SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the Fiscal Year Ended December 29, 2001

                                       OR

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

     For the transition period from                     to
                                    ------------------       ------------------

                         Commission File Number 1-13421

                                 DAN RIVER INC.
             (Exact name of registrant as specified in its charter)

           Georgia                                            58-1854637
(State or other jurisdiction                               (I.R.S. Employer
    of incorporation or                                   Identification No.)
       organization)

                  2291 Memorial Drive, Danville, Virginia 24541
                    (Address of principal executive offices)

                                 (434) 799-7000
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:

                 Class A Common Stock par value $0.01 per share

           Securities registered pursuant to Section 12(g) of the Act:

                                      None

     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 [ ].

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]

     The aggregate  market value of voting stock held by  non-affiliates  of the
registrant  as of March 1, 2002 (based on the last  reported  closing  price per
share of Class A Common Stock as reported on the New York Stock Exchange on such
date) was approximately $5,063,532.

     As of March 1, 2002, the registrant had 20,371,939 and 2,062,070  shares of
Class A Common Stock and Class B Common Stock outstanding, respectively.
                       DOCUMENTS INCORPORATED BY REFERENCE
     Portions of the Proxy  Statement for the Annual Meeting of  Shareholders to
be held on April 30, 2002 are incorporated by reference in Part III.


<PAGE>
<TABLE>
                                           INDEX TO FORM 10-K

                                             DAN RIVER INC.


                                                                                                    Page
                                                                                                 References
                                                                                                 ----------

                                                 PART I

<S> <C>
Item 1.      Business........................................................................        1

Item 2.      Properties......................................................................        10

Item 3.      Legal Proceedings...............................................................        11

Item 4.      Submission of Matters to a Vote of Security Holders.............................        11

Item X.      Executive Officers of the Registrant............................................        11


                                                 PART II

Item 5.       Market for the Registrant's Common Equity and Related Stockholder Matters......        13

Item 6.       Selected Financial Data........................................................        13

Item 7.       Management's Discussion and Analysis of Financial Condition and Results of
              Operations.....................................................................        14

Item 7A.      Quantitative and Qualitative Disclosures About Market Risk.....................        26

Item 8.       Consolidated Financial Statements and Supplementary Data.......................        26

Item 9.       Changes in and Disagreements with Accountants on Accounting and Financial
              Disclosures....................................................................        48

                                                PART III


Item 10.     Directors and Executive Officers of the Registrant..............................        48

Item 11.     Executive Compensation..........................................................        48

Item 12.     Security Ownership of Certain Beneficial Owners and Management..................        48

Item 13.     Certain Relationships and Related Transactions..................................        48

                                                 PART IV


Item 14.     Exhibits, Financial Statements, Schedules and Reports on Form 8-K...............        49
</TABLE>


<PAGE>
                                     PART I

     Unless otherwise indicated, references in this Annual Report to "we," "us,"
"our"  or  "Dan  River"  refer  to  the  business  of Dan  River  Inc.  and  its
predecessors and  subsidiaries.  References to a fiscal year refer to our fiscal
year,  which is the 52- or  53-week  period  ending on the  Saturday  nearest to
December 31. All fiscal years presented  consisted of 52 weeks other than fiscal
1997, which ended on January 3, 1998 and consisted of 53 weeks.

     This Annual Report contains certain  forward-looking  statements within the
meaning of the  Securities  Act of 1933,  as  amended,  which we refer to as the
Securities  Act, and the Securities  Exchange Act of 1934,  which we refer to as
the  Exchange  Act.   These   statements   are  subject  to  certain  risks  and
uncertainties  that could cause actual results to differ  materially  from those
included in such  statements.  Many of these  statements  appear  under "Item 1.
Business,"  "Item 2.  Properties,"  "Item 3.  Legal  Proceedings"  and  "Item 7.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations." For further information regarding these forward-looking  statements
and the associated  risks and  uncertainties,  see the discussion in this Annual
Report   under  the  caption   "Forward-Looking   Statements"   under  "Item  7.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations."


ITEM 1.   BUSINESS

General

     We were  founded  in 1882  and are a  leading  designer,  manufacturer  and
marketer of products  for the home  fashions  and apparel  fabrics  markets.  We
design,  manufacture and market a coordinated  line of value-added home fashions
products  consisting  of  bedroom   furnishings  such  as  comforters,   sheets,
pillowcases,  shams,  bed  skirts,  decorative  pillows and  draperies.  We also
design,  manufacture  and market a broad range of high quality  woven cotton and
cotton-blend  apparel  fabrics.  Based on net sales,  we believe that we are the
leading  North  American  supplier  of men's  dress  shirting  fabrics.  We also
manufacture  sports  shirts  at a plant  in  Mexico.  We  manufacture  and  sell
specialty  engineered  yarns and woven  fabrics for use in making  high-pressure
hoses and other industrial products, which we refer to as engineered products.

     Certain  financial  information for the home fashions,  apparel fabrics and
engineered products segments set forth in Note 12 to the Consolidated  Financial
Statements is incorporated herein by this reference.

     We are a Georgia  corporation and our principal offices are located at 2291
Memorial  Drive,  Danville,  Virginia  24541.  Our  telephone  number  is  (434)
799-7000.


Acquisitions and Manufacturing Consolidations

     Cherokee Acquisition and Apparel Fabrics Consolidations.  In February 1997,
we acquired  substantially all of the assets and assumed certain  liabilities of
The New Cherokee  Corporation,  which we refer to as Cherokee,  for an aggregate
purchase price of approximately $65 million.  Cherokee,  which was a supplier of
yarn-dyed fabrics to men's and women's shirting  manufacturers and of sportswear
fabrics to the converting  trade, was our primary  competitor for these fabrics.
In  connection  with  the  Cherokee  acquisition,   we  acquired  woven  fabrics
manufacturing  facilities  located in Spindale,  North Carolina and Sevierville,
Tennessee, and a finishing facility located in Harris, North Carolina. We closed
our Riverside  Plant in the fourth quarter of fiscal 1997 and our Spindale Plant
in January  1999.  This  consolidation  reduced  the  number of apparel  fabrics
weaving plants from four to two.

     In December 2001, we announced a further  reduction in our apparel  fabrics
weaving  capacity by  approximately  20% through the relocation of certain looms
from our weaving facility in Danville,  Virginia, to the Sevierville,  Tennessee
plant,  and the  replacement of the relocated  looms from the Danville  facility
with modern looms  devoted to weaving of home fashions  products.  Together with
our on-going capital expenditure programs,  these consolidations provide us with
better capacity utilization and reduce our fixed manufacturing costs.



                                        1
<PAGE>

     Bibb  Acquisition  and Home  Fashions  Consolidation.  In October  1998, we
purchased all the outstanding capital stock of The Bibb Company,  which we refer
to as Bibb,  through a merger  transaction  for an aggregate  purchase  price of
approximately $240 million.  The purchase price consisted of $86 million of cash
and 4.3  million  shares of our Class A Common  Stock.  In  connection  with the
acquisition,  we also  assumed or repaid an  aggregate  of $95 million of Bibb's
debt. Bibb,  which was founded in 1876, was a leading  domestic  manufacturer of
home fashions textile products. The Bibb acquisition broadened our home fashions
products to include  juvenile  products  and products  for the  hospitality  and
health care markets. As a result of the Bibb acquisition, we believe that we are
the leading  manufacturer of bedding products for the juvenile market under such
licensed  names and trademarks as "Barbie,"  "Blue's  Clues," "Bob the Builder,"
"Clifford,"  "Dora The Explorer,"  "Dragon  Tails,"  "Looney  Tunes,"  "NASCAR,"
"NFL," "Powerpuff Girls," "Thomas and Friends" and "Tonka." The Bibb acquisition
also significantly expanded our home fashions products  manufacturing  capacity,
adding spinning and weaving  operations  located in Greenville,  South Carolina,
finishing  operations  located in  Brookneal,  Virginia  and  sewing  facilities
located in Fort Valley and Newnan,  Georgia,  and in  Brookneal,  Virginia.  Our
engineered products manufacturing operations are located in Porterdale, Georgia.

     In  December  2001,  we  announced  a  consolidation  of our home  fashions
manufacturing   operations  which  we  expect  will  reduce  cost  and  increase
efficiency  without  materially  reducing  our  manufacturing  capacity for home
fashions products.  This consolidation involves the closure of our Newnan sewing
plant  and  consolidation  of its  capacity  primarily  into our  Brookneal  and
Danville, Virginia sewing operations.  Additionally, we are closing a portion of
our home fashions weaving operations at the Greenville, South Carolina plant and
installing newly acquired modern looms in our Danville weaving facility.

     Morven Plant  Acquisition.  In December 1998, we purchased a 315,000 square
foot  sewing  facility  located  in Morven,  North  Carolina,  for an  aggregate
purchase  price of  approximately  $2.4 million.  We purchased  this facility in
order to reduce our dependence on outside  manufacturers  for the fabrication of
home fashions products.

     Mexican  Operations.  In  January  2000,  we  entered  into  joint  venture
agreements with Grupo  Industrial Zaga, S.A. de C.V., which we refer to as Zaga,
for the  purpose of building  and  operating  textile and garment  manufacturing
operations  in Mexico.  Subsequent  analysis  suggested,  however,  that certain
costs,  such as  land,  plant  construction  and  utilities,  were  higher  than
originally anticipated. These higher costs, together with generally weak apparel
fabrics  market  conditions,   reduced  anticipated  returns  from  the  textile
manufacturing investment to a level we considered unacceptable.  As a result, we
suggested  to Zaga that we should not proceed with  construction  of the Mexican
apparel fabrics manufacturing plant.

     A new garment  manufacturing  facility has been constructed at Jilotepec in
the State of Mexico and is presently  manufacturing shirts for sale primarily to
retailers.  The plant  includes  laundry  facilities  to  complement  the sewing
operations. The facility utilizes fabric purchased primarily from us. We believe
this facility creates an additional source of demand for our apparel fabrics and
will position us to better serve retailers that seek a single source for garment
design and manufacture, thus competing effectively with Asian imports.

     We held  approximately  a 50%  interest in the  textile  and garment  joint
ventures  at the time they  were  formed.  We and Zaga  negotiated  an  amicable
termination  of both joint  ventures in February  2001,  at which time we bought
Zaga's  interest in the garment  joint  venture for $3.2 million in cash and the
transfer of a parcel of land, in which our interest was valued at  approximately
$750,000.

     ISI  Acquisition.  In April 2000,  we  purchased  substantially  all of the
assets of Import Specialists,  Inc., which we refer to as ISI, for $15.4 million
in cash and the assumption of certain operating liabilities. ISI, an importer of
home  fashions  products  including  doormats,  throws,  and rugs,  manufactured
primarily  in China  and  India,  became a part of our  home  fashions  products
business  operating as the Import Specialty Products Group, which we refer to as
ISP. ISP's products have expanded our previously existing home fashions products
line, and ISP's customer base complements our existing customer base.

     Additional  Danville  Distribution  Facility.  In May 2000,  we acquired an
additional  301,200 square foot warehouse and distribution  facility adjacent to
our Riverpointe  distribution  facility in Danville,  Virginia for $4.3 million.
This  facility was necessary in order to service  increased  demand for our home
fashions products.




                                       2
<PAGE>

Home Fashions Products

     Products.  Our home fashions  products include bedroom  furnishings such as
comforters,  sheets,  pillowcases,  shams,  bed skirts,  decorative  pillows and
draperies that we market under private labels of our major retail  customers and
under  licenses  from,  among others,  "Colours by Alexander  Julian" and "Lilly
Pulitzer,"  and  under the "Dan  River"  brand.  We also  market  home  fashions
products for the juvenile  market under licenses  utilizing a number of licensed
names and trademarks, including:

     o    "Barbie,"
     o    "Blue's Clues,"
     o    "Bob The Builder,"
     o    "Clifford,"
     o    "Dora The Explorer,"
     o    "Dragon Tails,"
     o    "Looney Tunes,"
     o    "NASCAR,"
     o    "NFL,"
     o    "Powerpuff Girls,"
     o    "Thomas and Friends," and
     o    "Tonka."

     We had net sales attributable to home fashions products of:

     o    $469.9 million in fiscal 2001,
     o    $469.8 million in fiscal 2000, and
     o    $431.8 million in fiscal 1999.

     We offer home  fashions  products in a wide variety of styles and patterns,
including fashion designs and, to a lesser extent, solid colors.  Products range
from a  120-thread  count  muslin  sheet of  blended  polyester  and cotton to a
top-of-the-line 250-thread count percale 100% cotton sheet.

     We believe we have  established  ourselves as an innovator in merchandising
home  fashions  products.  We were a leader  in  introducing  the  complete  bed
ensemble  to  retailers,  which we  market  under the name  "Bed-in-a-Bag."  The
"Bed-in-a-Bag"  complete  bed  ensemble  consists of a comforter  with  matching
sheets,  pillowcases,  shams and a dust  ruffle.  We  further  believe  that our
ability to  manufacture  wide-width,  yarn-dyed  fabrics in short runs in a wide
variety of innovative  styles,  such as woven  plaids,  for use in home fashions
products differentiates us from our competitors.

     Customers. We design and manufacture our home fashions products to meet the
needs of retail,  hospitality and healthcare markets. We distribute home fashion
products through key retailers in all retail trade classes including:

     o    department stores,
     o    specialty home fashions stores,
     o    direct marketers,
     o    national chains,
     o    mass merchants, and
     o    regional discounters.

We also sell home fashions  products to the hospitality  and healthcare  markets
primarily through distributors.

     We market our home fashions products to approximately 800 active customers.
We have pursued and established strategic  relationships with large, high volume
retailers including:

     o    Kmart Corporation,
     o    Wal-Mart Stores, Inc.,
     o    Target Corporation,
     o    J.C. Penney Company, Inc., and
     o    Linens n' Things, Inc.



                                       3
<PAGE>

     Our  acquisition  of ISI, an importer of home fashions  products  primarily
from  China and  India,  expanded  our home  fashions  product  line to  include
doormats,  throws and rugs and enables us to source  certain  niche  products at
attractive margins.

     Sales of home fashions  products to Kmart  Corporation and Wal-Mart Stores,
Inc.  accounted for  approximately 18% and 12%,  respectively,  of our total net
sales in fiscal 2001. No other home  fashions  products  customer  accounted for
more  than 8% of our total net sales in  fiscal  2001.  As a  supplement  to our
primary distribution  channels,  one of our subsidiaries operates factory outlet
stores which sell home fashions  products  directly to consumers.  During fiscal
2001,  less than 4% of our sales of home  fashions  products  were to  customers
outside the United States.

     In January 2002, Kmart  Corporation  filed for bankruptcy  protection under
Chapter 11 of the U.S. Bankruptcy Code and subsequently announced the closing of
in  excess of 10% of its  stores.  We do not  currently  anticipate  a  material
decrease  in  our  sales  to  Kmart  as  a  result  of  its  bankruptcy  filing.
Nevertheless,  it is too soon to  determine  the full effects of the filing and,
accordingly,  there can be no assurance  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 financial  condition and results
of operations.  For a further discussion of the Kmart filing please see "Item 7.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations: Overview."

     Sales and Marketing.  The home fashions  products sales and marketing staff
consists of approximately  115 persons.  They are headquartered in New York City
and have  satellite  offices  in the  Atlanta,  Chicago,  Dallas,  Los  Angeles,
Portsmouth,   San  Francisco,   and  Toronto,   Canada  areas.  These  marketing
professionals,  stylists and product development  personnel work as early as one
year in  advance of a retail  selling  season to develop  new  fabrics,  styles,
colors,  constructions and finishes. Together with the marketing group, stylists
often work directly  with our customers and our licensors to create  fabrics and
styles that respond to rapidly  changing  fashion trends and customer needs. New
styles are also developed internally for the April and October bed and bath home
textile trade shows, where they are shown to buyers and are placed in production
based on customer acceptance.  Orders for home fashions products are filled from
inventory  or, if inventory is not  available,  products  are  manufactured  and
generally shipped within six to 12 weeks of order placement.


Apparel Fabrics

     Products.  We  manufacture  and market a broad range of high quality  woven
cotton and cotton-blend  fabrics,  which we market primarily to manufacturers of
men's,  women's and  children's  clothing.  Our yarn-dyed and  piece-dyed  woven
apparel fabrics include:

     o    oxford cloth,
     o    pinpoint oxford cloth,
     o    fancy broad cloth,
     o    seersuckers,
     o    mid and light weight denim,
     o    twills,
     o    chambrays, and
     o    pant fabrics - yarn-dyed and piece-dyed.

     We also  manufacture  and distribute (1) fabrics for uniforms,  (2) fabrics
for  use  in  decorating,  crafts  and  garment  sewing,  (3)  100%  cotton  and
cotton-blend   upholstery  fabrics  and  (4)  greige  (unfinished)   fabrics  to
converters. We had net sales attributable to apparel fabrics products of:

     o    $118.9 million in fiscal 2001,
     o    $143.6 million in fiscal 2000, and
     o    $150.4 million in fiscal 1999.

     We believe  that we enjoy a  reputation  as a leader in creating new fabric
styles and designs within the apparel  fabrics market.  Our product  development
professionals  work  independently as well as directly with customers to develop
new fabric styles and constructions to respond to retailers' needs. For example,
we are currently working with leading  manufacturers to introduce lines of pants
using innovative high performance fabrics for the "business casual" market.



