EXHIBIT 99.1
We, or our executive officers and directors on our behalf, may from time to
time make "forward looking statements" within the meaning of the Securities Act
of 1933 and the Securities Exchange Act of 1934. These statements may be
contained in reports and other documents that we file with the SEC or may be
oral statements made by our executive officers and directors to the press,
potential investors, securities analysts and others. These forward looking
statements could involve, among other things, statements regarding our intent,
belief or expectation with respect to:
o our results of operations and financial condition;
o the consummation of acquisitions and financial transactions and their
effect on our business; and
o our plans and objectives for future operations.
Any forward looking statements would be subject to risks and uncertainties
that could cause our actual results of operations, financial condition,
acquisitions, financing transactions, operations, and other events to differ
materially from those expressed or implied in such forward looking statements.
Any forward looking statements would be subject to a number of assumptions
regarding, among other things, future economic, competitive and market
conditions generally. These assumptions would be based on facts and conditions
as they exist at the time the forward looking statements are made as well as
predictions as to future facts and conditions. These future facts and conditions
may be difficult for us to predict accurately and may involve the assessment of
events beyond our control. Further, our business is subject to a number of risks
that would affect any such forward looking statements. These risks include,
among other things, the following:
Substantially all of our debt must be refinanced during fiscal 2003.
Payments of outstanding indebtedness under our credit facility and our
notes are due at maturity on September 30, 2003 and December 15, 2003,
respectively. This indebtedness must be refinanced on or before the respective
maturity dates. Although we believe we will be successful in refinancing these
obligations prior to maturity, there can be no assurance that conditions will
permit the required refinancing, or that refinancing will be available on terms
that we consider to be in the best interest of our shareholders. If the
indebtedness is not refinanced, we will be in default, and the holders of such
indebtedness will be entitled to the remedies provided in the respective debt
instruments. Such an event would have a material adverse effect on our financial
condition and results of operations. Our success in refinancing this
indebtedness will be dependent upon a number of factors, including, for example,
our operating performance, operating performance of our peers in the textile and
apparel industries, perception of our industry in the capital markets, general
economic and political conditions and the general condition of the capital
markets, including specifically the high yield debt markets.
We have substantial leverage.
We have a substantial amount of debt outstanding, which could adversely
affect our financial health. Despite current debt levels, we and our
subsidiaries may incur substantial additional debt in the future. If new debt is
added to our and our subsidiaries current debt levels, the related risks that we
and they now face could intensify.
Our substantial amount of debt could have important consequences for you.
For example, it could;
o limit our ability to obtain additional financing on satisfactory
terms, if we need it, for working capital, capital expenditures,
acquisitions, debt service requirements or other purposes;
o increase our vulnerability to adverse economic and industry
conditions;
o require us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, thereby reducing funds available
for operations, future business opportunities or other purposes;
o limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we compete; and
o place us at a competitive disadvantage compared to our competitors
that have less debt and that may be better positioned to withstand
economic downturns.
To service our debt, we will require a significant amount of cash. Our
ability to make payments on our debt and to fund planned capital expenditures
and acquisitions will depend on our future operating performance and on our
ability to successfully implement our business strategy. Prevailing general
economic conditions and financial, business, regulatory and other factors, many
of which are beyond our control, will affect our ability to make these payments.
If future cash flow is not sufficient to make scheduled payments on our debt, we
will need to refinance all or a portion of our debt before maturity, obtain
additional financing, delay planned acquisitions and capital expenditures, or
sell assets. Any such event could have a material adverse effect on our results
of operations and financial condition.
A decline in general economic or political conditions and the cyclicality of
the textile industry could have a material adverse effect on our results of
operations and financial condition.
Domestic demand for textile products, including consumer demand for
textile products at the retail level, tends to vary with the business cycle of
the U.S. economy as well as changes in the global economy and global political
conditions. A decline in general economic conditions may adversely affect demand
for our products, which could cause sales of our products to decrease. In
addition, the popularity, supply and demand for particular textile products may
change significantly from year to year based upon prevailing fashion trends and
other factors. These factors historically have contributed to fluctuations in
the sales and profitability of certain textile products and in our results of
operations. In our engineered products business, a decrease in the demand for
the automotive products in which our products are used due to economic or other
reasons could adversely affect our net sales and profitability in that segment.
