated as of
October 1, 1996 8

Exhibit 11 Computation of Per Share Earnings (See Note 5 to Financial Statements)

Exhibit 27 Financial Data Schedule (for SEC use only)

*Management contract or compensatory plan or arrangement.
**Confidential treatment has been requested as to a portion of this document.
<FN>

1 Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 26, 1993.
2 Incorporated by reference from Paragon Trade Brands, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended June 26, 1994.
3 Incorporated by reference from Paragon Trade Brands, Inc.'s Current Report
on Form 8-K, dated as of December 14, 1994.
4 Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 25, 1994.
5 Incorporated by reference from Paragon Trade Brands, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended June 25, 1995.
6 Incorporated by reference from Paragon Trade Brands, Inc.'s Current Report
on Form 8-K, dated as of February 8, 1996.
7 Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.
8 Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 29, 1996.

</FN>
</TABLE>

(b) Reports on Form 8-K.

No reports on Form 8-K were filed on behalf of the Company during the
thirteen week period ended June 29, 1997.

20
<PAGE>

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

PARAGON TRADE BRANDS, INC.

By /S/ ALAN J. CYRON
--------------------
Alan J. Cyron
Chief Financial Officer

August 11, 1997

21
<PAGE>

EXHIBIT INDEX

<TABLE>

<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<S> <C>
Exhibit 3.1 Certificate of Incorporation of Paragon Trade Brands, Inc. 4