                                       4
<PAGE>

     We  believe  that we are a  leader  in  wrinkle  resistant  technology  for
shirting fabrics, including Dri-Don(R) blended easy care fabrics and 100% cotton
Wrinkl-Shed(R)  fabrics.  We  also  manufacture  and  market  fabrics  utilizing
Tencel(R)  lyocell,  which is an innovative  natural  fiber.  Versatile  lyocell
fabrics have been used primarily in manufacturing  women's sportswear;  however,
we are offering  use of lyocell in new fabrics for  menswear.  Additionally,  we
manufacture sports shirts in Mexico.

     Customers.   We  distribute  our  apparel  fabrics  primarily  to  domestic
manufacturers of men's,  women's and children's clothing which, in turn, operate
sewing plants  throughout the United  States,  Mexico,  Central  America and the
Caribbean. We market our apparel fabrics to in excess of 900 customers,  none of
which  accounted  for  more  than 2% of our  total  net  sales in  fiscal  2001.
Customers market clothing manufactured from our apparel fabrics under such brand
names as:

    o   Arrow,
    o   Brooks Brothers,
    o   Group B/Democracy,
    o   Health-Tex,
    o   L.L. Bean,
    o   Land's End,
    o   Lee,
    o   Levi/Dockers,
    o   Savane,
    o   Van Heusen, and
    o   Wrangler,

as well as under private labels through retailers such as Belk Inc., J.C. Penney
Company, Inc., Kohl's Corporation and Mervyn's Inc. We market uniform fabrics to
customers such as Aramark Corporation, Cintas Corporation and VF Corporation. We
also  distribute  apparel  fabrics to home  sewing  retailers  such as  Wal-Mart
Stores,   Inc.  and  Jo-Ann  Stores,   Inc.,  and  through   various   wholesale
distributors,  for use in decorating and crafts, as well as garment sewing.  Our
upholstery  fabrics  are  sold  primarily  to  furniture  manufacturers  such as
Broyhill Furniture Industries,  Inc. and Bassett Furniture Incorporated.  During
fiscal 2001,  approximately 4% of our sales of apparel fabrics were to customers
located outside the United States.

      During its start-up  phase,  production  from our new Mexican sewing plant
has been sold  primarily  to off-  price  distributors.  The  operation  has now
commenced shipments to a major apparel retailer.

     Sales and Marketing. Our apparel fabrics sales and marketing staff consists
of  approximately  50 full time persons as well as commission  agents.  They are
headquartered in New York City and have satellite  offices in Atlanta,  Chicago,
Dallas,  Danville, High Point (North Carolina) and Los Angeles.  Apparel fabrics
are generally "made to order" products which are manufactured and shipped within
six to ten weeks of order  placement.  Orders for  apparel  fabrics are based on
customer selections from offerings of color, content,  construction,  design and
finish, and fabrics are made to customer specifications,  which may be developed
jointly with the  customer.  Presently  two  individuals  based in  Boonesville,
Mississippi  are  primarily  responsible  for  marketing  the  production of the
Mexican sewing plant.


Engineered Products

     Products.  Our engineered  products consist of yarns and woven fabrics that
are  manufactured  to customer  specification  for use in such  products as high
pressure hoses for the automotive industry,  conveyer belts and other industrial
applications. We had net sales attributable to engineered products of:

     o    $42.3 million in fiscal 2001,
     o    $50.1 million in fiscal 2000, and
     o    $46.7 million in fiscal 1999.

     Customers.  We sell our engineered  products primarily to companies serving
the automotive  industry,  which in turn utilize them as components in their own
products.  We believe our  ability to meet  stringent  industrial  certification
standards and to provide domestic  sourcing to customers has helped us establish
strong  relationships with our customers.  We market our engineered  products to
approximately 75 customers,  none of which accounted for more than 2% of our net
sales in fiscal  2001.  During  fiscal 2001,  substantially  all of our sales of
engineered products were to domestic customers.



                                       5
<PAGE>

     Sales and Marketing.  We have established close working  relationships with
our engineered  products  customers in the development of products to meet their
specific needs.  Sales and marketing of our engineered  products is based in the
Atlanta, Georgia area.


Manufacturing Process

     We are a vertically integrated  manufacturer involved in all aspects of the
woven  textile  manufacturing  process,  from  spinning  and  weaving to dyeing,
finishing, and sewing.

     In  addition  to the  expansion  of our  manufacturing  operations  through
acquisitions,  we make significant investments in facility modernization focused
on  advanced  manufacturing  technologies  in an  effort  to  be  the  low  cost
manufacturer  in the  industry.  Within our home  fashions  operations,  we have
installed:

     o    modern, high-speed air-jet looms,
     o    automatic sheet cutting, hemming and folding equipment,
     o    lower cost open-end and air-jet spinning equipment, and
     o    computerized comforter equipment.

Additionally, within the past several years, we have built:

     o    a new home fashions accessory sewing plant,
     o    a new distribution center, and
     o    a new graphics  printing  facility  primarily  for  production of home
          fashions packaging materials.

      We  built  these  facilities  in  Danville,  Virginia.  They  are in close
proximity to our other  Danville home  fashions  facilities  and our  Brookneal,
Virginia  finishing and sewing  operations.  In December  2001, we announced the
closing of our Newnan,  Georgia  sewing plant and a  significant  portion of the
weaving  operations  at  our  Greenville,   South  Carolina  greige  mill.  This
manufacturing  capacity  is  being  relocated  to  the  Danville  and  Brookneal
facilities,  again, in close proximity to our other home fashions facilities. We
believe our acquisition, investment and consolidation activities have positioned
us to better  and more  efficiently  service  our home  fashions  customers  and
accommodate further growth of our home fashions business.

     Within our apparel fabrics  operations,  we have installed high speed looms
and modernized our yarn preparation  processes  through the installation of more
efficient,   lower  cost,  open-end  spinning,   carding,  drawing  and  combing
equipment.   Our  ongoing  capital  improvement  programs  have  modernized  and
streamlined  substantially  all  significant  components  of  the  manufacturing
process.

     In  addition  to  modernizing   operations,   we  have   consolidated   our
manufacturing  operations to improve  operating costs within our apparel fabrics
operations.  In fiscal 1997, we closed our  Riverside  apparel  fabrics  weaving
facility in Danville and consolidated these operations into an existing facility
located in Danville.  In January 1999, we closed our  Spindale,  North  Carolina
weaving facility and consolidated  these operations into our existing  Danville,
Virginia  and  Sevierville,  Tennessee  apparel  fabrics  manufacturing  plants.
Finally,  in December  2001,  we announced  the  consolidation  of a significant
portion of our apparel fabrics greige  operations into  Sevierville,  with a 20%
reduction in overall apparel fabrics weaving capacity.  Together,  these actions
have aided our efforts to fully utilize our most cost-effective equipment in the
manufacture of apparel fabrics.

     In fiscal 2000, we commenced  manufacturing sport shirts at our new Mexican
sewing plant. This plant includes an industrial laundry and warehouse facilities
from which we are able to ship a  complete,  packaged,  finished  garment to our
targeted customers.

     Our engineered  products facilities include specialty coating equipment for
yarns and fabrics,  looms, and yarn processing  equipment,  which we continue to
enhance  with more modern  technology.  Additionally,  our  engineered  products
facilities have achieved ISO 9001 certification.


                                       6
<PAGE>

     We have engineered our  manufacturing  processes to meet the quick response
delivery  requirements of our customers.  Quick response  techniques  reduce the
time required to process a particular order, which improves customer service and
production efficiency.  Furthermore,  we have the capability to offer electronic
data interchange  programs to all of our customers.  These programs minimize the
lead  time  for  customer   orders  and  permit  a  more   efficient,   targeted
manufacturing  schedule, as well as improvements in efficiency,  communications,
planning and processing  times at each stage of production.  We have  electronic
data interchange programs in place with most of our major home fashions products
customers.


Raw Materials

     We use substantial quantities of cotton in our manufacturing operations. 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.  Cotton is an  agricultural
product subject to weather  conditions and other factors affecting  agricultural
markets.   Accordingly,   the  price  of  cotton  is  subject  to   considerable
fluctuation.

     We purchase cotton primarily in the domestic market directly from merchants
or through brokers.  Generally, we seek to purchase sufficient amounts of cotton
to cover existing order commitments. 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 also use  significant  quantities  of
polyester, which is available from several sources.

     Although  we have always  been able to obtain  sufficient  supplies of both
cotton and polyester,  any shortage or  interruption in the supply or variations
in the quality of either could have a material  adverse  effect on our business.
Additionally,  fluctuations  in cotton and  polyester  prices can  significantly
affect our  profitability,  particularly on a short term basis,  since we cannot
always mirror such fluctuations in the prices of our products.

     We also use various other raw  materials,  such as dyes and  chemicals,  in
manufacturing  operations. We believe these materials are readily available from
a number of sources. We also supplement our internal manufacturing  capabilities
by  purchasing  yarn  and  unfinished   fabrics  from  outside  sources  and  by
contracting  with third parties for various  manufacturing  services,  including
certain  printing and sewing  operations.  During fiscal 2001, we purchased less
than 10% of our manufacturing requirements from outside sources.


Trademarks and Licenses

     We hold licenses to produce and sell home fashions products under:

    o   "Barbie,"
    o   "Blue's Clues,"
    o   "Bob The Builder,"
    o   "Clifford,"
    o   "Colours by Alexander Julian,"
    o   "Di Lewis,"
    o   "Dora The Explorer,"
    o   "Dragon Tails,"
    o   "Lilly Pulitzer,"
    o   "Looney Tunes,"
    o   "NASCAR,"
    o   "NFL,"
    o   "Powerpuff Girls,"
    o   "Thomas and Friends," and
    o   "Tonka,"

as well as other names or marks, and to use certain designs on our home fashions
products.  Such licenses  generally provide that we have the right for a limited
period,  generally three years subject to renewal for additional periods, to use
the respective brand name and/or design in the sale of certain types of products
in certain geographic regions. We also hold licenses with respect to the use and


                                       7
<PAGE>

advertising of certain processes or synthetic fibers or fabrics. We believe that
our  failure to continue to hold any one of our  licenses or  trademarks,  other
than "Dan River," would not have a material adverse effect on our business.


Competition

     Our  competitive  position  varies by  product  line.  Competitive  factors
include:

     o    price,
     o    product styling and differentiation,
     o    quality,
     o    flexibility of production and finishing,
     o    delivery time, and
     o    customer service.

     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  than  we  do.
Nevertheless,  the U.S. textile industry has seen significant consolidation over
the past 12 to 24  months,  with a number  of  companies,  some of which are our
competitors in various aspects of our business, seeking bankruptcy protection or
going out of  business.  We seek  opportunities  under  these  circumstances  to
diversify our business and increase market share in our existing businesses.

     We are one of several  domestic  manufacturers  of home fashions  products.
Although the Bibb acquisition has increased our sales of home fashions products,
and some of our  competitors  have filed for bankruptcy  protection or have gone
out of business,  certain of our competitors still have a significantly  greater
share of the  domestic  market,  including  WestPoint  Stevens  Inc. and Springs
Industries, Inc., which we believe collectively account for over 50% of the home
fashions bedding products market.

     We believe that we are a leading  producer of light weight  yarn-dyed woven
cotton and cotton-blend apparel fabrics in the Western Hemisphere.  With respect
to men's  shirtings,  based on net sales, we believe we are the largest producer
of oxford cloth and pima cotton pinpoint  oxford cloth and the leading  producer
of light weight  yarn-dyed  shirting fabrics in the Western  Hemisphere.  In the
sportswear and upholstery  fabrics  markets,  we are one of a number of domestic
producers. In the sport shirt market, we are one of many producers.

     We are  subject to  foreign  competition.  We believe  that over 70% of the
apparel  fabrics,  much of which are imported in the form of garments,  and over
25% of the home fashions  products sold in the U.S. are  manufactured  overseas.
Most sport shirts sold in the U.S. are manufactured outside of the U.S.

     One of our business  strategies  is to seek niche apparel  fabrics  markets
that are less impacted by foreign competition. We believe that our manufacturing
base in the  United  States,  our  design  expertise,  our  product  development
efforts,  and our emphasis on shortening  production and delivery times allow us
to  respond  more  quickly  to  changing  fashion  trends  and to  our  domestic
customers'  delivery  schedules than can producers  located  outside the Western
Hemisphere. Additionally, we believe our Mexican garment operation will not only
provide an additional outlet for our U.S.  manufactured apparel fabrics but will
better enable us to serve  retailers who desire  garment  packages in which they
can specify both fabric and garment design through one single source.

     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.  NAFTA,  which was entered into by the United
States,  Canada and Mexico, 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  phases  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 we believe  that we derive some
benefit from NAFTA, 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 business.


                                       8
<PAGE>

We benefit 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, which we refer to as CBI. 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.  The
Caribbean Basin Trade Partnership Act, which we refer to as CBTPA, became law in
2000.  The CBTPA  expands the current  CBI  program by  allowing  duty-free  and
quota-free  treatment for imports of certain  apparel from the Caribbean  Basin,
and by extending NAFTA-equivalent tariff treatment to a number of other products
previously  excluded  from  the CBI  program.  Specifically,  under  the  CBTPA,
garments assembled in one or more CBTPA designated countries from fabrics wholly
formed in the U.S. from yarns wholly  formed in the U.S.,  would be eligible for
such favorable  treatment.  CBI, as modified by CBTPA,  is beneficial for us and
other domestic  producers of apparel  fabrics,  because it creates an attractive
manufacturing base for apparel in close proximity to the U.S.

     In 1995, the World Trade Organization,  or WTO,  established  mechanisms to
progressively  liberalize  world trade in textiles and  clothing by  eliminating
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 we refer to as the AGOA,
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,  together  with the effects of the AGOA,  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.  Additionally,  macroeconomic factors such as the strength
of the dollar versus foreign currencies  (particularly Asian) have had and could
continue  to have an  adverse  effect on our  ability to  compete  with  foreign
imports.


Order Backlog

     Our order backlog was  approximately  $121 million at December 29, 2001, as
compared to approximately  $157 million at December 30, 2000.  Substantially all
of the orders on hand at December 29, 2001 are expected to be filled within four
months of that date.


Governmental Regulation

     We must comply with various federal, state and local environmental laws and
regulations  limiting the discharge of pollutants and the storage,  handling and
disposal of a variety of  substances.  In  particular,  our dyeing and finishing
operations  result in the discharge of substantial  quantities of wastewater and
in emissions to the atmosphere.  We must comply with the federal Clean Water and
Clean Air Acts, and related state and local laws and regulations. Our operations
also are  governed  by laws and  regulations  relating to  workplace  safety and
worker  health,   principally  the  Occupational   Safety  and  Health  Act  and
regulations  thereunder,  which,  among other  things,  establish  cotton  dust,
formaldehyde,  asbestos,  noise  standards,  and  regulate  the use of hazardous
chemicals in the workplace.

     We  believe  that  we  currently  comply  in  all  material  respects  with
applicable  environmental or health and safety laws and  regulations.  We do not
believe  that the cost  of,  or any  operational  constraints  or  modifications
required  to assure,  future  compliance  with such laws or  regulations,  or to
remediate  existing  environmental  contamination,  will have a material adverse
effect on our results of operations or financial condition.  However,  there can
be no assurance that:

     o    environmental  requirements  will not  become  more  stringent  in the
          future,
     o    the  position  taken by  various  regulatory  agencies  in  respect of
          regulatory matters or allegedly  contaminated sites will not change in
          a manner materially adverse to us,
     o    claims in material amounts will not be brought by regulatory  agencies
          or third parties,
     o    additional sites which are alleged to have been  contaminated by us or
          our predecessors will not be discovered,
     o    assessments  as to  extent  or  nature  of  contamination  or need for
          clean-up of sites will not change, or
     o    we will not incur material costs in order to address any such matters.


                                       9
<PAGE>

     At the Brookneal, Virginia finishing plant, which we acquired from Bibb, we
are  subject to a consent  order in  connection  with our  wastewater  treatment
system,  which Bibb negotiated in 1996. The order required,  among other things,
substantial  upgrades to the wastewater treatment  facilities.  The construction
activities  required  by the  order  have  been  completed,  and our  wastewater
discharge permit has been renewed.  We believe  substantial  further upgrades to
the wastewater treatment system will not be required to maintain compliance with
the permit.  Pursuant to the order,  the  Commonwealth of Virginia also required
the closure of the existing wastewater  treatment basins and lagoons.  This work
is complete, and the Virginia Department of Environmental Quality has determined
that no further action is required at the site.

     During our due diligence at the Morven,  North Carolina facility,  which we
acquired in December 1998, we discovered low levels of groundwater contamination
from perchloroethylene. Prior to purchasing the facility, our personnel met with
regulatory   authorities   regarding   the  options   for   dealing   with  this
contamination.  As a  result  of  those  discussions,  we  elected  to  pursue a
brownfields  agreement for the property with the State of North Carolina.  Under
the North Carolina brownfields program, contaminated industrial sites are placed
into productive use by allowing  owners to perform less intensive  cleanups than
would be required  for  residential  sites or drinking  water  sources.  A final
agreement with the State of North Carolina has not been completed at this time.

     At the closed Abbeville,  South Carolina facility, which we plan to dispose
of, Bibb  previously  worked with the South  Carolina  Department  of Health and
Environmental  Control, which we refer to as DHEC, to identify the source of low
levels of freon and certain other volatile organic compounds which were found in
a water supply well located  on-site.  No active  on-site  remediation  is being
required by the State at this time;  however,  DHEC has been conducting  further
studies of the site in an attempt to confirm  origin of the  contamination,  and
there can be no assurance that DHEC will not determine  that further  studies or
remediation are required with respect to this site.