A decline in the demand for textile products or an increase in the supply of
textile products due to expansion of capacity within the textile industry,
changes in fashion trends or deteriorating economic conditions could have a
material adverse effect on our results of operations and financial condition.
Our industry is highly competitive and our success depends on our ability to
compete effectively.
The textile industry is highly competitive. We sell our products primarily
to domestic customers and compete with both large, vertically integrated textile
manufacturers and numerous smaller companies specializing in limited segments of
the market. Our competitors include both domestic and foreign companies, a
number of which are larger in size and have significantly greater financial
resources and, in the case of foreign competitors, lower labor costs than we do.
Imports of foreign-made textile and apparel products are a significant source of
competition for us. Competition in the form of imported textile and apparel
products, pricing strategies of domestic competitors and the proliferation of
newly styled fabrics competing for fashion acceptance affect our business
environment. The primary competitive factors in the textile industry include
price, product styling and differentiation, quality, flexibility of production
and finishing, delivery time and customer service. The needs of particular
customers and the characteristics of particular products determine the
importance of these factors. To the extent that one or more of our competitors
gains an advantage with respect to any key competitive factor, our business
could be materially adversely affected. In addition, import protections afforded
to foreign textile manufacturers could make our products less competitive and
have a material adverse effect on our results of operations and financial
condition.
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We may be unable to implement the manufacturing cost reductions, efficiencies
and other improvements necessary to maintain or increase our profitability.
During the past several years, we have completed manufacturing
consolidations in order to improve operating costs and to increase our capacity
utilization at our manufacturing facilities. If we are unable to achieve
additional cost reductions, efficiencies and other improvements in our
operations and manufacturing facilities, we may be unable to keep pace with our
competitors' cost or price reductions to an extent necessary to maintain or
increase our market share without adversely affecting our level of
profitability. As a result, our net sales and profitability may be adversely
affected.
Fluctuations in the price of raw materials or shortages of supply could
adversely affect our business.
Our primary raw material is cotton. By law, U.S. textile companies are
generally prohibited from importing cotton, subject to certain exceptions that
take effect primarily when U.S. cotton prices exceed world cotton prices for a
period of time. From time to time, domestic cotton prices have exceeded world
prices, which creates a competitive disadvantage for us and other domestic
textile manufacturers. The U.S. government has taken legislative action to
improve the price imbalance, but there can be no assurance that this will
continue to be the case. U.S. cotton prices are also affected by general
economic conditions as well as the demand for U.S. cotton in world markets and
may increase or decrease depending on other market variables at the time.
Prevailing cotton prices significantly impact our production costs, and price
increases could have a material adverse effect on our results of operations and
financial condition.
In connection with our purchase of cotton, we generally seek to purchase
sufficient amounts of cotton to cover existing order requirements, which average
approximately three months of production. We may shorten or lengthen that period
in accordance with our perception of the direction of cotton prices. We may
purchase cotton in advance of orders on terms that we deem advantageous and,
while we do not speculate on the price of cotton, we may hedge prices from time
to time through forward contracts and in the futures and options markets. We
cannot assure you that these transactions will not result in higher costs to us
or will protect us from fluctuations in cotton prices.
Further, since cotton is an agricultural product, its supply and quality
are subject to forces of nature. Any material shortage or interruption in the
supply, variations in the quality of cotton by reason of weather, infestations
or any other factor that would result in an increase in the cost of cotton could
have a material adverse effect on our results of operations and financial
condition.
We also use significant quantities of polyester in the manufacture of our
products. The price of polyester is influenced by demand, manufacturing capacity
and costs, petroleum prices, cotton prices and the cost of polymers used in
producing polyester. Any significant prolonged petrochemical shortages could
significantly decrease the availability of polyester and could cause a
significant increase in the demand for cotton. Such conditions could decrease
the availability of cotton and result in increased prices for cotton and
polyester. Any of these events could have a material adverse effect on our
results of operations and financial condition.
