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Competition / Competitors The Company's competitive position varies by product line. Competitive factors include price, product styling and differentiation, quality, flexibility of production and finishing, delivery time and customer service. The Company sells its products primarily to domestic customers and competes with both large, integrated textile manufacturers and numerous smaller companies specializing in limited segments of the market. Some competitors have significantly greater financial resources than Dan River. See "Risk Factors--Intense Competition." The Company is one of several domestic manufacturers of home fashions products. Certain of the Company's competitors have a significantly greater share of the domestic market than the Company, including WestPoint Stevens Inc., Springs Industries, Inc. and Fieldcrest Cannon, Inc., which management believes collectively account for over 50% of the home fashions bedding products market. With the acquisition of Cherokee, the Company believes that it is a leading producer of lightweight yarn-dyed woven cotton and cotton-blend apparel fabrics in North America. With respect to men's shirtings, management believes the Company is the largest producer of oxford cloth and pima cotton pinpoint oxford cloth and the leading producer of lightweight yarn-dyed dress shirting fabrics in North America (based on net sales). In the sportswear fabrics market, the Company is one of a number of domestic producers. The Company is subject to foreign competition. The Company believes that over half of the apparel fabrics (much in the form of imported garments) and approximately 15% of the home fashions products sold in the U.S. are manufactured overseas. One of the Company's business strategies is to seek niche apparel fabrics markets that are less susceptible to foreign competition. The Company believes that its domestic manufacturing base and emphasis on shortening production and delivery times allow the Company to respond more quickly than foreign producers to changing fashion trends and to its domestic customers' delivery schedules. 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. The Company benefits from protections afforded to apparel manufacturers based in certain Caribbean and Central American countries which ship finished garments into the U.S. under Item 9802.00.80 of the Harmonized Tariff Schedule of the U.S. as authorized by the Caribbean Basin Recovery Act. Item 9802.00.80 reduces certain tariffs which would otherwise apply to apparel garments manufactured outside the U.S. and shipped into the U.S., provided that the garments are manufactured from fabric produced and cut domestically. Item 9802.00.80 is beneficial for Dan River and other domestic producers of apparel fabrics, because it creates an attractive manufacturing base for apparel in close proximity to the U.S. In January 1995, a multilateral trade organization, the WTO, was established to replace the GATT. This new body has set forth the mechanisms by which world trade in textiles and clothing will be progressively liberalized with the elimination of quotas and the reduction of duties. The implementation began in January 1995 with the phasing-out of quotas and the reduction of duties to take place over a 10-year period. 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. The elimination of quotas and the reduction of tariffs under the WTO may result in increased imports of certain textile products and apparel into North America. These factors could make the Company's products less competitive against low cost imports from developing countries. See "Risk Factors-- Possible Adverse Effect of Government Policy and Import Regulations." NAFTA, which was entered into by the United States, Canada and Mexico and became effective on January 1, 1994, has created the world's largest free- trade zone. The agreement contains safeguards 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. In addition, NAFTA requires merchandise to be made from yarns and fabrics originating in North America in order to avoid trade restrictions. Thus, not only must apparel be made from North American fabric but the fabric must be woven from North American spun yarn. Although management believes that the Company may benefit from NAFTA, there can be no assurance that the removal of these barriers to trade will not have a material adverse effect on the Company's business. See "Risk Factors--Possible Adverse Effect of Government Policy and Import Regulations."