Employees

     At December  29,  2001,  we had  approximately  7,300  employees,  of which
approximately   6,200  were  hourly   employees.   Of  these  hourly  employees,
approximately  3,100  are  located  in our  Danville,  Virginia  operations  and
represented by a collective  bargaining  agreement that expires in June 2005. We
believe that our relations with our employees are good.


ITEM 2.   PROPERTIES

      The Bibb, Morven and distribution  center acquisitions added approximately
2.4 million square feet of manufacturing  and warehouse space which is currently
in use for our  home  fashions  products.  Taking  this  additional  space  into
account, as well as the office and warehouse space which we lease as a result of
the ISI acquisition,  our home fashions manufacturing and warehousing facilities
consist of  approximately  5.7 million  square feet of space located in Georgia,
North Carolina,  South Carolina and Virginia. Of this space we own approximately
5.1 million square feet and lease the remainder.

      The  Cherokee  acquisition  added  approximately  600,000  square  feet of
manufacturing  and  warehouse  space which is  currently  in use for our apparel
fabrics  operations.  Taking this  additional  space into  account,  our apparel
fabrics  manufacturing and warehousing  facilities  consist of approximately 2.6
million square feet of space located in North Carolina,  Tennessee and Virginia.
We own  these  facilities  with the  exception  of our  Sevierville,  Tennessee,
manufacturing  plant,  which we lease  with an option to  purchase  for  nominal
consideration in 2018. We also own an apparel  manufacturing plant in Jilotepec,
State of Mexico.

      Our engineered products are manufactured at a 600,000 square foot facility
in Georgia, which we acquired in the Bibb acquisition.

      We own most of our office space in Danville, Virginia, including corporate
and home fashions and apparel fabrics  divisional  offices.  We lease additional
office space in Danville,  as well as each of our marketing  and sales  offices,
and we lease  five  outlet  stores  in  Florida,  Georgia,  South  Carolina  and
Tennessee.  These stores average  approximately 6,000 square feet of total space
each. We own our factory outlet store in Danville, Virginia.



                                       10
<PAGE>

     Substantially  all of  our  owned  manufacturing,  warehousing  and  office
facilities   (including  the  real  property  and  the   machinery,   equipment,
furnishings  and  fixtures)  are subject to security  interests  in favor of our
senior lenders. Additionally, our Sevierville, Tennessee manufacturing plant and
our Portsmouth,  Virginia office and warehouse facility are subject to leasehold
deeds of trust, also in favor of our senior lenders.

     Our manufacturing  facilities  generally operate on a 24 hour, five, six or
seven day  schedule  depending  on the nature of the  operations  and demand for
specific products, as well as other factors.

     We believe that our existing  facilities  are adequate to service  existing
demand for our  products.  We consider  our plants and  equipment  to be in good
condition.


ITEM 3.   LEGAL PROCEEDINGS

     From time to time,  we are a party to  litigation  arising in the  ordinary
course of our business.  We are not currently a party to any litigation  that we
believe could  reasonably be expected to have a material  adverse  effect on our
results of operations or financial condition.


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

     Not applicable.


ITEM X.   EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth information concerning executive officers:
<TABLE>
<CAPTION>
          Name                                                 Age   Position Held
          ----                                                 ---   -------------
<S> <C>
     Joseph L. Lanier, Jr..................................... 70         Chairman, Chief Executive Officer and Director
     Richard L. Williams...................................... 68         President, Chief Operating Officer and Director
     Barry F. Shea............................................ 53         Executive Vice President--Chief Financial Officer
     Gregory R. Boozer........................................ 46         Executive Vice President--Manufacturing
     Anthony J. Bender........................................ 44         Vice President--Information Systems
     Joseph C. Bouknight...................................... 49         Vice President--Human Resources
     Harry L. Goodrich........................................ 51         Vice President, Secretary and General Counsel
     Denise Laussade.......................................... 43         Vice President--Finance
     Gary D. Waldman.......................................... 45         Vice President-Controller
</TABLE>

     Joseph L. Lanier, Jr. has been chairman of the board of directors and chief
executive  officer of our company and its predecessor  since 1989. Mr. Lanier is
also a director  of  SunTrust  Banks,  Inc. (a bank  holding  company),  Flowers
Industries, Inc. (a food company),  Torchmark Corporation (an insurance company)
and Dimon Incorporated (a tobacco products company).

     Richard L. Williams has been a director and  president and chief  operating
officer of our company and its predecessor since 1989.

     Barry F. Shea was vice  president--finance,  chief  financial  officer  and
assistant  secretary of our company and its predecessor from 1989 until 1996 and
was vice  president--chief  financial officer from 1996 until October 1998, when
he was elected executive vice president--chief financial officer.

     Gregory R. Boozer was vice president--manufacturing services of our company
from  1989  until   October   1998,   when  he  was   elected   executive   vice
president--manufacturing.

     Anthony  J.  Bender  has been vice  president--information  systems  of our
company since 1995.  Mr. Bender was director of systems  development  of Springs
Industries,  Inc. (a manufacturer and distributor of textile products) from 1993
until 1995.


                                       11
<PAGE>

     Joseph C. Bouknight has been vice president--human resources of our company
since  January  1999.  Mr.  Bouknight  was  staff  vice  president--organization
effectiveness  with Sonoco Products  Company from 1994 until 1999. Prior to that
he served as director of international human resources of Sonoco from 1992 until
1994.

     Harry L. Goodrich has been secretary and general counsel of our company and
its predecessor since 1989 and has been vice president since 1995.

     Denise  Laussade  has been vice  president--finance  of our  company  since
October 1999 and was assistant treasurer of Darden  Restaurants,  Inc. from 1995
to 1999. From July to October 1999, Ms.  Laussade served as  director--marketing
analysis for a subsidiary of Darden Restaurants, Inc.

     Gary D.  Waldman  has been  controller  of our company  since 1996.  He was
assistant controller from 1992 until 1996, and director of taxes from 1990 until
1992. He was elected vice president-controller in February 2001.

     Other significant employees are:

     o    Robert E. Major,  who has headed our  engineered  products  operations
          since 1987 and is 59 years old,

     o    James E. Martin,  who has headed our apparel fabrics  operations since
          1990 and is 52 years old, and

     o    Thomas L. Muscalino, who has headed our home fashions operations since
          1993 and is 51 years old.

     Our executive  officers are elected by the board of directors and generally
hold office  until the next annual  meeting of our  shareholders  or until their
successors are elected and qualified.


                                       12
<PAGE>

                                     PART II

ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
          MATTERS

     Our Class A Common Stock is listed on the New York Stock  Exchange,  or the
NYSE,  under the symbol "DRF." There is no  established  trading  market for the
Class B Common Stock. On March 1, 2002, there were  approximately 280 holders of
record of our Class A Common  Stock  and nine  holders  of record of our Class B
Common Stock.

     We have not paid cash  dividends  during our two most recent  fiscal years.
Our credit agreement prohibits payment of cash dividends or repurchases of stock
prior to September 2003.

     The following table sets forth for the calendar quarter  indicated the high
and low  closing  prices per share of our Class A Common  Stock as  reported  in
composite trading on the NYSE.


                                                              High       Low
                                                              ----       ---
     2000:
     First Quarter...................................         $6.44     $4.63
     Second Quarter..................................          6.25      4.31
     Third Quarter...................................          4.88      4.13
     Fourth Quarter..................................          4.19      1.94

     2001:
     First Quarter...................................          3.23      1.90
     Second Quarter..................................          3.10      1.91
     Third Quarter...................................          2.75      1.00
     Fourth Quarter..................................          1.02      0.49


ITEM 6.   SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
                                                                                     Fiscal Year
                                                                ----------------------------------------------------------
                                                                  2001        2000          1999        1998       1997(1)
                                                                --------    --------      --------    --------    --------
                                                                        (in thousands, except per share data)
Statement of Income Data:
<S>                                                             <C>         <C>           <C>         <C>         <C>
Net sales.................................................      $631,072    $663,467      $628,899    $517,443    $476,448
Cost of sales.............................................       562,606     541,063       512,977     406,619     372,165
Gross profit..............................................        68,466     122,404       115,922     110,824     104,283
Selling, general and administrative expenses..............        67,910      67,335        64,547      58,410      54,231
Amortization of goodwill..................................         3,617       3,137         2,859         589          --
Other operating costs, net(2).............................         4,282         --         (2,267)      5,347       7,012
Operating income (loss)...................................        (7,343)     51,932        50,783      46,478      43,040
Other income (expense), net...............................           694         226           603         334        (290)
Equity in loss of joint venture...........................          (244)       (226)          --          --           --
Interest expense..........................................        32,063      32,931        28,416      18,713      21,135
Income (loss) before extraordinary item...................       (20,869)     10,773        14,715      17,101      13,264
Extraordinary item........................................           --          --            --         (405)       (243)
Net income (loss).........................................       (20,869)     10,773        14,715      16,696      13,021
Earnings (loss) per share--basic:
     Income (loss) before extraordinary item..............         (0.96)       0.49          0.64        0.86        0.90
     Net income  (loss) per share--basic..................         (0.96)       0.49          0.64        0.84        0.89
Earnings (loss) per share--diluted:
     Income (loss) before extraordinary item..............         (0.96)       0.49          0.63        0.85        0.89
     Net income (loss) per share--diluted.................         (0.96)       0.49          0.63        0.83        0.88


                                       13
<PAGE>
                                                                                     Fiscal Year
                                                                ----------------------------------------------------------
                                                                  2001        2000          1999        1998       1997(1)
                                                                --------    --------      --------    --------    --------
                                                                       (in thousands, except per share data)
Balance Sheet Data (at end of fiscal year):
Working capital...........................................       $184,363   $232,374      $174,365    $221,854    $123,604
Total assets..............................................        666,369    745,473       684,582     720,210     392,295
Total debt, including current maturities..................        325,399    369,271       314,784     354,268     143,756
Shareholders' equity......................................        250,338    277,192       270,952     258,774     165,830
Common shares outstanding.................................         21,988     21,766        22,636      23,219      18,841


Other Financial Data:
Depreciation and amortization of property, plant and
   equipment..............................................       $ 39,451   $ 37,210       $38,912     $30,220     $27,508
Capital expenditures in cash..............................         18,246     33,743        36,729      39,454      24,231
</TABLE>

(1)  Fiscal  year 1997  represents  a 53-week  period.  All other  fiscal  years
presented represent a 52-week period.

(2) Other  operating  costs,  net  includes  various  non-recurring  charges and
credits. The most significant of these relate to plant closure costs. See Note 7
to the Consolidated Financial Statements.


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

Overview

     Our strategy is to expand our home fashions  business both  internally  and
through  acquisitions  as well as to  maintain  our niche  position as a leading
producer  of  light  weight  yarn-dyed  apparel  fabrics.  We also  continue  to
implement  cost  reductions,  which we believe  are  critical in order to remain
competitive in the global marketplace.

     Several  years ago,  we made the  strategic  decision  to focus on our home
fashions products business,  which generally is less cyclical than other textile
businesses  and has  attractive  margins.  Consistent  with  this  strategy,  we
acquired Bibb in October  1998,  which  significantly  increased the size of our
home fashions products business. As a result of the Bibb acquisition,  more than
two-thirds  of our net  sales  are now  attributable  to sales of home  fashions
products.  We believe our increased critical mass has made us more attractive to
our home fashions products customers,  who need large suppliers to satisfy their
requirements.

     Operating  profits from our home  fashions  segment  were $10.9  million in
fiscal 2001, down from $43.3 million in fiscal 2000 despite flat sales year over
year. Our home fashions  segment ended 2000 with  inventories of $165.9 million.
With hindsight,  this was entirely too much in light of the lackluster demand we
would experience as a result of the recessionary environment in 2001. Throughout
2001, we worked diligently on reducing inventory;  however,  the actions we took
were devastating on profits. As we look back, the reduction in operating profits
was due primarily to four factors: (1) the underabsorption of fixed costs during
2001 as we curtailed  operations in our facilities to bring  inventories in line
with slackening  demand;  (2) low margins due to promotional  pricing as we sold
off excess  finished  goods;  (3) higher raw material  prices  (i.e.  cotton and
polyester);  and (4)  higher bad debt  expense  associated  with the  bankruptcy
filing of Kmart Corporation.  Fortunately,  we were successful in our efforts to
bring  inventories  in line by the end of the year. At the end of 2001, our home
fashions inventories were $122.5 million, down $43.4 million or 26% from the end
of 2000. With our inventories  now in line, we anticipate  significantly  better
running  schedules in 2002 than we  experienced in 2001.  This should  favorably
impact  our  profitability  in 2002 as we should not be  burdened  with the high
underabsorption of fixed costs we experienced in 2001.

     Historically,  our apparel  fabrics  operations have been more sensitive to
downturns  within the textile  industry.  As a result,  the  contribution to our
operating  income by the apparel  fabrics  segment has been  significantly  less
than, and has tended to fluctuate more than, the  contribution  to our operating
income  by the  home  fashions  segment.  The  variations  in  operating  income
attributable  to apparel fabrics that we experienced  during fiscal 2001,  2000,
and 1999 are representative of the fluctuations that can occur in that business.


                                       14
<PAGE>

In fiscal 2001, apparel fabrics suffered an operating loss of $8.6 million. This
compares to an  operating  profit of $10.9  million in 2000 and $4.4  million in
1999. In recent years we have taken several steps to improve the  performance of
our  apparel  fabrics  operations,  including:  (1)  the  replacement  of  older
manufacturing  equipment;  (2) the  acquisition  of Cherokee at the beginning of
fiscal  1997  (which  gave  us  greater  critical  mass in our  apparel  fabrics
operations); (3) the closure and consolidation of our Riverside Plant (which was
the least  efficient of our apparel  fabrics  plants) at the end of fiscal 1997;
(4) the closure of our Spindale  Plant in January 1999;  and (5)  downsizing the
weaving capacity of the division by 20% at the end of 2001.

     Due to the high fixed costs associated with our manufacturing operations in
the apparel fabrics business, we seek to maintain full manufacturing  schedules.
During  fiscal  2001,  we were  unable  to  maintain  any  reasonable  operating
schedules  due to the  recessionary  environment  and the  impact of the  strong
dollar in comparison to Asian currencies.  For the year, we operated our apparel
fabrics  weaving at 66% of  capacity,  and the  resulting  under-utilization  of
capacity  and  associated  underabsorption  of  fixed  costs  were  the  primary
contributors  to the poor  operating  performance in 2001. As we have moved into
2002, we have  experienced  an increase in demand for our apparel  fabrics.  The
unfilled order position stood at $33.0 million at the end of February,  up $12.3
million or 60% from the end of 2001.  The  increased  demand  combined  with the
reduction in capacity  should permit us to maintain  relatively  full  operating
schedules  for  the  foreseeable   future  and  should   positively  impact  the
profitability of the apparel fabrics business beginning in the second quarter of
2002.

     In January  2000, we formed a joint venture to build and operate a plant in
Mexico, including sewing and laundry operations,  for the production of finished
garments, primarily sport shirts for sale to apparel and retail customers. These
products  are  targeted to compete  with Asian  imports.  In February  2001,  we
purchased  our joint  venture  partner's  interest in the project.  The facility
became fully  operational in mid 2001.  Because of the recessionary  environment
and the  strong  dollar  and peso,  we have been  unable  to fully  utilize  the
capacity of the plant.  We continue to attempt to utilize this  facility for the
purpose of creating an additional  source of demand for our apparel  fabrics and
to position us to better serve retail  customers  that seek a single  source for
garment design and assembly.

     Currently, the demand for our home fashions products has stabilized and, as
noted above,  the demand for our apparel  fabrics has  increased  significantly.
This should permit both our home fashions and apparel fabrics businesses to have
better  operating  schedules in 2002 than they  experienced in 2001. With better
operating  schedules  and capacity  utilization,  we should not  experience  the
underabsorption  of fixed costs that impacted  profits so significantly in 2001.
We expect this to have a positive impact on our 2002 operating  performance.  If
demand  levels   continue  at  their  current  rate,  we  expect  to  return  to
profitability  in the  second  quarter  of  2002,  and we  further  expect  that
improvement to continue into the back half of 2002.

     An underlying  assumption  with respect to our return to  profitability  in
2002 is that the bankruptcy  filing of our largest  customer,  Kmart, in January
2002 will not have a material  adverse  effect on our home fashions  segment and
our overall  results of operations.  Kmart has recently  announced it will close
284 stores.  We do not  currently  believe that the closure of these stores will
materially affect our return to profitability. Should Kmart continue to downsize
and reduce the number of stores  beyond  the  announced  closures  or make other
material  changes in its operations,  such changes could have a material adverse
effect on our operations.


