Paragon Announces Fourth Quarter and Full Year 1998

Results; $58.4 Million of EBITDA Reported Company AnticipatesLower 1999 Operating Earnings and EBITDA NORCROSS, Ga. (PROTEXT) - Paragon Trade Brands, Inc. (NYSE:PTB) today reported its fourth quarter and full year 1998financial results. The results reported include the effect ofpreviously announced settlements with The Procter & GambleCompany (P&G) and Kimberly-Clark Corporation (K-C) related topatent disputes, as well as expenses related to the Company'sChapter 11 filing. Paragon reported a net loss of $78.8 million,or $6.59 per share, for the fourth quarter ended December 27,1998, including non-recurring fourth quarter charges ofapproximately $81.9 million, all of which are non-cash. Thesenon-recurring charges include $78.5 million of settlementcontingencies related to the P&G and K-C settlements. The balanceof the non-recurring charges relates to a write down of thetampon manufacturing assets of Paragon's feminine care and adultincontinence business. Net sales for the fourth quarter of 1998were $132.9 million compared to $136.4 million for the sameperiod in 1997. For the fiscal year ended December 27, 1998, the Companyreported a net loss of $65.4 million, or $5.48 per share,compared to a net loss of $212.7 million, or $17.86 per share,for the year ended December 28, 1997. Net sales for the fiscalyear were $535.2 million compared to $562 million for the yearended December 28, 1997. Excluding non-recurring charges,operating earnings before interest, taxes, depreciation andamortization ("EBITDA") totaled approximately $58.4 million in1998, compared to $62.5 million for the prior period. The Company's earnings do not reflect any potential taxbenefits which would accrue to the Company should all or aportion of the losses provided for be ultimately realized. Inaddition, net deferred tax assets of $32.5 million related tofuture tax benefits previously recorded on the Company's balancesheet were reserved, resulting in net tax expense of $6.9 millionand $8.1 million in the fourth quarter and full year 1998,respectively. Commenting on the 1998 results, Chairman and Chief ExecutiveOfficer, Bobby Abraham, said, "Despite the distraction of theChapter 11 case and the disruptive effect of various productchanges to accommodate patent issues, we were able to continue todeliver quality products and service to our customers during1998. We also implemented more creative marketing programs tobuild our customers' brand names. As a result we delivered salesvolume that allowed us to remain a profitable company, excludingthe effects of the litigation settlement costs. In addition,significant growth in earnings in our Latin American jointventures made significant positive contributions to our 1998results." "Unfortunately, our feminine care and adult incontinenceproduct lines were not profitable as we continued to operatesignificantly below the designed capacity of our plant. Whilesome retailers have been reluctant to award us business prior tothe Company's emergence from Chapter 11, we are pleased that wehave gained distribution with several significant retailers,including Albertson's, Winn Dixie, BJ's Wholesale Club, Flemingand Dollar General. Once we emerge from Chapter 11, we expect thesales growth in these product lines to accelerate." Mr. Abrahamstated. Paragon Named 1998 Supplier of the Year by Two of NorthAmerica's Largest Retailers Paragon also reported that it was named 1998 Supplier of theYear by both Target Stores and by K-mart. In both cases, Paragonwas the only store brand supplier included in the select few thatwere honored among the thousands of companies that supply TargetStores and K-mart. Commenting on the awards, Mr. Abraham stated,"To be awarded these honors during the most challenging year inour history was especially gratifying. These honors are atestament to our dedicated associates and their relentlesscommitment to partnering with our customers and providing themthe highest quality store brand products coupled with outstandingservice." Settlement Agreements and Chapter 11 As has been previously reported, Paragon has entered intosettlement agreements with P&G and K-C that resolve alloutstanding claims against the Company by both P&G and K-C,including the P&G patent judgment, and provide a clear path tomarket for the Company's products through licenses of certainpatents and broad covenants not to sue. The settlements, whichremain subject to Bankruptcy Court approval, and thecorresponding licenses granted by P&G and K-C, will serve as thecornerstone of what the Company intends to be a consensual planof reorganization. The Company is unable at this time to predictwhen it will emerge from Chapter 11. Commenting on the settlements and Chapter 11 status of theCompany, Mr. Abraham noted, "In assessing the risks to theCompany associated with going forward with the various litigationactions with P&G and K-C, management and the Board of Directorsin consultation with the Company's legal and financial advisors,determined that resolving these matters through negotiatedsettlements was prudent and necessary, even though we continue tohave faith in our legal positions. Accordingly we entered intosettlement agreements with both P&G and K-C. With the P&G and K-Clicense agreements in place, we have moved quickly to convert toproduction of a dual leg gather product. We are pleased to reportthat we have completed the conversion of nearly all ourmanufacturing lines and are shipping a dual leg gather producttoday." Outlook for 1999 With respect to the outlook for 1999, Paragon reported thatthe Company has experienced some product performance issues whichit believes have impacted volume for the first quarter of 1999.As a result, the Company expects that it will incur increasedmanufacturing, marketing and selling expenditures in 1999 toaddress the product performance issues. The increasedmanufacturing costs that the Company is encountering are largelydue to increased raw material prices and usage related to theconversion to a new super-absorbent polymer as part of its patentsettlement with K-C. In addition, the Company reported that itwill incur significant costs in 1999 in the form of runningroyalties payable under the license agreements entered into inconnection with the P&G and K-C settlements. Paragon reportedthat it cannot predict, at this time, the impact of theseincreased costs on the Company's total enterprise value, but didreport that it may not be possible to satisfy in full all of theclaims against the Company. Commenting on the outlook for 1999 Mr. Abraham noted, "While1999 started off with a strong January, volume, and inparticular, operating profits and EBITDA for the first quarterwill be substantially below 1998 levels and the Company's initial1999 forecast. In addition to lower volume, increased rawmaterial prices and usage, royalty costs and increased marketingcosts will severely impact our 1999 results. Over time, however,we believe that the introduction of our new, improved diaper,coupled with an improved super- absorbent polymer, will help usgrow sales volume and thereby improve our bottom line." Annual Meeting and Record Dates Set Paragon also announced that its Board of Directors hasdetermined that the 1999 Annual Meeting of shareholders will beheld at 9:00 a.m., Monday, November 29, 1999 at the Company'sheadquarters. Detailed information regarding the Annual Meetingwill be contained in the Notice of Annual Meeting and ProxyStatement to be sent to each shareholder of record on the RecordDate, which has been set by Paragon's Board of Directors atOctober 1, 1999. Paragon Trade Brands is the leading manufacturer of storebrand infant disposable diapers in the United States and Canada.Paragon manufactures a line of premium and economy diapers,training pants, and feminine care and adult incontinenceproducts, which are distributed throughout the United States andCanada, primarily through grocery and food stores, massmerchandisers, warehouse clubs, toy stores and drug stores thatmarket the products under their own store brand names. Paragonhas also established international joint ventures in Mexico,Argentina, Brazil and China for the sale of infant disposablediapers and other absorbent personal care products. Statements made in this press release, other than thoseconcerning historical information, should be considered forward-looking statements. Such statements are subject to certain risksand uncertainties that could cause actual results to differmaterially from those expressed in the Company's forward-lookingstatements. Factors which could affect the Company's financialresults, including, but not limited to: the Company's Chapter 11filing; increased raw material prices; new product and packagingintroductions by competitors; increased price and promotionpressure from competitors; Year 2000 compliance issues; andpatent litigation, are described in the Company's Annual Reporton Form 10-K filed with the Securities and Exchange Commission.Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of thedate hereof, and which are made by management pursuant to the"safe harbor" provisions of the Private Securities LitigationReform Act of 1995. PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED LOSS STATEMENTS (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (Unaudited)