See "Business-Raw Materials."
We hold important licenses, the loss of which could adversely affect our
business.
We hold licenses to use well-known trademarks and trade names to market
our products. These licenses generally require the payment of royalties based on
net sales, including the payment of minimum annual royalties, and generally have
three-year terms. We cannot assure you that we will be able to renew these
licenses on acceptable terms upon their expiration or will be able to acquire
new licenses to use other popular trademarks. The loss of significant
third-party licenses could reduce our net sales and have an adverse effect on
our results of operations and financial condition.
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If we fail to identify fashion trends, we could lose market position and our
financial performance could be negatively impacted.
The success of many of our products is dependent upon early identification
of consumer preferences for fabric designs, colors and styles. A failure on our
part to identify fashion trends in time to introduce products and fabrics
consistent with those trends could have an adverse effect on acceptance of our
products by consumers and a corresponding adverse effect on our results of
operations due to costs associated with failed product introductions and reduced
sales.
If we are unable to fund our capital expenditure requirements we may fail to
remain competitive.
The textile manufacturing industry is capital intensive. Accordingly, to
maintain our competitive position, we must continually modernize our
manufacturing processes, plants and equipment. Over the last five fiscal years,
we have made capital improvements of approximately $140.6 million. We expect to
invest approximately $20-23 million during fiscal 2003 in capital improvements
designed to:
o properly maintain our facilities;
o reduce manufacturing costs;
o enhance manufacturing flexibility; and
o improve product quality and responsiveness to customers.
We expect to finance our capital improvements with cash from operations, vendor
financing and borrowings under our new senior credit facility. To the extent
these sources of funds are insufficient to meet our ongoing capital improvements
requirements, we would need to seek alternative sources of financing or curtail
or delay capital spending plans. We cannot guarantee that we can obtain
financing when needed or on terms acceptable to us. If we fail to make capital
improvements necessary to continue modernizing our manufacturing operations and
reduce costs, our competitive position may suffer.
U.S. governmental policies regarding imports could make it difficult for our
products to compete effectively with imported textile products.
The domestic textile market is subject to various U.S. governmental
policies affecting raw material costs and product supply. In addition, the
policies of foreign governments may, directly or indirectly, affect the domestic
market. Because U.S. textile companies are generally prohibited from importing
cotton, we must purchase substantially all of our cotton in the domestic market.
From time to time, price imbalances between world and domestic cotton prices
have existed. Because U.S. agricultural policies affect the availability and
cost of cotton, we may experience increased cotton costs that we cannot entirely
pass on to our customers.
The extent of import protection afforded by the U.S. government to
domestic textile producers has been, and is likely to remain, subject to
considerable domestic political deliberation. In view of the labor cost
advantages and the number of foreign producers of textile products that compete
with certain of our products, substantial elimination of import protection for
domestic textile manufacturers could have a material adverse effect on our
business. In 1995, the World Trade Organization, or the WTO, established
mechanisms to progressively liberalize world trade in textiles and clothing by
phasing out quotas and reducing duties over a 10-year period beginning in
January 1995. The selection of products at each phase is made by each importing
country and must be drawn from each of the four main textile groups: tops and
yarns, fabrics, made-up textile products and apparel. In 2000, Congress passed
and the President signed the African Growth and Opportunity Act, which is
intended to promote growth and economic prosperity of certain sub-saharan
African countries through, among other things, greater duty free access to U.S.
markets. The elimination of quotas and the reduction of tariffs under the WTO
and the African Growth and Opportunity Act may result in increased imports of
certain textile products and apparel into North America. These factors could
make our products less competitive against low cost imports from developing
countries.
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NAFTA, which was entered into by Canada, Mexico and the U.S., has created
the world's largest free-trade zone. The agreement contains safeguards that were
sought by the U.S. textile industry, including a rule of origin requirement that
products be processed in one of the three countries in order to benefit from
NAFTA. NAFTA will phase out all trade restrictions and tariffs on textiles and
apparel among the three countries. The Caribbean Basin Trade Partnership Act,
which was enacted in 2000, extends similar treatment to certain Caribbean basin
countries. There can be no assurance that the removal of these barriers to trade
will not in the future have a material adverse effect on our results of
operations and financial condition.