                                       15
<PAGE>

Performance By Segment

     We operate  in three  industry  segments:  products  for the home  fashions
markets,  products for the apparel fabrics  markets and engineered  products for
the industrial markets. The following table sets forth certain information about
segment results for fiscal 2001, 2000 and 1999.
<TABLE>
<CAPTION>
                                                                             Fiscal      Fiscal      Fiscal
                                                                              2001        2000        1999
                                                                            --------    --------    --------
                                                                                    (in thousands)

Net Sales
<S>                                                                         <C>         <C>         <C>
Home fashions........................................................       $469,862    $469,758    $431,828
Apparel fabrics......................................................        118,881     143,639     150,401
Engineered products..................................................         42,329      50,070      46,670
                                                                            --------    --------    --------
          Total......................................................       $631,072    $663,467    $628,899
                                                                            ========    ========    ========
Operating Income (Loss)
Home fashions........................................................        $10,922     $43,344     $50,878
Apparel fabrics......................................................         (8,579)     10,930       4,358
Engineered products..................................................           (830)      2,341       2,725
                                                                            --------    --------    --------
          Total segment operating income.............................          1,513      56,615      57,961
Corporate items not allocated to segments:
     Amortization of goodwill........................................         (3,617)     (3,137)     (2,859)
     Other operating costs, net......................................         (4,282)         --       2,267
     Other expenses not allocated to segments........................           (957)     (1,546)     (6,586)
                                                                            --------    --------    --------
          Total operating income (loss)..............................       $ (7,343)   $ 51,932    $ 50,783
                                                                            ========    ========    ========
</TABLE>

Results Of Operations

Comparison of 52 Weeks Ended December 29, 2001 ("fiscal 2001") to 52 Weeks Ended
December 30, 2000 ("fiscal 2000")

Net Sales

     Net sales for fiscal 2001 were $631.1 million,  a decrease of $32.4 million
or 4.9% from net sales of $663.5 million for fiscal 2000.

     Home  Fashions.  Net sales of home  fashions  products for fiscal 2001 were
$469.9 million,  virtually  unchanged from fiscal 2000.  Increased sales to mass
merchants in fiscal 2001 offset  decreased  sales of home  fashions  products to
other retail trade classes and to the hospitality and healthcare markets.

     Apparel  Fabrics.  Net sales of apparel fabrics for fiscal 2001 were $118.9
million, down $24.8 million or 17.2% from net sales of $143.6 million for fiscal
2000.  Sales of  dress  shirting  and  uniform  fabrics,  and  sales  of  greige
(unfinished) fabrics to converters, were all significantly lower in fiscal 2001,
reflecting the weak retail  environment  and the increase in unemployment in the
service  sector.  Partially  offsetting  these  decreases  were higher  sales of
sportswear fabrics, primarily pant fabrics.

     Engineered  Products.  Net sales of engineered  products were $42.3 million
for fiscal 2001,  down $7.7 million or 15.5% from net sales of $50.1 million for
fiscal 2000. Most of the decrease was in sales of automotive and industrial hose
yarns, reflecting the generally weak economic environment.

Selling, General and Administrative Expenses

     Selling,  general and  administrative  expenses  for fiscal 2001 were $67.9
million (10.8% of net sales), compared to $67.3 million (10.1% of net sales) for
fiscal 2001. Decreases in incentive compensation and home fashions marketing and
selling  expenses  for 2001 were more than  offset by $3.5  million  in bad debt
expense that was recorded  due to the January  2002  bankruptcy  filing by Kmart
Corporation, our largest customer.


                                       16
<PAGE>

Operating Income

     We generated a $7.3  million  operating  loss for fiscal 2001,  compared to
$51.9 million in operating income for fiscal 2000.

      Home Fashions.  Operating  income for the home fashions  segment was $10.9
million for fiscal 2001,  compared to $43.3  million for fiscal  2000.  Although
total sales were  virtually  the same for both years,  fiscal 2001  profits were
adversely  impacted by higher  per-unit  manufacturing  costs,  a less favorable
sales mix,  higher raw  material  costs and the $3.5 million in bad debt expense
attributable to Kmart,  discussed above. The less favorable sales mix was caused
in large part by  promotional  pricing due to our focus on inventory  reduction.
The higher per-unit  manufacturing costs also primarily relate to our efforts to
reduce  inventories,  which resulted in production  curtailments and unfavorable
running schedules.

      Apparel  Fabrics.  The apparel fabrics  segment  generated an $8.6 million
operating  loss for fiscal 2001,  compared to $10.9 million in operating  income
for fiscal 2000. The unprofitable  operating results for fiscal 2001 reflect the
lower sales  volume,  a  competitive  pricing  environment,  higher raw material
costs, and higher per-unit costs due to production  curtailments and unfavorable
running schedules,  which were necessary to keep inventories in line with demand
for our products. In addition,  the operating loss for the current year includes
$1.7  million in  startup  losses  from our shirt  manufacturing  operations  in
Mexico.  Construction of the  manufacturing  facility is now complete and we are
actively marketing programs to major retailers. Prior to the buyout of our joint
venture  partner in fiscal 2001,  results from this  business  were  reported as
"Equity in loss of joint venture."

      Engineered  Products.  The engineered  products  segment  generated a $0.8
million  operating  loss for fiscal 2001,  compared to $2.3 million in operating
income for fiscal 2000.  The lower  profitability  reflects both the lower sales
volume in fiscal 2001 and less efficient manufacturing performance.

     Corporate Items.  Amortization of goodwill was $3.6 million in fiscal 2001,
compared  to $3.1  million  in fiscal  2000.  The  increase  in  fiscal  2001 is
attributable  to  goodwill  resulting  from  the  acquisition  of the  remaining
interest  in the shirt  manufacturing  operation  in Mexico  and a $2.1  million
increase in goodwill  resulting from an adjustment to deferred taxes  associated
with our fiscal 1998 acquisition of The Bibb Company (see discussion below under
"Income Taxes").

     Other  operating  costs,  net for fiscal 2001 includes a pre-tax  charge of
$4.7 million  relating to a plant  consolidation  program  which we announced in
December,  2001. The  consolidation  program is intended to reduce overhead,  to
improve the flow of product  within our home fashions  manufacturing  operations
and to bring apparel  weaving  capacity in line with current demand levels.  The
charge  consists of a $3.3  million  non-cash  writedown of fixed  assets,  $1.3
million  for  severance  and  benefits   associated   with  the  termination  of
approximately 380 employees, and other exit costs of $0.1 million.

     The plant consolidation includes the closure of a home fashions cut and sew
facility in Newnan,  Georgia,  and a portion of a home fashions weaving facility
in Greenville, South Carolina.  Production from the cut and sew facility will be
moved to sewing  plants in Danville and  Brookneal,  Virginia.  In addition,  we
intend to idle  apparel  looms in Danville,  Virginia  and  transfer  looms from
Danville to  Sevierville,  Tennessee,  resulting  in a net  reduction in apparel
weaving  capacity of  approximately  20%. The vacant space in the Danville plant
created by these  moves will be  utilized  by the  installation  of modern  home
fashions  sheeting looms. We expect to complete the  consolidation of operations
during the second  quarter of fiscal 2002,  and  anticipate  that the payment of
severance and benefits will be substantially  completed by the end of the fiscal
year.  The timing of the  disposition of the Newnan real estate is uncertain due
to current market conditions.

     Other  operating  costs,  net for fiscal 2001 also  includes a $0.4 million
pre-tax  gain from  reversal  of a reserve  established  in 1995 for  removal of
asbestos and equipment from an idle building located in an historic  district in
Danville, Virginia. Work on this project had been suspended for various reasons,
including decisions pending concerning  development in the historic district and
the potential  condemnation of the property in connection with the relocation of
a bridge by the Virginia  Department  of  Transportation.  We spent $0.1 million
against this reserve in fiscal 2001, but do not anticipate  further  spending in
the foreseeable future.

     Other expenses not allocated to our business  segments were $1.0 million in
fiscal 2001 and $1.5 million in fiscal  2000,  and  consisted  of idle  facility
costs and other items not directly related to segment business.


                                       17
<PAGE>

Interest Expense

      Interest  expense  for fiscal 2001 was $32.1  million,  a decrease of $0.9
million or 2.6% from fiscal 2000. The decrease is mostly  attributable  to lower
average debt levels.


Income Tax Provision

      We recorded an $18.1 million income tax benefit for fiscal 2001.  Included
in that  amount  is a $5.0  million  benefit  for the  reversal  of  income  tax
liabilities  recorded in prior years.  During the third  quarter of fiscal 2001,
the Internal Revenue Service completed its examination of our federal income tax
returns  through tax year 1999.  The  examination  resulted in the assessment of
$0.9 million in taxes and  interest,  all of which was offset  against  overpaid
taxes for tax year 2000. Based on the results of the examination and a review of
our tax position, the $5.0 million benefit referred to above was recorded.  Also
as a result of this  review,  we  recorded a $2.1  million  decrease  in certain
deferred  tax assets  associated  with our fiscal 1998  acquisition  of The Bibb
Company and a corresponding increase in goodwill.

     Excluding the one-time $5.0 million income tax benefit discussed above, the
income tax  benefit  for fiscal  2001 was $13.1  million  (33.6% of the  pre-tax
loss), compared to a $8.2 million provision (43.3% of pre-tax income) for fiscal
2000. The effect of nondeductible goodwill amortization decreased the income tax
benefit for fiscal 2001 by 3.2% of the pre-tax loss and increased the income tax
provision  for  fiscal  2000 by 5.8%  of  pre-tax  income.  An  increase  in the
valuation allowance against deferred tax assets related to foreign net operating
losses effectively  decreased the income tax benefit by 1.3% of the pre-tax loss
for fiscal 2001.


Net Income and Earnings Per Share

     The net loss for  fiscal  2001  was  $20.9  million  or $0.96  per  share ,
compared to net income of $10.8 million or $0.49 per share for fiscal 2000.  The
fiscal 2001 results were  affected by the  following  one-time or unusual  items
(discussed above):

     o    a $5.0  million  income tax  benefit  for the  reversal  of income tax
          liabilities recorded in prior years;

     o    $3.5 million in bad debt expense  ($2.1 million after tax) relating to
          Kmart Corporation's bankruptcy filing; and

     o    other  operating  costs,  net of $4.3 million ($2.6 million after tax)
          relating primarily to plant consolidations.

     Together  the above  items  decreased  the net loss for fiscal 2001 by $0.2
million, or $0.01 per share.


Comparison of 52 Weeks Ended December 30, 2000 ("fiscal 2000") to 52 Weeks Ended
January 1, 2000 ("fiscal 1999")

     Net sales for fiscal 2000 were $663.5 million, an increase of $34.6 million
or 5.5% from net sales of $628.9 million for fiscal 1999.

     Home  Fashions.  Net sales of home  fashions  products for fiscal 2000 were
$469.8  million,  up $37.9 million or 8.8% from net sales of $431.8  million for
fiscal 1999.  Incremental  sales from the ISP business we acquired in April 2000
were $10.0 million. The remainder of the increase occurred in the second half of
the fiscal year and was  attributable  to the rollout of a  significant  program
with a large mass merchant and the  introduction of some new juvenile  programs.
These  programs  more than  offset  lower  sales  early in fiscal 2000 caused by
disruptions  from  poor  weather  and a major  systems  implementation,  and the
effects of a general  softening in demand for our home fashions  products at the
retail level that began toward the end of the second quarter of fiscal 2000.



                                       18
<PAGE>

     Apparel  Fabrics.  Net sales of apparel fabrics for fiscal 2000 were $143.6
million,  down $6.8 million or 4.5% from net sales of $150.4  million for fiscal
1999.  Most of the  decrease  was in the  segment's  largest  product  category,
shirting fabrics.  Sales for both years were low by historical standards,  which
we believe  reflected  both the decline in dress  shirting  at the retail  level
resulting  from the  popularity  of business  casual  dress,  and the  continued
increase in low cost fabric and garment imports.

     Engineered  Products.  Net sales of engineered  products were $50.1 million
for fiscal  2000,  up $3.4  million or 7.3% from net sales of $46.7  million for
fiscal 1999. The increase  reflected a strong demand for this segment's products
for most of the first three  quarters  of fiscal  2000 and new fabric  finishing
capabilities, which have enabled us to better meet the demand for certain of our
products.  Sales in the fourth  quarter of fiscal 2000  declined by $1.1 million
over the fourth quarter of fiscal 1999,  which generally  reflected the slowdown
in activity in the automobile and tire industries.


Selling, General and Administrative Expenses

     Selling,  general and  administrative  expenses  for fiscal 2000 were $67.3
million  (10.1% of net sales),  an  increase of $2.8  million or 4.3% from $64.5
million  (10.3%  of net  sales)  for  fiscal  1999.  Most  of the  increase  was
attributable to incremental expenses from ISP.


Operating Income

     Total  operating  income for  fiscal  2000 was $51.9  million  (7.8% of net
sales) compared to $50.8 million (8.1% of net sales) for fiscal 1999.

     Home  Fashions.  Operating  income for the home fashions  segment was $43.3
million for fiscal 2000,  including $0.7 million contributed by ISP, compared to
$50.9 million in fiscal 1999.  Although net sales  increased by $37.9 million in
fiscal  2000,  the  sales mix was less  favorable,  particularly  in the  fourth
quarter,  resulting in lower margins.  This was in part due to a sluggish retail
environment that led to more promotional sales, customer claims and chargebacks,
and higher inventory reserves. In addition, operating margins in the second half
of  fiscal  2000  were  negatively  impacted  by the  increased  use of  outside
processors and higher costs for energy, raw materials and wages.

     Apparel Fabrics. Operating income for the apparel fabrics segment increased
to $10.9  million in fiscal 2000 from $4.4 million in fiscal 1999.  Most of this
increase occurred in the first half of fiscal 2000 and was attributable to lower
raw  material  costs and  better  capacity  utilization.  Increases  in costs of
energy, raw materials and wages negatively impacted operating margins during the
second half of fiscal 2000.

     Engineered  Products.  Operating income for the engineered products segment
was $2.3  million  in fiscal  2000  compared  to $2.7  million  in fiscal  1999.
Although revenues increased by 7.3% in fiscal 2000, less efficient manufacturing
performance and higher general and administrative  expenses  negatively impacted
operating margins.

     Corporate  Items.  Amortization of goodwill was $3.1 million in fiscal 2000
compared to $2.9 million in fiscal 1999. The increase was due to amortization of
goodwill associated with the April 2000 acquisition of ISI.

     Other operating  costs, net for fiscal 1999 included a $1.8 million pre-tax
gain from reversal of reserves established in fiscal 1997 in connection with the
closure  of our  Riverside  apparel  fabrics  weaving  facilities  in  Danville,
Virginia. During fiscal 1999 we donated the Long Mill, one of two mill complexes
that  comprise  the  Riverside  facilities,  to  a  local  nonprofit  historical
organization  for future  renovation and development into a multi-use retail and
residential  facility.  At the time of the donation,  $1.7 million remained of a
$3.1 million  reserve that was established in fiscal 1997 for the estimated cost
of demolishing the mill buildings and related costs.  Due to the donation of the
Long Mill, it is no longer  anticipated  that the remaining  Riverside  property
will be demolished. Accordingly, we reversed the remaining reserve during fiscal
1999. In fiscal 1999,  we also reversed $0.1 million of the reserve  established
in fiscal 1997 for  severance and benefit  costs  associated  with the Riverside
closure, due to lower than anticipated actual costs.

     Other  operating  costs,  net for fiscal 1999 also  included a $0.5 million
pre-tax gain from  reversal of a portion of the loss recorded in fiscal 1998 for
closure of our apparel fabrics weaving facility in Spindale, North Carolina. The
majority  of this  gain was  caused by a better  than  anticipated  recovery  on
equipment that was written down in connection with the plant closure.

                                       19
<PAGE>

     Other expenses not allocated to our business  segments were $1.5 million in
fiscal  2000   compared  to  $6.6  million  in  fiscal  1999  and  consisted  of
depreciation  on the write-up of our fixed assets from our  acquisition in 1989,
idle facility  costs and other items not directly  related to segment  business.
The vast majority of the write-up was for  manufacturing  equipment  that became
fully depreciated by the end of fiscal 1999.


Interest Expense

     Interest  expense for fiscal  2000 was $32.9  million,  up $4.5  million or
15.9% from fiscal 1999.  Higher debt levels  accounted  for  approximately  $2.7
million of the increase,  with the remainder  caused by higher average  interest
rates.


Income Tax Provision

     The income tax  provision  was $8.2 million  (43.3% of pre-tax  income) for
fiscal 2000, compared to $8.3 million (35.9% of pre-tax income) for fiscal 1999.
The effect of nondeductible  goodwill  amortization  increased the effective tax
rate by 5.8% in fiscal 2000 and 4.8% in fiscal  1999.  A $1.5  million  combined
federal and state tax benefit from the charitable donation of the Riverside Long
Mill (discussed  above)  decreased the effective tax rate in fiscal 1999 by 6.5%
of pre-tax income.


Net Income and Earnings Per Share

     Net income for fiscal 2000 was $10.8 million or $0.49 per share  (diluted),
compared to $14.7 million or $0.63 per share  (diluted) for fiscal 1999.  Fiscal
1999 net income was affected by the following  one-time items (discussed  above)
that,  together,  increased  net income by $2.9  million,  or $0.12 per  diluted
share:

     o    a $1.5  million  combined  federal  and  state  tax  benefit  from the
          charitable donation of the Riverside Long Mill;

     o    a $1.8 million pre-tax gain ($1.1 million  after-tax) from reversal of
          certain  prior  year  reserves  associated  with the  Riverside  plant
          closure; and

     o    a $0.5 million pre-tax gain ($0.3 million  after-tax) from reversal of
          a portion  of the loss  recorded  in fiscal  1998 for  closure  of the
          Spindale plant.