Thirteen Weeks Ended

Fifty-Two WeeksEnded

December 27, December 28, December27,December28,

1998

1997

1998

1997 Sales, net of discounts and allowances $ 132,926 $ 136,405

$ 535,207

$ 561,975 Cost of sales

106,348

109,709

428,572 454,911 Gross profit

26,578

26,696

106,635 107,064 Selling, general and administrative expense

17,492

17,790

78,447 76,347 Research and development expense 804

1,821

4,248 5,063 Total expenses

18,296

19,611

82,695 81,410 Asset impairment

3,416

9,442

3,416 9,442 Settlement contingencies

78,500

200,000

78,500 200,000 Operating loss

(73,634) (202,357)

(57,976) (183,788) Other income (expenses), net

3,489

(954)

6,986 (995) Loss before income taxes and bankruptcy costs

(70,145) (203,311)

(50,990) (184,783)

Bankruptcy costs

1,772

--

6,302 -- Loss before income taxes

(71,917) (203,311)

(57,292) (184,783) Provision for income taxes

6,865

21,621

8,091 27,934 Net loss

($78,782) ($224,932)

($65,383) ($212,717) Basic and diluted loss per share $ (6.59) $ (18.82)

$ (5.48)

$ (17.86) Average common shares outstanding 11,946

11,952

11,937 11,913 PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES CONSOLIDATEDBALANCE SHEETS (DOLLAR AMOUNTS IN THOUSANDS) (Unaudited) Assets

As of

As of

December 27, 1998 December 28,1997 Cash and short-term investments

$ 22,625

$ 991 Receivables

79,156 70,616 Inventories

53,282 48,257 Current portion of deferred income taxes

4,260 1,800 Other current assets

4,323 697 Total current assets

163,646 122,361 Net property, plant and equipment 125,826 129,537 Assets held for sale

4,691 11,073 Goodwill

32,819 34,739 Investment in and advances to unconsolidated subsidiaries

88,784 73,808 Other assets

13,521 4,624 Total assets

$429,287 $376,142 Liabilities and Shareholders' Equity (Deficit) Short-term borrowings

$

--

$14,185 Accounts payable

44,849 49,680 Accrued liabilities and loss contigency

33,646 232,392 Total current liabilities

78,495 296,257 Liabilities subject to compromise 406,859

-- Long-term debt

-- 70,000 Other long-term liabilities

5,773 4,931 Total liabilities

491,127 371,188 Total shareholders' equity (deficit)

(61,840) 4,954 Total liabilities and shareholders equity (deficit)

$429,287 $376,142 otsOriginal Text Service: Paragon Trade Brands, Inc. Internet:http://www.newsaktuell.de Contact: Alan J. Cyron, ExecutiveVice President and Chief Financial Officer of Paragon TradeBrands, 678-969-5200; or Kurt P. Ross or Guy B. Lawrence, both ofK.P. Ross, Inc., 212-308-3333 or kpross1@msn.com

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