We may not successfully identify or complete acquisitions, which could adversely
affect our business.
We have historically expanded our business through acquisitions and may
continue to do so. We cannot assure you that we will succeed in:
o identifying suitable acquisition candidates;
o completing acquisitions;
o integrating acquired operations into our existing operations; or
o expanding into new markets.
We also cannot assure you that future acquisitions will not have an adverse
effect upon our operating results, particularly in the fiscal quarters
immediately following their completion while we integrate the operations of the
acquired business into our operations. Once integrated, acquired operations may
not achieve levels of revenues, profitability or productivity comparable with
those achieved by our existing operations, or otherwise perform as expected. In
addition, we compete for acquisition and expansion opportunities with companies
that have substantially greater resources. Although we have preliminary
discussions from time to time regarding possible acquisition opportunities, we
do not presently have any agreements, arrangements or understandings regarding
any particular acquisition.
We must comply with numerous environmental, health and safety laws and
regulations, which could involve substantial costs. If we fail to comply, we may
have to pay large penalties.
We must comply with various federal, state and local environmental laws
and regulations limiting, among other things, the discharge of pollutants and
the storage, handling and disposal of a variety of substances, including some
substances that contain constituents considered hazardous under environmental
laws. Our dyeing and finishing operations result in the discharge of substantial
quantities of wastewater and emissions to the atmosphere. Our operations also
must comply with laws and regulations relating to workplace safety and worker
health which, among other things, establish cotton dust, formaldehyde, asbestos
and noise standards, and regulate the use of hazardous chemicals in the
workplace. At several of our sites, soil or groundwater contamination from past
operations is subject to investigation and cleanup. Treatment costs of air
emissions and wastewater discharges, as well as other environmental and health
and safety costs have increased moderately over the past several years. We
cannot assure you that our environmental or health and safety liabilities and
costs will not increase materially in the future and have a material adverse
effect on our cash flow.
In addition, we cannot predict what environmental or health and safety
legislation or regulations will be enacted in the future or how existing or
future laws or regulations will be enforced, administered or interpreted. We
also cannot predict the amount of future expenditures that may be required in
order to comply with these environmental or health and safety laws or
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regulations. We have several environmental matters pending, and we cannot assure
you that the resolution of these matters, or the discovery of any additional
sites alleged to have been contaminated by our operations or those of our
predecessors, will not have an adverse effect on our results of operations and
financial condition.
We have several customers that account for a large portion of our net sales. The
loss of, or significant decline in our sales to, any of our large customers
could adversely affect our business.
We market our home fashions products, apparel fabrics and engineered
products to over 1,800 customers. In fiscal 2002, our top five home fashions
products customers accounted for 60% of our net sales attributable to home
fashions products, and our top five apparel fabrics customers accounted for 34%
of our net sales attributable to apparel fabrics. During fiscal 2002, our
largest home fashions products customer accounted for 19% of our net sales, and
our largest apparel fabrics customer accounted for 2% of our net sales. We do
not operate under a long-term supply contract with any of our customers. The
loss of any of the top five home fashions products customers or apparel fabrics
customers could have a material adverse effect on our net sales attributable to
such product lines.
Some of our customers, including Kmart Corporation, have experienced significant
difficulties during the past several years, which could have a material adverse
effect on our financial condition and results of operations.
During the past several years, various retailers, including some of our
customers, have experienced significant changes and difficulties including
consolidation of ownership, increased centralization of buying decisions,
restructurings, bankruptcies and liquidations. In January 2002, one of these
customers, Kmart Corporation, filed for bankruptcy protection under Chapter 11
of the U.S. Bankruptcy Code and has subsequently announced the closing of in
excess of 28% of its stores. In fiscal 2002, sales to Kmart accounted for
approximately 19% of our net sales. We cannot assure you that the Kmart
bankruptcy and related events will not in the future result in significantly
reduced sales to Kmart or otherwise have a material adverse effect on our
results of operations and financial condition.