Critical Accounting Policies

      Management's discussion and analysis of financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States. The preparation of these financial statements requires the use of
estimates  and   judgements   that  affect  the  reported   amounts  of  assets,
liabilities,  revenues and expenses,  and related  disclosure of commitments and
contingencies. We believe that the following critical accounting policies affect
our  more  significant  estimates  and  judgements  in  the  preparation  of our
consolidated financial statements.

      Accounts Receivable

      We maintain an  allowance  for  doubtful  accounts  for  estimated  losses
resulting  from the inability of our customers to make required  payments to us.
The amount of the allowance is based on the  creditworthiness of customers,  the
age of  unpaid  amounts,  and  other  relevant  information.  If  the  financial
condition of our customers  were to  deteriorate,  resulting in an impairment of
their ability to make payments, additional allowances may be required.

      We also maintain allowances against accounts receivable for future product
returns,  and for various customer programs and incentive  offerings,  including
special  pricing  agreements  and  volume-based  incentives.  By  nature,  these
allowances  involve  considerable  estimation.  If  actual  product  returns  or
customer use of various  incentives  differ from our  estimates,  adjustments to
these allowances, and corresponding adjustments to revenues, would be required.


                                       20
<PAGE>

      Excess and Obsolete Inventory

      Inventories are valued at the lower of cost or market value. We write down
excess and obsolete  inventory for the difference  between the cost of inventory
and the estimated  market value based upon  assumptions  about future demand and
market  conditions.  If actual market  conditions  are less favorable than those
projected by management, additional inventory write-downs may be required.

      Property, Plant and Equipment

      Property,  plant and equipment are recorded at cost and  depreciated  on a
straight-line  basis over the estimated useful lives of the assets. In addition,
assets are reviewed for impairment when events or changes in business conditions
indicate  that  their  carrying  value may not be  recoverable.  The  estimates,
assumptions  and judgements  used by management in applying our property,  plant
and equipment and impairment  policies  reflect both  historical  experience and
expectations  regarding  future industry  conditions and operations.  The use of
different  estimates,  assumptions  and  judgements  could result in  materially
different carrying values of assets and results of operations.

      Goodwill

      We have made  acquisitions in the past that included a significant  amount
of goodwill.  Under generally accepted  accounting  principals in effect through
fiscal 2001,  goodwill has been  amortized  under the straight  line method over
lives  ranging from five to forty years,  and has been  reviewed for  impairment
only when events or  circumstances  have indicated that the carrying  amount may
not be  recoverable.  Through  fiscal 2001,  no  impairment  has been  recorded.
Effective  in fiscal 2002,  goodwill  will no longer be  amortized,  but will be
subject to impairment  testing at least  annually.  If we determine  through the
impairment review process that goodwill has been impaired,  an impairment charge
will be reflected in our statement of operations.

      Pension Plans

      The valuation of our pension  plans  requires the use of  assumptions  and
estimates that are used to develop actuarial  valuation of expenses,  assets and
liabilities.  These  assumptions  include  discount rates,  investment  returns,
projected salary increases,  and mortality rates. The actuarial assumptions used
in our pension  reporting  are  reviewed  annually and  compared  with  external
benchmarks  to ensure  that  they  accurately  account  for our  future  pension
obligations.   Changes  in  assumptions  and  future  investment  returns  could
potentially  have a  material  impact on pension  expense  and  related  funding
requirements.

      Income Taxes

      As part of the  process  of  preparing  our  financial  statements  we are
required to estimate our actual  current tax  exposure  and to assess  temporary
differences  resulting from differing  treatment of items for tax and accounting
purposes. These differences result in deferred tax assets and liabilities, which
are  included in our  consolidated  balance  sheet.  Considerable  judgement  is
involved in this process.  In  particular,  we must assess the  likelihood  that
deferred  tax assets will be  realized,  which is  ultimately  dependent  on the
generation of future taxable income.  Furthermore,  due to the complexity of the
tax laws and other factors,  we must constantly  assess whether we have adequate
reserves to cover both known tax  liabilities and potential  future  assessments
that might result from audits by various taxing jurisdictions.


Liquidity and Capital Resources

      General

     We rely on internally generated cash flow, supplemented by borrowings under
our  borrowing  base  facility,  to meet  our  working  capital  needs,  capital
improvements  and debt  service  requirements.  Our total debt to total  capital
ratio at December 29, 2001 was 56.5%.


                                       21
<PAGE>

      Working Capital

      Our  operations  are working  capital  intensive.  Our  operating  working
capital  (accounts  receivable and inventories less accounts payable and accrued
expenses)  typically  increases or decreases in relation to sales and  operating
activity levels.

      During fiscal 2001,  operating  working capital generated $56.8 million of
cash due primarily to reductions of  inventories  and accounts  receivable.  Net
income plus noncash  expense items (net)  generated $10.3 million in cash during
the year,  and changes in operating  assets and  liabilities  contributed  $58.4
million.  Those  changes  in  operating  assets and  liabilities  were the $56.8
million decrease in working capital  described above, a decrease of $0.9 million
of prepaid  expenses  and other  assets  and a $0.7  million  increase  in other
liabilities.  As a result, operating activities in fiscal 2001 provided net cash
of $68.7 million.

     During fiscal 2000,  operating  working  capital used $52.3 million of cash
primarily  due to a buildup  of  inventory  levels  and  increases  in  accounts
receivable.  Net income plus noncash expense items (net) generated $59.7 million
in cash  during the year,  which  provided  funding  for $55.2  million  used by
changes  in  operating  assets and  liabilities.  Those  changes  were the $52.3
million increase in working capital described above, an increase of $2.7 million
of prepaid  expenses  and other  assets  and a $0.3  million  decrease  in other
liabilities.  As a result, operating activities in fiscal 2000 provided net cash
of $4.5 million.

     In  connection  with  purchasing   cotton  for  anticipated   manufacturing
requirements,  we may enter into cotton futures and option contracts in order to
reduce the risk  associated with future price  fluctuations.  We generally cover
open order requirements, which average approximately three months of production,
through direct purchase, futures and options transactions, and we may shorten or
lengthen  that period in  accordance  with our  perception  of the  direction of
cotton prices. Effective as of the beginning of fiscal 2001, we adopted SFAS No.
133, as amended,  which requires that derivative  instruments be reported on the
balance  sheet  at fair  value.  The  standard  also  establishes  criteria  for
designation  and  effectiveness  of hedging  relationships.  Under SFAS No. 133,
certain futures and option  contracts will no longer be accounted for as hedges.
Due to the  insignificance of such contracts and the absence of other derivative
instruments  subject to SFAS No. 133,  the  adoption of the new standard did not
have a material impact on our financial position or results of operations. Gains
and losses  related to futures  and options  during the three year period  ended
December 29, 2001 were not material to our results of operations.  There were no
material cotton futures or options  contracts  outstanding at December 29, 2001,
December 30, 2000, or January 1, 2000.

      Credit Facilities

     On October 14, 1998, in order to finance the Bibb acquisition,  we replaced
our  $90  milion  revolving  credit  facility  with a new  $275  million  credit
facility.  Under the original terms,  this credit  facility  consisted of a $125
million amortizing term loan and a $150 million non-amortizing revolving working
capital facility.

     The credit  facility was amended  during  fiscal 2000 to permit our planned
joint ventures in Mexico and to add $12,910,000 of new debt to the term loan. In
February  2001,  a  subsequent  amendment  modified  the  interest  coverage and
leverage  covenants for the fourth quarter of fiscal 2000 and subsequent  fiscal
quarters and increased  the interest rate on all loans by 100 basis points.  The
amendment also placed restrictions on the permitted  investment in non-guarantor
subsidiaries, capital expenditures,  repurchase of capital stock, and payment of
dividends.  In addition to the existing security provided by our inventories and
accounts   receivable,   we  have  further  secured  the  credit  facility  with
substantially all of our real and personal property.

     In December 2001, a further  amendment to the credit  agreement  waived any
financial covenant defaults on or prior to the effective date of this amendment,
modified  the  covenant  measures  as of the third  fiscal  quarter  of 2001 and
subsequent fiscal quarters, and replaced the working capital credit line of $150
million with a working capital  borrowing base. The borrowing base is determined
weekly by evaluation of the eligible  inventories and accounts receivable and is
limited to a fixed amount each month which reaches $150 million in June of 2002.
Modifications to the  amortization  schedule of the term loan were made to defer
$15 million of the $20 million of  payments  scheduled  for the first and second
quarters of fiscal 2002 until  September 2003, and to make the June and December
scheduled  payments  due on the 15th  instead of at the end of those  respective
months. A new pricing tier was added,  increasing our current interest margin by
100 basis points.  The agreement was modified to require that interest  payments
be made on at least a monthly basis for all  outstanding  loans. We are required
to meet a minimum cumulative EBITDA covenant (as defined) on a monthly basis and


                                       22
<PAGE>

an  interest  coverage  ratio  covenant  (as  defined) on a monthly  basis.  The
covenant on leverage was eliminated.  Additionally,  any further modification or
waiver to the agreement  concerning  financial  covenants  will require a larger
supporting  vote of the lenders,  up from the previous 51% supporting  vote. The
amendment also prohibited any payment of dividends or additional  repurchases of
capital stock and implemented  additional reporting of financial projections and
results,   restrictions  on  capital  expenditures,   continued  limitations  on
dispositions of assets,  a requirement  that excess  liquidity be used to prepay
the term loan  under  certain  conditions,  and  requires  most cash  management
services to be moved to the agent bank.  Fees and  expenses of $3.7 million were
paid in 2001 in connection with the February and December 2001 amendments.

     Borrowings  under the borrowing  base facility bear interest at a base rate
plus the  applicable  percentage,  as defined  (7.75 % as of March 14,  2002) or
LIBOR plus the applicable  percentage,  as defined (6.15 % as of March 14, 2002)
for periods of one,  two,  three or six months,  at our option.  The  applicable
percentage is based on our leverage ratio,  as defined.  The term loan was fully
borrowed at inception and has scheduled  amortization  payments. In fiscal 2001,
$33  million of  scheduled  amortization  was paid.  With the  addition of $12.9
million  of new debt to the  term  loan in  fiscal  2000  and the  amendment  in
December of 2001, the required remaining  principal  amortization is $25 million
in 2002 and $59.9 million in 2003,  with a final maturity of September 30, 2003.
The borrowing base facility is  non-amortizing  with any borrowings  outstanding
due at final  maturity on  September  30, 2003.  At December  29,  2001,  we had
aggregate  borrowings  of $107.0  million and $2.5  million in letters of credit
outstanding  under the borrowing  base facility and had $29.0 million unused and
available for borrowing.

     In  addition to the  covenants  as  described  above,  the credit  facility
contains  limitations on mergers and  consolidations,  affiliated  transactions,
incurring liens,  disposal of assets and investments.  An event of default under
the  credit  facility  includes  change of  control  (as  defined  in the credit
facility) as well as non-compliance  with certain other  provisions.  Compliance
with these  provisions  is subject to certain risks and  uncertainties  that may
affect our performance in the future, including, among others

     o    deterioration of relationships with or the loss of material customers,
          as  described  in "Item 7.  Management's  Discussion  and  Analysis of
          Financial Conditions and Results of Operations: Overview,"

     o    our ability or the inability of our  customers to compete  effectively
          with imported textile products, and

     o    adverse changes in general market and industry conditions.

     In addition,  at December 29, 2001,  we had an aggregate of $120.0  million
outstanding  for our 10 1/8%  senior  subordinated  notes due 2003.  Interest on
these notes is payable  semi-annually  on June 15 and  December 15 of each year.
The notes mature on December 15, 2003.

     The indenture  relating to our 10 1/8% senior  subordinated notes restricts
certain payments and imposes certain restrictions on incurrence of debt.

     Contractual Obligations

     The following summarizes our contractual  obligations at December 29, 2001,
and the effect that such  obligations  are expected to have on our liquidity and
cash flow in future periods:
<TABLE>
<CAPTION>
                                                                   Less than                 After
                                                               Total      1-Year       1-3 Years  3 Years
                                                               -----      ------       ---------  -------
                                                                        (dollars in millions)
<S>                                                            <C>         <C>          <C>         <C>
Long-term debt and current
      portion of long-term debt.........................       $319.0      $25.4        $288.3      $5.3
Non-cancelable capital lease obligations................          6.4        1.0           5.3        .1
Non-cancelable operating lease obligations..............         34.1        5.3          12.9      15.9
                                                               ------      -----        ------      ----
                                                               $359.5      $31.7        $306.5     $21.3
                                                               ======      =====        ======     =====
</TABLE>



                                       23
<PAGE>

      Acquisitions

In January 2000, we entered into joint venture  agreements with Grupo Industrial
Zaga, S.A. de C.V.  ("Zaga") for the purpose of building and operating plants in
Mexico to manufacture apparel fabrics and garments. A new garment  manufacturing
facility  has been  constructed  at  Jilotepec  in the  State of  Mexico  and is
presently  manufacturing shirts for sale primarily to retailers.  However, based
on the  generally  weak  apparel  fabrics  market  conditions,  and higher  than
expected construction and other costs, the joint venture partners decided not to
proceed with construction of the apparel fabrics manufacturing plant.

     We held  approximately  a 50%  interest in the  apparel  fabric and garment
joint  ventures  at the time they were  formed.  In February  2001,  we and Zaga
negotiated an amicable termination of both joint ventures,  pursuant to which we
purchased  Zaga's interest in the garment joint venture for $3.2 million in cash
and the transfer of our interest in the apparel  fabrics  joint  venture,  whose
primary asset was land valued at approximately $1.5 million. The acquisition has
been accounted for as a purchase,  and the results of operations of the acquired
business have been included in our consolidated financial statements since March
2001. The purchase price was allocated to the assets  acquired,  primarily plant
and equipment,  based on their  estimated fair value at the date of acquisition.
The  allocation  resulted  in goodwill  of $1.7 being  recorded,  which is being
amortized on the straight line method over five years.

     On April 3, 2000,  we  acquired  substantially  all of the assets of Import
Specialists,  Inc.  ("ISI") for $15.4  million in cash,  and the  assumption  of
certain  operating  liabilities.  The assets acquired  consisted  principally of
receivables and inventory.  The acquisition was funded with borrowings under our
working  capital line of credit.  ISI was an importer of home textile  products,
including natural fiber doormats and bootscrapers, throws, area and accent rugs,
and decorative  pillows.  The operations  have been  incorporated  into the home
fashions division as the "Import Specialty  Products Group." The acquisition has
been  accounted  for as a purchase and the results of operations of the acquired
business have been included in the consolidated  financial  statements since the
date of  acquisition.  The allocation of the purchase price of ISI to the assets
acquired  resulted in goodwill of $7.8 million  being  recorded,  which is being
amortized on the straight line method over twenty years.

      Capital Improvements

     We made capital expenditures  aggregating $18.2 million,  $33.7 million and
$36.7 million in fiscal 2001,  2000 and 1999,  respectively.  During fiscal 2001
capital  improvements  were funded  primarily  through our  reduction in working
capital.  We anticipate  capital  expenditures  in the range of $20.0 million to
$23.0  million in fiscal  2002,  which will be used  primarily  for  information
systems, sewing automation and other various facility modernizations.

     Rental  expense  for  fiscal  2001,  2000 and 1999 was  approximately  $8.3
million,  $7.8 million and $8.3 million,  respectively,  net of rental income on
noncancellable  leases and subleases of approximately $0, $1.0 million, and $1.0
million,  respectively.  At December 29, 2001, our future minimum lease payments
due under operating leases with noncancellable  terms in excess of one year were
as follows:  2002, $5.3 million;  2003, $4.8 million;  2004, $4.5 million; 2005,
$3.6 million; 2006, $2.6 million and later, $13.3 million.

      Stock Repurchase Program

     In August 1999, our board of directors  authorized the repurchase from time
to time of up to $10.0  million  aggregate  market  value of our  Class A Common
Stock in open market  transactions on the NYSE. Shares  repurchased  pursuant to
this program are retired and constitute  authorized but unissued  shares.  There
were no shares  repurchased  in fiscal 2001.  During fiscal 2000, we repurchased
877,225  shares for $4.6  million and in fiscal  1999,  we  repurchased  753,919
shares for $5.0 million.  No further  repurchases are permitted under our credit
facility.


Risk Management

      Interest Rate Risk

     We have exposure to floating  interest rates through our  borrowings  under
our credit facility.  Therefore, interest expense will fluctuate with changes in
LIBOR  and the prime  rate.  At  January  1,  2000,  we had  interest  rate swap
agreements  that  terminated  during  the first  quarter  of fiscal  2000  which
effectively  converted  variable  rate  interest  payable  on $65.0  million  of
existing debt to a fixed rate. No interest rate swap agreements were implemented
during  fiscal 2001 or 2000. As of December 29, 2001, a 10% increase in interest
rates in effect on our variable rate borrowings would increase  interest expense
by $1.2 million on an annual basis.



                                       24
<PAGE>

      Commodity Price Risk

     We use many types of fiber,  both natural and man-made,  in the manufacture
of our textile products.  We believe that future price levels of all fibers will
depend primarily upon supply and demand conditions,  weather conditions, general
inflation and domestic and foreign  governmental  regulations  and  agricultural
programs.  We manage  our  exposure  to changes in  commodity  prices  primarily
through our procurement practices.

     We enter into  contracts to purchase  cotton under the Southern  Mill Rules
ratified and adopted by the American Textile Manufacturers  Institute,  Inc. and
American  Cotton  Shippers   Association.   Under  these  contracts  and  rules,
nonperformance by either the buyer or seller may result in a net cash settlement
of the  difference  between the current  market price of cotton and the contract
price.  If we had a net cash  settlement  of our  open  firm  commitment  cotton
contracts at December 29, 2001, and market prices of contracted cotton decreased
by 10%, we would be required to pay a net settlement  provision of approximately
$1.5 million.


Forward-Looking Statements

     This Annual Report contains  forward-looking  statements within the meaning
of the  Securities  Act and the Exchange Act.  These  statements  are subject to
certain  risks and  uncertainties  that  could  cause  actual  results to differ
materially  from those included in such  forward-looking  statements.  The words
"believes,"  "expects,"  "intends,"  "estimates," or  "anticipates"  and similar
expressions,  as well as future or conditional  verbs such as "will,"  "should,"
"would,"  and  "could,"  are  intended to identify  forward-looking  statements.
Specific  forward-looking  statements  contained in this Annual Report  include,
among others:

     o    cost savings and other expected effects of our consolidation efforts,
     o    expected  effects of the Kmart  bankruptcy  and related  events on our
          results of operations,
     o    expected improved manufacturing schedules for 2002,
     o    expected stable/increasing demand for our products in 2002,
     o    estimated capital expenditures for fiscal 2002,
     o    expected  expenditures  for  environmental,   health  and  safety  law
          compliance, and
     o    the  anticipated   outcome  of  pending   environmental   matters  and
          litigation.

     With respect to forward-looking statements contained in this Annual Report,
management has made assumptions regarding,  among other things, cost savings and
other expected  effects of our  consolidation  efforts,  expected effects of the
Kmart  bankruptcy  and  related  events on our results of  operations,  expected
improved manufacturing  schedules for 2002, the level of customer demand for our
products, the amount and timing of expected capital expenditures,  the estimated
cost of compliance with  environmental,  health and safety laws and the expected
resolution of various pending environmental matters and litigation. There can be
no assurance that the assumptions made by us are correct.

     The  forward-looking  statements  in this Annual Report are also subject to
certain risks and uncertainties including, among others, that our performance in
future periods may be adversely impacted by:

     o    the cyclical nature of the textile industry,
     o    adverse  changes in  domestic  or  international  economic  conditions
          generally,
     o    intense  domestic  and  international  competition  within the textile
          industry,
     o    fluctuations  in the price and  availability  of cotton  and other raw
          materials,
     o    the termination of license agreements,
     o    our  inability  to make  capital  improvements  necessary  to maintain
          competitiveness,
     o    possible  adverse  changes in  governmental  regulation  regarding the
          import of cotton and textile products,
     o    difficulties  in  integrating  acquired  businesses and achieving cost
          savings,
     o    changes in environmental regulations,
     o    deterioration of business with or the loss of material customers,
     o    conditions in Mexico affecting our Mexican manufacturing operations,
     o    our inability or the inability of our customers to compete effectively
          with imported textile products, and
     o    adverse changes in general market and industry conditions.

     We believe that the  forward-looking  statements  in this Annual Report are
reasonable; however, such statements are based on current expectations and undue
reliance should not be placed on such statements.  We undertake no obligation to
update publicly any forward-looking statements.


                                       25
<PAGE>

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not Applicable


ITEM 8.   CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                               SEE FOLLOWING PAGES


                                       26
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS





The Board of Directors and Shareholders
Dan River Inc.

     We have audited the accompanying  consolidated  balance sheets of Dan River
Inc. as of December 29, 2001 and December 30, 2000, and the related consolidated
statements of operations,  shareholders'  equity, and cash flows for each of the
three years in the period ended  December 29, 2001. Our audits also included the
financial  statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management.  Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedule based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the consolidated financial position of Dan River Inc.
at December 29, 2001 and December 30, 2000, and the consolidated  results of its
operations  and its cash flows for each of the three  years in the period  ended
December 29, 2001, in conformity with accounting  principles  generally accepted
in the United  States.  Also, in our opinion,  the related  financial  statement
schedule, when considered in relation to the basic financial statements taken as
a whole,  presents  fairly in all material  respects the  information  set forth
therein.


                                                     /s/ Ernst & Young LLP


Greensboro, North Carolina
March 15, 2002


                                       27
<PAGE>
<TABLE>

                                            CONSOLIDATED BALANCE SHEETS

                                      December 29, 2001 and December 30, 2000
<CAPTION>

                                                                                               2001       2000
                                                                                            --------     --------
                                                                                           (in thousands, except
                                                                                              per share data)
                                          Assets
Current assets:
<S>                                                                                         <C>          <C>
     Cash and cash equivalents..........................................................    $  8,316     $  3,675
     Accounts receivable (less allowance of $15,883 and $14,011)........................      75,029       84,726
     Inventories........................................................................     156,508      206,227
     Prepaid expenses and other current assets..........................................       7,577        6,254
     Deferred income taxes..............................................................      17,530       16,656
                                                                                            --------     --------
          Total current assets..........................................................     264,960      317,538
Property, plant and equipment:
     Land...............................................................................      11,697       10,193
     Building and improvements..........................................................     103,332       96,556
     Machinery and equipment............................................................     404,414      393,398
     Construction in progress...........................................................       5,516        8,351
                                                                                            --------     --------
                                                                                             524,959      508,498
     Less accumulated depreciation and amortization.....................................     251,224      216,035
                                                                                            --------     --------
          Net property, plant and equipment.............................................     273,735      292,463
Goodwill................................................................................     115,134      115,011
Other assets............................................................................      12,540       20,461
                                                                                            --------     --------
                                                                                            $666,369     $745,473
                           Liabilities and Shareholders' Equity
Current Liabilities:
     Current maturities of long-term debt...............................................     $26,375      $25,872
     Accounts payable...................................................................      22,911       27,622
     Accrued compensation and related benefits..........................................      21,064       20,437
     Other accrued expenses.............................................................      10,247       11,233
                                                                                            --------     --------
          Total current liabilities.....................................................      80,597       85,164
Long-term debt..........................................................................     299,024      343,399
Deferred income taxes...................................................................       9,709       28,583
Other liabilities.......................................................................      26,701       11,135


Shareholders' equity:
     Preferred stock, $.01 par value; authorized 50,000,000 shares; no shares issued....          --           --
     Common stock, Class A, $.01 par value; authorized 175,000,000 shares; issued and
        outstanding 19,926,189 shares (19,703,439 shares at December 30, 2000)..........         199          197
     Common stock, Class B, $.01 par value; authorized 35,000,000 shares; issued and
        outstanding 2,062,070 shares....................................................          21           21
     Common stock, Class C, $.01 par value; authorized 5,000,000 shares; no shares
        outstanding.....................................................................          --           --
     Additional paid-in capital.........................................................     209,778      209,096
     Retained earnings..................................................................      47,009       67,878
     Accumulated other comprehensive loss...............................................      (6,121)          --
     Unearned compensation--restricted stock.............................................       (548)          --
                                                                                            --------     --------
          Total shareholders' equity....................................................     250,338      277,192
                                                                                            --------     --------
                                                                                            $666,369     $745,473
                                                                                            ========     ========
</TABLE>

                                              See accompanying notes.

                                                        28
<PAGE>
<TABLE>

                                       CONSOLIDATED STATEMENTS OF OPERATIONS

                       Years ended December 29, 2001, December 30, 2000 and January 1, 2000

<CAPTION>
                                                                                    2001         2000        1999
                                                                                  ---------   ---------   ---------
                                                                               (in thousands, except per share data)

<S>                                                                               <C>         <C>         <C>
Net sales..................................................................       $ 631,072   $ 663,467   $ 628,899
Costs and expenses:
     Cost of sales.........................................................         562,606     541,063     512,977
     Selling, general and administrative expenses..........................          67,910      67,335      64,547
     Amortization of goodwill..............................................           3,617       3,137       2,859
     Other operating costs, net............................................           4,282          --      (2,267)
                                                                                  ---------   ---------   ---------
Operating income (loss)....................................................          (7,343)     51,932      50,783
Other income, net..........................................................             694         226         603
Equity in loss of joint venture............................................            (244)       (226)         --
Interest expense...........................................................         (32,063)    (32,931)    (28,416)
                                                                                  ---------   ---------   ---------
Income (loss) before income taxes..........................................         (38,956)     19,001      22,970
Provision (benefit) for income taxes.......................................         (18,087)      8,228       8,255
                                                                                  ---------   ---------   ---------
Net income (loss)..........................................................       $ (20,869)  $  10,773   $  14,715
                                                                                  =========   =========   =========
Earnings (loss) per share--basic...........................................       $   (0.96)  $    0.49   $    0.64
                                                                                  =========   =========   =========
Earnings (loss) per share--diluted.........................................       $   (0.96)  $    0.49   $    0.63
                                                                                  =========   =========   =========
</TABLE>

                                              See accompanying notes.


                                                        29
<PAGE>
<TABLE>

                                   CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>

                                                                                Accumulated    Unearned
                                  Class A   Class B  Additional                  Other       Compensation-
                                   Common    Common    Paid-in     Retained   Comprehensive   Restricted
                                   Stock     Stock     Capital     Earnings       Loss           Stock      Total
                                   -----     -----     -------     --------       ----           -----      -----
<S>                                <C>         <C>     <C>         <C>            <C>           <C>        <C>
Balance at January 2,
    1999.....................      $  212      $ 21    $215,906    $ 42,635       $   --        $   --     $258,774
Net income and
   comprehensive income......          --        --          --      14,715           --            --       14,715
Exercise of stock options....           2        --       1,919          --           --            --        1,921
Tax effect of stock options
   exercised.................          --        --         787          --           --            --          787
Retirement of common
   stock.....................          --        --          --        (245)          --            --         (245)
Repurchase of common
   stock.....................          (8)       --      (4,992)         --           --            --       (5,000)
                                    -----     -----   ---------    --------     --------       -------    ---------
Balance at January 1,
   2000......................         206        21     213,620      57,105           --            --      270,952
Net income and
   comprehensive income......          --        --          --      10,773           --            --       10,773
Exercise of stock options....          --        --          66          --           --            --           66
Repurchase of common
   Stock.....................          (9)       --      (4,590)         --           --            --       (4,599)
                                    -----     -----   ---------    --------     --------       -------    ---------
Balance at December 30,
   2000......................         197        21     209,096      67,878           --            --      277,192
Comprehensive loss:
   Net loss..................          --        --          --     (20,869)          --            --      (20,869)
    Minimum pension liability
        liability adjustment..         --        --          --          --       (6,121)           --       (6,121)
                                                                                                          ---------
   Comprehensive loss........                                                                               (26,990)
                                                                                                          ---------
Restricted stock awards......           2        --         682          --           --          (684)          --
Amortization of unearned
   compensation..............          --        --          --          --           --           136          136
                                    -----     -----   ---------    --------     --------       -------    ---------
Balance at December 29,
   2001......................       $ 199     $  21   $ 209,778    $ 47,009     $ (6,121)      $  (548)   $ 250,338
                                    =====     =====   =========    ========     ========       =======    =========
</TABLE>

                                               See accompanying notes.


                                                         30
<PAGE>
<TABLE>

                                       CONSOLIDATED STATEMENTS OF CASH FLOWS

                       Years ended December 29, 2001, December 30, 2000 and January 1, 2000

<CAPTION>
                                                                                  2001        2000       1999
                                                                               ---------  ----------- ---------

                                                                                        (in thousands)
Cash flows from operating activities:
<S>                                                                              <C>         <C>         <C>
Net income (loss)                                                                $(20,869)   $10,773     $14,715
   Adjustments to reconcile net income to net cash provided by operating
     Activities:
     Noncash interest expense.................................................      1,297        808         753
     Depreciation and amortization of property, plant and equipment...........     39,451     37,210      38,912
     Amortization of goodwill.................................................      3,617      3,137       2,859
     Amortization of restricted stock compensation............................        136         --          --
     Deferred income taxes....................................................    (17,973)     7,752      10,756
     Disposal of assets.......................................................        108       (206)        (25)
     Equity in loss of joint venture .........................................        244        226          --
     Other operating costs, net...............................................      4,282         --      (2,267)
   Changes in operating assets and liabilities, excluding effects of business
     acquired:
          Accounts receivable.................................................      9,819    (11,351)     17,209
          Inventories.........................................................     50,021    (31,927)      3,399
          Prepaid expenses and other assets...................................        924     (2,712)       (187)
          Accounts payable and accrued expenses...............................     (3,060)    (8,974)    (16,557)
          Other liabilities...................................................        739       (255)      1,334
                                                                                 --------    -------     -------
               Net cash provided by operating activities......................     68,736      4,481      70,901
                                                                                 --------    -------     -------
Cash flows from investing activities:
     Capital expenditures.....................................................    (18,246)   (33,743)    (36,729)
     Proceeds from sale of assets.............................................         93        481       7,801
     Acquisitions                                                                  (3,809)   (15,424)         --
     Investment in joint ventures.............................................         --     (3,762)         --
                                                                                 --------    -------     -------
               Net cash used by investing activities..........................    (21,962)   (52,448)    (28,928)
                                                                                 --------    -------     -------
Cash flows from financing activities:
     Payments of long-term debt...............................................    (35,872)   (22,424)     (2,327)
     Net proceeds from issuance of long-term debt.............................         --     16,410          --
     Borrowings against cash surrender value of life insurance................      5,427         --          --
     Finance costs............................................................     (3,688)      (365)         --
     Net borrowings (payments)--working capital facility.......................    (8,000)     60,500    (37,000)
     Proceeds from exercise of stock options..................................         --         36       1,082
     Repurchase of common stock...............................................         --     (4,599)     (5,000)
                                                                                 --------    -------     -------
               Net cash provided (used) by financing activities...............    (42,133)    49,558     (43,245)
                                                                                 --------    -------     -------
Net increase (decrease) in cash and cash equivalents..........................      4,641      1,591      (1,272)
Cash and cash equivalents at beginning of year................................      3,675      2,084       3,356
                                                                                 --------    -------     -------
Cash and cash equivalents at end of year......................................   $  8,316    $ 3,675     $ 2,084
                                                                                 ========    =======     =======
</TABLE>

                                              See accompanying notes.

                                                        31
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            December 29, 2001, December 30, 2000 and January 1, 2000


NOTE 1.   Significant Accounting Policies and Other Matters

Basis of presentation

     The  consolidated  financial  statements  include the accounts of Dan River
Inc.  and its wholly  owned  subsidiaries  (collectively,  the  "Company").  All
significant intercompany items have been eliminated in consolidation.


Fiscal year

     The Company's  fiscal year ends on the Saturday nearest to December 31. All
references  to fiscal 2001,  2000 and 1999 mean the 52 weeks ended  December 29,
2001,  December  30,  2000 and  January 1,  2000,  respectively.  The  financial
statements of subsidiaries  located in Mexico are consolidated based on a fiscal
year  ending  November  30 to  facilitate  timely  reporting  of  the  Company's
financial results.


Use of estimates

     The  preparation  of financial  statements  in conformity  with  accounting
principles  generally accepted in the United States requires  management to make
estimates  and  assumptions  that affect the amounts  reported in the  financial
statements  and  accompanying  notes.  Actual  results  could  differ from those
estimates.


Cash equivalents

     All highly liquid cash  investments  purchased with an initial  maturity of
three months or less are considered to be cash equivalents.


Inventories

     Inventories are stated at the lower of cost or market, with cost determined
under the  first-in,  first-out  method.  Inventories  at December  29, 2001 and
December 30, 2000, respectively, by component are as follows:

                                                        2001       2000
                                                     ---------  ---------
                                                         (in thousands)
          Finished goods............................ $  56,194  $  78,597
          Work in process...........................    85,936    110,591
          Raw materials.............................     2,987      3,215
          Supplies..................................    11,391     13,824
                                                     ---------  ---------
          Total inventories......................... $ 156,508  $ 206,227
                                                     =========  =========


Property, plant and equipment

     Property,  plant and equipment are stated at cost. Depreciation is computed
on a straight-line  basis over the estimated useful lives of the related assets,
ranging from 10 to 35 years for  buildings and  improvements,  and 3 to 14 years
for  machinery  and  equipment.   Leasehold  improvements  are  amortized  on  a
straight-line  basis over the lease term or estimated useful life,  whichever is
less.  The  Company  reviews  long-lived  assets for  impairment  when events or
changes in business  conditions  indicate that their full carrying value may not
be recoverable.

                                       32
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Goodwill

     Goodwill represents the excess of the purchase price over the fair value of
net assets  acquired in  connection  with  acquisitions  accounted for under the
purchase method.  Accumulated amortization at December 29, 2001 and December 29,
2000 was $10,202,000 and $6,585,000, respectively. Approximately 92% of the cost
of goodwill at December 29, 2001 is attributable to the 1998  acquisition of The
Bibb  Company,  and has been  amortized on the  straight-line  method based on a
forty year life. See Note 2 concerning  goodwill  resulting from acquisitions in
fiscal years 2001 and 2000.  Goodwill is reviewed for impairment whenever events
or circumstances  indicate that the carrying amount may not be recoverable.  The
Company  evaluates  the  recoverability  of goodwill by  comparing  its carrying
amount to estimated future undiscounted cash flows. The Company believes that no
impairment of goodwill  existed at December 29, 2001.  See discussion of "Recent
accounting  pronouncements"  below,  concerning  changes in the  accounting  for
goodwill effective for fiscal 2002.


Deferred financing fees

     Debt financing fees are amortized over the term of the related debt.


Revenue recognition

     The Company generally recognizes revenues from product sales when goods are
shipped, at which time sales are final.