In addition, the financial problems of Kmart and some of our other
customers increase the risk of extending credit to these retailers. A
significant adverse change in a customer or its financial position could cause
us to limit or discontinue business with that customer, require us to assume
more credit risk relating to that customer's receivables or limit our ability to
collect amounts related to previous purchases by that customer, all of which
could have a material adverse effect on our results of operation and financial
condition.
There are risks associated with our operations in Mexico.
We operate a garment manufacturing plant in Mexico. The Mexican government
has exercised and continues to exercise significant influence over many aspects
of the Mexican economy. Further, as recently as 1995, the Mexican economy
experienced a crisis characterized by exchange rate instability, significant
devaluation of the peso, high inflation, high interest rates and negative
economic growth. We cannot assure you that these conditions will not reoccur in
the future. Actions by the Mexican government, future developments in the
Mexican economy and Mexico's general political, social or economic situation may
impact textile operations in Mexico generally and disrupt or impede our
operations in Mexico. In addition, our operations in Mexico are subject to a
number of risks not necessarily faced by our domestic operations such as work
stoppages, transportation delays and interruptions, political instability,
economic disruptions, expropriation, the imposition of tariffs and changes in
governmental policies. The occurrence of any of these events could have an
adverse effect on our Mexican operations.
During fiscal 2002, we incurred losses in our Mexican operations due to
low sales volume. We can not assure you that these operations will become
profitable.
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We depend on outside production sources.
In fiscal 2002, we sourced approximately 13% of our manufacturing
requirements from third parties. We cannot assure you that these sources of
production will be reliable or that our dependence on such outside sources will
not result in inefficiencies that could have a material adverse effect on our
results of operations and financial condition.
Foreign imports create significant competition, which may adversely affect our
business.
Imports of foreign-made textile and apparel products are a significant
source of competition for us as well as other domestic textile manufacturers.
Many foreign textile manufacturers have lower cost structures than domestic
textile manufacturers, due primarily to significantly lower labor costs, and
enjoy other competitive advantages due to various factors such as the strength
of the U.S. dollar compared to foreign currencies. Although our domestic
manufacturing presence has enabled us to shorten production and lead times for
our domestic customers which generally enables us to respond more quickly than
foreign producers to changing fashion trends and our domestic customers' tight
production schedules, we cannot assure you that we will be able to compete
effectively with imported foreign-made textile products.
We rely on key management.
Our success is dependent upon the talents and efforts of a small number of
key management personnel including Joseph L. Lanier, Jr., our chairman and chief
executive officer, Richard L. Williams, our president and chief operating
officer, and Barry F. Shea, our chief financial officer. The loss of such
management personnel could have an adverse effect on our business.
A portion of our workforce is unionized and labor disruptions could have a
material adverse effect on our results of our operations and profitability.
As of December 28, 2002, approximately 61% of our hourly employees,
including 97% of our hourly employees in our Danville, Virginia facilities,
worked under collective bargaining agreements. Our collective bargaining
agreement for our Danville employees will expire in fiscal 2005. We also have a
collective bargaining agreement for our unionized workers in our Mexican
facility. While we believe that our relations with our employees are good, we
cannot assure you that we will be able to negotiate these or other collective
bargaining agreements on the same or more favorable terms as the current
agreements, or at all, and without production interruptions, including labor
stoppages. A prolonged labor dispute, which could include a work stoppage, could
have a material adverse effect on our business, including our results of
operations and financial condition. In particular, a labor dispute with the
union representing employees in Danville could materially adversely affect our
ability to produce home fashions and apparel fabrics products and could result
in a deterioration of those businesses. See "Business--Employees."
A principal shareholder has the ability to exert significant influence on our
company and on matters subject to the vote of our shareholders.
As of January 24, 2003, Joseph L. Lanier, Jr., our chairman of the board
and chief executive officer, controlled approximately 30% of the combined voting
power of our common stock. See "Security Ownership of Certain Beneficial Owners
and Management." As a result of his beneficial ownership of common stock and his
positions in our company, Mr. Lanier will continue to be able to exert
significant influence on our company and on matters subject to the vote of our
shareholders.
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