Stock-based compensation

     The  Company  continues  to follow  the  accounting  method  prescribed  by
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees,"  and has presented the  disclosure-only  provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation."


Income taxes

     Deferred income taxes are accounted for under the liability  method.  Under
this  method,  deferred  tax  assets and  liabilities  are  determined  based on
differences  between financial reporting and tax bases of assets and liabilities
and are  measured  using the  enacted  tax rates and laws that will be in effect
when the differences are expected to reverse.


Recent accounting pronouncements

     Effective as of the beginning of fiscal 2001, the Company  adopted SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended,
which requires that  derivative  instruments be reported on the balance sheet at
fair  value.  The  standard  also  establishes   criteria  for  designation  and
effectiveness  of hedging  relationships.  In connection  with the purchasing of
cotton for anticipated  manufacturing  requirements,  the Company may enter into
cotton futures and option  contracts in order to reduce the risk associated with
future price fluctuations. Under SFAS No. 133, certain cotton futures and option
contracts will no longer be accounted for as hedges.  Due to the  insignificance
of such  contracts and the absence of other  derivative  instruments  subject to
SFAS No. 133, the adoption of the new standard did not have a material impact on
the Company's financial position or results of operations.

     In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business   Combinations."   This  standard,   which  applies  to  all  business
combinations initiated after June 30, 2001, requires that the purchase method of
accounting  be used for all business  combinations.  The standard  also provides
criteria for the  recognition  and  measurement  of goodwill and other  acquired
intangible assets.


                                       33
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     Also in June 2001, the Financial Accounting Standards Board issued SFAS No.
142, "Goodwill and Other Intangible  Assets." Under this standard,  goodwill and
intangible assets with indefinite lives will no longer be amortized, but will be
subject to an annual impairment test. The Company has adopted SFAS No. 142 as of
the beginning of fiscal 2002. Application of the non-amortization  provisions of
the standard is expected to result in an increase to net income of approximately
$3,500,000  in fiscal  2002,  in the absence of any  impairment  writedowns.  In
fiscal 2002 the Company will perform the first of the required  impairment tests
of goodwill as of the beginning of the fiscal year. The effect of these tests on
the  Company's  financial  position and results of  operations  has not yet been
determined.

     In August 2001, the Financial  Accounting  Standards  Board issued SFAS No.
144,  "Accounting for the Impairment or Disposal of Long-Lived Assets," which is
effective for fiscal years  beginning  after  December 15, 2001.  This statement
supercedes SFAS No.121,  "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," and portions of Accounting  Principles
Board Opinion No. 30,  "Reporting  Results of Operations - Reporting the Effects
of  Disposal  of a  Segment  of a  Business."  SFAS No.  144  provides  a single
accounting  model  for  long-lived  assets to be  disposed  of and  changes  the
criteria  that would have to be met in order to  classify  an asset as  held-for
sale. The provisions of SFAS No. 144 generally are to be applied prospectively.


NOTE 2.   Acquisitions

     In January 2000,  the Company  entered into joint venture  agreements  with
Grupo  Industrial  Zaga,  S.A. de C.V.  ("Zaga") for the purpose of building and
operating  plants in Mexico to manufacture  apparel fabrics and garments.  A new
garment manufacturing facility has been constructed at Jilotepec in the State of
Mexico and is presently  manufacturing  shirts for sale  primarily to retailers.
However,  based on the generally  weak apparel  fabrics market  conditions,  and
higher than expected  construction  and other costs,  the joint venture partners
decided not to proceed with  construction of the apparel  fabrics  manufacturing
plant.

     The Company held  approximately  a 50%  interest in the apparel  fabric and
garment  joint  ventures at the time they were  formed.  In February  2001,  the
Company and Zaga  negotiated  an amicable  termination  of both joint  ventures,
pursuant to which the Company  purchased  Zaga's  interest in the garment  joint
venture for $3.2 million in cash and the transfer of the  Company's  interest in
the  apparel  fabrics  joint  venture,  whose  primary  asset was land valued at
approximately  $1.5  million.  The  acquisition  has  been  accounted  for  as a
purchase,  and the results of  operations  of the  acquired  business  have been
included in the consolidated financial statements since March 2001. The purchase
price was allocated to the assets acquired, primarily plant and equipment, based
on  their  estimated  fair  value  at the date of  acquisition.  The  allocation
resulted in goodwill of $1,668,000  being recorded,  which has been amortized on
the straight line method over a five year life.

     On April 3, 2000, the Company acquired  substantially  all of the assets of
Import Specialists,  Inc. ("ISI") for $15,424,000 in cash, and the assumption of
certain  operating  liabilities.  The assets acquired  consisted  principally of
receivables and inventory.  The acquisition was funded with borrowings under our
working  capital line of credit.  ISI was an importer of home textile  products,
including natural fiber doormats and bootscrapers, throws, area and accent rugs,
and decorative  pillows.  The operations  have been  incorporated  into the home
fashions division as the "Import Specialty  Products Group." The acquisition has
been  accounted  for as a purchase and the results of operations of the acquired
business have been included in the consolidated  financial  statements since the
date of  acquisition.  The allocation of the purchase price of ISI to the assets
acquired  resulted in  goodwill of  $7,764,000  being  recorded,  which has been
amortized on the straight line method over a twenty year life.


NOTE 3.   Shareholders' Equity

     Certain shareholders have the right to require the Company to register,  at
its expense, their shares under the Securities Act of 1933.

     All Class B common  stock  outstanding  as of December  29, 2001 is held by
certain members of the Company's senior  management (and certain of their family
members).  With limited exceptions,  owners of Class B common stock are entitled
to 4.39 votes per share on matters  brought  before the Company's  shareholders,
whereas owners of Class A common stock are entitled to one vote per share.

                                       34
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     In August 1999, the Board of Directors  approved a share repurchase program
authorizing  the Company to utilize up to  $10,000,000  to repurchase  shares of
Class A common stock.  Shares  repurchased  pursuant to this program are retired
and  constitute  authorized  but  unissued  shares.  In fiscal 1999 and 2000 the
Company  repurchased a total of 1,631,144 shares for $9,599,000.  No shares were
repurchased  in 2001.  Subject to the terms of our credit  facility,  no further
repurchase of Company stock is permitted.

     The accumulated other comprehensive loss reflected in shareholders'  equity
at December 29, 2001 consisted of the minimum  pension  liability  adjustment of
$9,982,000, less the related tax effect of $3,861,000.


NOTE 4.   Long-Term Debt

     Long-term debt at December 29, 2001 and December 30, 2000,  consists of the
following:

                                                               2001       2000
                                                             --------   --------
                                                              (in thousands)
     Senior subordinated notes............................   $120,000   $120,000
     Working capital facility.............................    107,000    115,000
     Term loan............................................     84,910    117,910
     Capital leases.......................................      6,363      8,880
     Other borrowings with various rates and maturities...      7,126      7,481
                                                             --------   --------
                                                              325,399    369,271
     Less current maturities..............................     26,375     25,872
                                                             --------   --------
     Total long-term debt.................................   $299,024   $343,399
                                                             ========   ========

      The senior  subordinated  notes (the "Notes")  consist of  $120,000,000 in
non-amortizing ten-year notes issued pursuant to an indenture dated December 15,
1993, bearing interest at 10 1/8% payable semi-annually.

      On October 14, 1998, in order to finance the Bibb acquisition, we replaced
our $90  million  revolving  credit  facility  with a new  $275  million  credit
facility.  Under the original terms,  this credit  facility  consisted of a $125
million  amortizing  term  loan,  and a $150  million  non-amortizing  revolving
working capital credit line.

      The credit  facility was amended  during fiscal 2000 to permit our planned
joint ventures in Mexico and to add $12,910,000 of new debt to the term loan. In
February  2001,  a  subsequent  amendment  modified  the  interest  coverage and
leverage  covenants for the fourth quarter of fiscal 2000 and subsequent  fiscal
quarters and increased  the interest rate on all loans by 100 basis points.  The
amendment also placed restrictions on the permitted  investment in non-guarantor
subsidiaries, capital expenditures,  repurchase of capital stock, and payment of
dividends.  In addition to the existing security provided by our inventories and
accounts   receivable,   we  have  further  secured  the  credit  facility  with
substantially all of our real and personal property.

      In December 2001, a further  amendment to the credit  agreement waived any
financial covenant defaults on or prior to the effective date of this amendment,
modified  the  covenant  measures  as of the third  fiscal  quarter  of 2001 and
subsequent fiscal quarters, and replaced the working capital credit line of $150
million with a working capital  borrowing base. The borrowing base is determined
weekly by evaluation of the eligible  inventories and accounts receivable and is
limited to a fixed amount each month which reaches $150 million in June of 2002.
Modifications to the  amortization  schedule of the term loan were made to defer
$15 million of the $20 million of  payments  scheduled  for the first and second
quarters of fiscal 2002 until  September 2003, and to make the June and December
scheduled  payments  due on the 15th  instead of at the end of those  respective
months. A new pricing tier was added,  increasing the Company's current interest
margin by 100 basis points.  The agreement was modified to require that interest
payments  be made on at least a monthly  basis for all  outstanding  loans.  The
Company is required to meet a minimum cumulative EBITDA covenant (as defined) on
a monthly  basis and an  interest  coverage  ratio  covenant  (as  defined) on a
monthly  basis.  The  covenant on leverage  was  eliminated.  Additionally,  any
further  modification or waiver to the agreement  concerning financial covenants
will require a larger  supporting vote of the lenders,  up from the previous 51%
supporting  vote.  The  amendment  also  prohibited  any payment of dividends or
additional  repurchases of capital stock and implemented additional reporting of
financial  projections  and  results,   restrictions  on  capital  expenditures,
continued  limitations on  dispositions  of assets,  a requirement to use excess
liquidity to prepay


                                       35
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the term loan  under  certain  conditions,  and  requires  most cash  management
services to be moved to the agent bank.  Fees and  expenses of  $3,688,000  were
paid in 2001 in connection with the February and December 2001 amendments.

      At  December  29,  2001,  the  weighted   average  interest  rate  of  the
$107,000,000 outstanding borrowings under the borrowing base facility was 6.22%.
The Company pays a commitment fee on the unused  portion of the borrowing  base.
The  facility  also  provides  for the  issuance  of  letters  of  credit  up to
$10,000,0000 of which $2,531,000 was outstanding at December 29, 2001. Under the
borrowing  base,  $28,960,000 was unused and available for borrowing at December
29, 2001.

      The weighted average interest rate of the borrowings under the $84,910,000
outstanding  borrowings  under the term loan  facility at December  29, 2001 was
6.50%.  Scheduled  principal payments by fiscal year are $25 million in 2002 and
$59,910,000 in 2003. The final payment is due September 30, 2003.

      The Notes contain certain restrictive covenants which, among other things,
impose  limitations on debt incurrence and restrict certain payments,  including
payment of dividends and the repurchase of capital stock.

      The Company  entered into interest rate swap  agreements in fiscal 1999 to
manage its exposure to interest rate changes. The swaps involved the exchange of
fixed and  variable  interest  rate  payments  without  exchanging  the notional
principal amount. At January 1, 2000, the Company had outstanding  interest rate
swap  agreements  maturing  in  the  first  quarter  of  2000  against  existing
outstanding debt of $65,000,000.  There were no interest rate swaps  implemented
in fiscal 2000 or fiscal 2001.

      The aggregate annual scheduled principal  repayments of long-term debt for
2002, 2003, 2004, 2005, and 2006 are $26,375,000,  $288,230,000  (which includes
$107,000,000  under  the  borrowing  base and  $120,000,000  under  the  Notes),
$2,243,000, $3,072,000, and $1,689,000, respectively.

     Cash  payments  of  interest  on debt  were  $31,159,000,  $30,912,000  and
$20,706,000 in fiscal 2001, 2000 and 1999, respectively.


NOTE 5.   Income Taxes

     The provision (benefit) for income taxes is comprised of the following:

                                                2001       2000     1999
                                            ---------    -------   -------

                                                    (in thousands)
     Current:
          Federal........................      $ (114)     $ 426   $(2,336)
          State..........................         --          50      (793)
                                            ---------    -------   -------
                                                 (114)       476    (3,129)
                                            ---------    -------   -------
     Deferred:
          Federal........................     (16,080)     6,787     9,484
          State..........................      (1,893)       965     1,900
                                            ---------    -------   -------
                                              (17,973)     7,752    11,384
                                            ---------    -------   -------
     Provision for income taxes..........   $ (18,087)   $ 8,228   $ 8,255
                                            =========    =======   =======

                                       36
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     A  reconciliation  of the differences  between the provision  (benefit) for
income taxes and income taxes  computed  using the statutory  federal income tax
rate of 35% follows:
<TABLE>
<CAPTION>
                                                                 2001        2000       1999
                                                              ---------     -------    ------
                                                                      (in thousands)
<S>                                                           <C>           <C>        <C>
     Amount computed using the statutory rate............     $ (13,635)    $ 6,650    $8,040
     Increase (decrease) in taxes resulting from:
          State taxes....................................        (1,230)        660       719
          Amortization of goodwill.......................         1,131         996     1,001
          Donation of real estate........................           --          --     (1,400)
          Reversal of income tax liabilities.............        (4,987)        --        --
          Change in valuation allowance..................           510         --        --
          Other, net.....................................           124         (78)     (105)
                                                              ---------     -------    ------
     Provision (benefit) for income taxes................     $ (18,087)    $ 8,228    $8,255
                                                              =========     =======    ======

     Deferred income taxes reflect the net tax effects of temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the  Company's  deferred  tax  liabilities  and assets at December  29,  2001and
December 30, 2000 are as follows:
<CAPTION>
                                                                                                2001       2000
                                                                                               -------   --------
                                                                                               (in thousands)
     Deferred tax assets:
          Net operating loss and credit carryforwards...................................       $26,923   $ 14,299
          Accrued compensation and benefits.............................................        13,121      7,708
          Inventory valuation and reserves..............................................         6,061      8,163
          Accounts receivable allowances................................................         4,674      2,044
          Other nondeductible reserves and accruals.....................................         1,036      1,742
          Other.........................................................................         1,853      1,558
          Valuation allowance...........................................................          (820)        --
                                                                                               -------   --------
               Total deferred tax assets................................................        52,848     35,514
                                                                                               -------   --------
     Deferred tax liabilities:
          Book carrying value in excess of tax basis of property, plant and
             equipment..................................................................        44,197     42,570
          Other.........................................................................           830      4,871
                                                                                               -------   --------
               Total deferred tax liabilities...........................................        45,027     47,441
                                                                                               -------   --------
               Net deferred tax asset (liability).......................................       $ 7,821   $(11,927)
                                                                                               =======   ========
</TABLE>


     During the third  quarter of fiscal  2001,  the  Internal  Revenue  Service
completed its  examination of the Company's  federal income tax returns  through
tax year 1999. The  examination  resulted in the assessment of $900,000 in taxes
and interest,  all of which was offset against overpaid taxes for tax year 2000.
Based on the  results  of the  examination  and a review  of the  Company's  tax
position,  a $4,987,000  income tax benefit was  recognized  for the reversal of
income tax liabilities recorded in prior years. Also as a result of this review,
the  Company  recorded a  $2,100,000  decrease  in certain  deferred  tax assets
associated  with  the  fiscal  1998  acquisition  of  The  Bibb  Company  and  a
corresponding increase in goodwill.

     At December 29, 2001 the Company had available  federal net operating  loss
carryforwards  of  $46,200,000  and  charitable  contribution  carryforwards  of
$4,000,000 which may be used to offset future taxable income.  The net operating
loss   carryforwards   expire  beginning  in  fiscal  2017  and  the  charitable
contribution   carryforwards   expire   beginning   in  fiscal   2004.   Similar
carryforwards  exist  for state tax  purposes.  In  addition,  the  Company  had
available a minimum tax credit  carryforward of $8,500,000  which may be used to
reduce federal income taxes over an indefinite period, and $2,400,000 in foreign
net  operating  loss  carryforwards  that  are  attributable  to  the  Company's
operations in Mexico and expire beginning in 2010.

     Approximately  $16,600,000 of the federal net operating loss  carryforwards
were  generated by The Bibb Company prior to its  acquisition  by the Company in
fiscal 1998, and the related tax benefit has been credited to goodwill.  Because
the  acquisition  constituted a "change in  ownership"  under Section 382 of the
Internal Revenue


                                       37
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Code,  the  annual  utilization  of these  carryforwards  is  subject to certain
restrictions.  However,  such  restrictions are not expected to cause any of the
carryforwards to expire.

     An $820,000 valuation allowance has been established to offset the deferred
tax asset  related to the  foreign  net  operating  loss  carryover,  due to the
uncertainty  surrounding  the  future  profitability  of the  Company's  Mexican
operations.  $310,000  of the  valuation  allowance  is  attributable  to losses
generated before the Company  acquired a controlling  interest in the operations
in February 2001 (Note 2). To the extent this portion of the valuation allowance
is reduced in the  future,  due to the actual  utilization  of the  foreign  net
operating  loss  carryover  or  otherwise,  the  resulting  tax benefit  will be
credited to goodwill.

     Based on the expected  reversal of temporary  differences and available tax
planning  strategies,  such  as  changes  in  methods  of  depreciation  for tax
purposes,  the Company believes that it is more likely than not that the federal
and state net operating loss and charitable  contribution  carryforwards will be
utilized  before they expire.  Accordingly,  no additional  valuation  allowance
against deferred tax assets has been recorded.

     The Company received $108,000,  $429,000 and $260,000 in income tax refunds
during fiscal 2001, 2000 and 1999, respectively.


                                       38
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 6.   Benefit Plans

Retirement plans

     The Company  sponsors  qualified  noncontributory  defined  benefit pension
plans that cover the  majority of its  full-time  employees.  In fiscal 2001 the
Company adopted nonqualified  supplemental retirement plans covering certain key
management  employees.  These plans are unfunded and provide  participants  with
retirement  benefits in excess of  qualified  plan  limitations.  The  following
tables  set forth the  changes  in benefit  obligations  and plan  assets of the
qualified and supplemental plans for fiscal 2001 and 2000, and the funded status
of the plans as of December 29, 2001 and December 30, 2000.
<TABLE>
<CAPTION>
                                                                                                             Supple-
                                                                                            Qualified         mental
                                                                                           Pension Plans       Plans
                                                                                           -------------       -----
                                                                                         2001       2000        2001
                                                                                        -------    -------    -------
                                                                                              (in thousands)
Change in benefit obligations:
<S>                                                                                     <C>        <C>        <C>
       Benefit obligations at beginning of year......................................   $38,418    $33,536    $    --
       Service cost..................................................................     2,747      2,148        230
       Interest cost.................................................................     3,510      2,827        278
       Actuarial loss ...............................................................     8,063      1,642        181
       Plan amendments...............................................................        97         --         --
       Prior service costs--adoption of new plans....................................        --         --      3,404
       Benefits paid.................................................................    (2,078)    (1,735)       (13)
                                                                                        -------    -------    -------
       Benefit obligations at end of year............................................    50,757     38,418      4,080
                                                                                        -------    -------    -------
Change in plan assets:
       Fair value of plan assets at beginning of year................................    39,280     37,246         --
       Actual return on plan assets..................................................    (2,182)     1,360         --
       Company contributions.........................................................     3,851      2,409         13
       Benefits paid.................................................................    (2,078)    (1,735)       (13)
                                                                                        -------    -------    -------
       Plan assets at end of year....................................................    38,871     39,280         --
                                                                                        -------    -------    -------
Funded status........................................................................   (11,886)       862     (4,080)
Unrecognized actuarial loss (gain)...................................................    12,141     (1,607)       181
Unrecognized prior service cost......................................................        91         (6)     3,171
                                                                                        -------    -------    -------
Net amount recognized at end of year.................................................   $   346    $  (751)   $  (728)
                                                                                        =======    =======     ======
Amounts recognized in the consolidated statement of financial position consist of:
       Prepaid pension cost..........................................................   $ 2,313    $ 1,014    $    --
       Accrued pension cost..........................................................    (1,967)    (1,765)      (728)
       Additional minimum liability..................................................   (10,033)        --     (3,210)
       Intangible asset..............................................................        91         --      3,170
       Accumulated other comprehensive loss..........................................     9,942         --         40
                                                                                        -------    -------    -------
       Net amount recognized at end of year..........................................     $ 346    $  (751)   $ ( 728)
                                                                                        =======    =======    =======
</TABLE>

     At December 29, 2001 the benefit obligation for each of the qualified plans
exceeded the fair value of plan assets,  and the aggregate  accumulated  benefit
obligation  for these plans was  $48,558,000.  At December 30, 2000, the benefit
obligation, accumulated benefit obligation and fair value of plan assets for the
qualified plans with  accumulated  benefit  obligations in excess of plan assets
were  $15,625,000,  $13,430,000 and $14,202,000,  respectively.  The accumulated
benefit  obligation for the  nonqualified  supplemental  plans was $3,938,000 at
December 29, 2001.

                                       39
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     Weighted average  assumptions used in measuring  benefit  obligations as of
year-end are as follows:

                                                                   2001   2000
                                                                   ----   ----
          Discount rate...................................         7.3%   7.7%
          Expected return on plan assets..................         9.0%   9.5%
          Rate of compensation increase...................         4.0%   4.0%


     Net periodic benefit cost included the following components:
<TABLE>
<CAPTION>
                                                                                 Supple-
                                                           Qualified             mental
                                                         Pension Plans           Plans
                                                         -------------           -----
                                                    2001      2000      1999      2001
                                                   ------    ------    ------     -----
                                                             (in thousands)
<S>                                                <C>       <C>       <C>        <C>
     Service cost............................      $2,747    $2,148    $2,449     $ 230
     Interest cost...........................       3,510     2,827     2,567       278
     Expected return on assets...............      (3,564)   (3,569)   (3,170)       --
     Amortization of prior service cost......          --        --        --       233
     Actuarial loss (gain)...................          61      (181)       --        --
                                                   ------    ------    ------     -----
     Net periodic benefit cost...............      $2,754    $1,225    $1,846     $ 741
                                                   ======    ======    ======     =====
</TABLE>

     The  Company  also  sponsors  401(k)  plans for salary paid  employees  and
certain  hourly  paid  employees.  Company  matching  contributions  amounted to
$1,202,000, $694,000 and $557,000, respectively, for fiscal 2001, 2000 and 1999.
In  addition,  the  Company  maintains  an  unfunded  nonqualified  supplemental
retirement  plan for certain  former  employees  that provides for payments upon
retirement,  death or disability  over the longer of the employee's  life or ten
years. The benefit obligations of $2,458,000 and $2,388,000 at December 29, 2001
and  December  30,  2000,   respectively,   are  accrued  in  the   accompanying
consolidated  balance  sheets.  The Company is a beneficiary  of life  insurance
policies on certain participants in this plan.

Stock-based compensation

     The Company  maintains  stock  incentive  plans  adopted in fiscal 1997 and
fiscal 2000 that allow for the grant of stock options,  restricted stock,  stock
appreciation   rights  and  other  stock-based   awards  to  key  employees  and
non-employee directors.  Through fiscal 2001 all option grants pursuant to these
plans were for nonqualified  options to purchase Class A common stock at a price
equal to the fair  market  value of the stock on the date of grant.  The options
generally vest ratably over periods ranging from two and one half to four years,
and expire at the end of 10 years.

     The Company also  maintains a  nonqualified  stock option plan  pursuant to
which  options to purchase  Class A common  stock were  granted  prior to fiscal
1997.  All options to purchase  unissued  shares granted under this plan have an
exercise  price of $6.85 per share,  generally  vested on December 31, 1999, and
expired on December 31, 2001. Prior to December 30, 1994, the plan also provided
for the granting of options to purchase  shares of the Company's  Class A common
stock from a certain  principal  shareholder  at an exercise  price of $0.57 per
share.  All of these options were either  exercised or forfeited by December 31,
1999.

     In connection with the acquisition of The Bibb Company in 1998, outstanding
incentive  stock options  ("ISO's")  held by Bibb  employees were converted into
fully  vested and  exercisable  options to purchase  Class A common stock of the
Company. The ISO's expire in 2007.

     The  Company  has  applied  APB 25 in  accounting  for stock  options  and,
accordingly,  no compensation  expense has been recorded in fiscal 2001, 2000 or
1999. If the Company had determined  compensation expense based on fair value at
the grant date for its stock options under SFAS 123, net income and earnings per
share would have been reduced to the pro forma amounts indicated below:

                                       40
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


                                                  2001       2000      1999
                                                --------    -------   -------
                                                   (in thousands, except
                                                      per share data)
     Net income (loss):
          As reported......................     $(20,869)   $10,773   $14,715
          Pro forma........................      (22,167)     9,631    13,817
     Per share:
          As reported--
               Basic.......................        (0.96)      0.49      0.64
               Diluted.....................        (0.96)      0.49      0.63
          Pro forma--
               Basic.......................        (1.02)      0.44      0.60
               Diluted.....................        (1.02)      0.44      0.59

     The pro  forma  results  reflect  amortization  of the fair  value of stock
options  over the  vesting  period,  and only  take into  consideration  options
granted after fiscal 1994. The weighted average fair value of options granted in
fiscal  2001,  2000 and  1999,  was  estimated  to be $1.86,  $2.81  and  $2.62,
respectively.  The fair value of each option grant was  estimated on the date of
grant  using  a  Black-Scholes  option  pricing  model,   assuming  no  expected
dividends.

     The following  weighted  average  assumptions were used in the valuation of
options:

                                                      2001      2000     1999
                                                     ------    ------   ------
     Expected option life in years.............        6.0       6.0      6.0
     Risk-free interest rate...................       5.27%     6.51%    6.13%
     Expected stock price volatility...........      60.00%    50.00%   40.00%


     The following is a summary of stock option activity:
<TABLE>
<CAPTION>
                                                                                    Options Exercisable
                                                            Options Exercisable      Against Principal
                                                          Against Unissued Shares       Shareholder
                                                          -----------------------       -----------
                                                                       Weighted--               Weighted--
                                                                        Average                   Average
                                                           Number of    Exercise    Number       Exercise
                                                             Shares       Price    of Shares       Price
                                                             ------       -----    ---------       -----
<S>                                                        <C>           <C>          <C>         <C>
Outstanding at January 2, 1999.......................      1,965,237     $ 9.56       221,050     $ 0.57
Granted..............................................        521,100       5.37           --          --
Exercised............................................       (197,492)      5.51      (221,050)      0.57
Forfeited............................................       (102,103)      8.09           --
                                                           ---------     ------  ------------     ------
                                                                                                      --
Outstanding at January 1, 2000.......................      2,186,742       9.00           --          --
Granted..............................................        525,600       5.02           --          --
Exercised............................................         (6,644)      5.46           --          --
Forfeited............................................        (64,261)      7.48           --         --
                                                           ---------     ------  ------------     ------
Outstanding at December 30, 2000.....................      2,641,437       8.26           --          --
Granted..............................................        311,750       3.07           --          --
Exercised............................................            --          --           --          --
Forfeited............................................        (47,738)      6.67           --         --
                                                           ---------     ------  ------------     ------
Outstanding at December 29, 2001.....................      2,905,449     $ 7.73           --      $   --
                                                           =========     ======  ============     ======
Options exercisable at January 1, 2000...............        964,934     $ 8.66           --      $   --
                                                           =========     ======  ============     ======
Options exercisable at December 30, 2000.............        919,843     $ 8.70           --      $   --
                                                           =========     ======  ============     ======
Options exercisable at December 29, 2001.............      1,329,980     $ 9.30           --      $   --
                                                           =========     ======  ============     ======
</TABLE>


                                       41
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     A summary of stock options  outstanding against unissued shares at December
29, 2001 follows:
<TABLE>
<CAPTION>

                                                        Options outstanding            Options exercisable
                                                        -------------------            -------------------
                                                               Weighted    Weighted                 Weighted
                                                               average     average                  average
Range of                                           Number     remaining    exercise     Number      exercise
exercise prices                                 Outstanding  life (years)   price     exercisable    price
---------------                                 -----------  ------------   -----     -----------    -----
<S>                                              <C>             <C>        <C>         <C>          <C>
$2.19-- $5.46...............................     1,339,974       8.3        $ 4.68      191,238      $ 5.36
$6.25-- $9.81...............................       984,150       3.3        $ 7.52      749,506      $ 7.30
$15.00-- $20.13.............................       581,325       5.9        $15.08      398,236      $15.09
</TABLE>

     During fiscal 2001 the Company awarded 225,250 restricted shares of Class A
common stock pursuant to the 2000 plan, of which 222,750 shares were outstanding
as of December 29, 2001. These shares carry voting and dividend rights,  however
transfer of the shares is restricted  prior to vesting,  which generally  occurs
ratably over three years. The fair value of the restricted shares at the date of
grant is being  amortized  to expense over the vesting  period,  and $136,000 of
expense was recorded in fiscal 2001. The  unamortized  restricted  stock expense
was   $548,000  at  December  29,  2001  and  is  reported  as  a  reduction  in
shareholders' equity.

     As of  December  29,  2001,  216,500  shares of Class A common  stock  were
available  for future  grants  under the fiscal 2000 stock  incentive  plan.  No
further grants are permitted under the fiscal 1997 plans.


NOTE 7.   Other Operating Costs, Net

     Other  operating  costs,  net for fiscal 2001 includes a pre-tax  charge of
$4,722,000 relating to a plant consolidation program announced by the Company in
December  2001. The  consolidation  program is intended to reduce  overhead,  to
improve the flow of product  within the Company's  home  fashions  manufacturing
operations  and to bring apparel  weaving  capacity in line with current  demand
levels. The charge consists of a $3,292,000  non-cash writedown of fixed assets,
$1,324,000  for  severance  and  benefits  associated  with the  termination  of
approximately 380 employees, and other exit costs of $107,000.

     The plant consolidation includes the closure of a home fashions cut and sew
facility in Newnan,  Georgia,  and a portion of a home fashions weaving facility
in Greenville, South Carolina.  Production from the cut and sew facility will be
moved to sewing plants in Danville and  Brookneal,  Virginia.  In addition,  the
Company  will  idle  apparel  looms  in  Danville,   Virginia  and  Sevierville,
Tennessee,  and transfer looms from Danville to Sevierville,  resulting in a net
reduction in apparel weaving capacity of approximately  20%. The vacant space in
the Danville  plant created by these moves will be utilized by the  installation
of modern home  fashions  sheeting  looms.  The Company  expects to complete the
consolidation  of  operations  during the second  quarter  of fiscal  2002,  and
anticipates  that the payout of  severance  and benefits  will be  substantially
completed by the end of the fiscal year.  The timing of the  disposition  of the
Newnan real estate is uncertain due to current market conditions.

     Other operating costs, net for fiscal 2001 also includes a $440,000 pre-tax
gain from reversal of a reserve  established in 1995 for removal of asbestos and
equipment  from an idle  building  located in an historic  district in Danville,
Virginia. Work on this project had been suspended for various reasons, including
decisions  pending  concerning  development  in the  historic  district  and the
potential  condemnation  of the property in connection  with the relocation of a
bridge by the Virginia Department of Transportation.  The Company spent $130,000
against this reserve in fiscal 2001, but does not anticipate further spending in
the foreseeable future.

     Other operating  costs,  net for fiscal 1999 includes a $1,764,000  pre-tax
gain from reversal of reserves established in fiscal 1997 in connection with the
closure  of the  Company's  Riverside  apparel  fabrics  weaving  facilities  in
Danville, Virginia. During fiscal 1999 the Company donated the Long Mill, one of
two mill complexes which make up the Riverside facilities,  to a local nonprofit
historical  organization for future  renovation and development into a multi-use
retail  and  residential  facility.  At the  time  of the  donation,  $1,662,000
remained of a  $3,106,000  reserve that was  established  in fiscal 1997 for the
estimated cost of demolishing  the mill buildings and related costs.  Due to the
donation  of the Long  Mill,  it is no  longer  anticipated  that the  remaining
Riverside property

                                       42
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

will be demolished.  Accordingly, the Company reversed the remaining reserve. In
fiscal 1999,  the Company also reversed  $102,000 of the reserve  established in
fiscal 1997 for severance and benefit costs  associated with Riverside  closure,
due to lower-than-anticipated actual costs.

     Other operating costs, net for fiscal 1999 also includes a $503,000 pre-tax
gain from reversal of a portion of a loss recorded in fiscal 1998 for closure of
the Company's  apparel  fabrics  weaving  facility in Spindale,  North Carolina.
Included  in this amount is a $467,000  gain  caused by  better-than-anticipated
proceeds on the sale of equipment  that was written down in connection  with the
plant closure. The remainder of the gain ($36,000) is from reversal of a portion
of the reserve established for severance and benefit costs.

     Following  is a summary of the reserve  account  activity  during the three
fiscal years ended December 29, 2001 related to Other Operating Costs, Net:

                                                   2001      2000       1999
                                                  ------    -------    ------

     Balance at beginning of year...........      $  570      $570     $3,609
     Expenses accrued.......................       1,431        --         --
     Expenditures...........................        (130)       --     (1,239)
     Change in estimate.....................        (440)       --     (1,800)
                                                  ------    -------    ------

     Balance at end of year.................      $1,431      $ 570    $  570
                                                  ======    =======    ======


NOTE 8.   Earnings Per Share

     The  following  table  sets  forth the  computation  of basic  and  diluted
earnings (loss) per share:

<TABLE>
<CAPTION>
                                                                            2001           2000          1999
                                                                           ------         ------        ------
                                                                         (in thousands except per share data)
<S>                                                                      <C>             <C>           <C>
Numerator for basic and diluted earnings per share--net income
   (loss)............................................................    $  (20,869)     $  10,773     $  14,715
                                                                         ==========      =========     =========
Denominator:
     Denominator for basic earnings per share--weighted-average
        shares.......................................................    21,765,509     22,023,830    23,145,636
     Effect of dilutive securities:
     Employee stock options..........................................            --             --        90,234
                                                                         ----------     ----------    ----------
     Denominator for diluted earnings per share--weighted average
        shares adjusted for dilutive securities......................    21,765,509     22,023,830    23,235,870
                                                                         ==========     ==========    ==========

Basic earnings (loss) per share......................................    $    (0.96)      $   0.49      $   0.64
                                                                         ==========       ========      ========
Diluted earnings (loss) per share....................................    $    (0.96)      $   0.49      $   0.63
                                                                         ==========       ========      ========
</TABLE>

     At December 29, 2001, 222,750 shares of nonvested restricted Class A common
stock granted to employees and  directors  during fiscal 2001 were  outstanding.
These shares could potentially dilute earnings per share in the future, but were
not  included in the  earnings  per share  computations  for fiscal 2001 because
their inclusion would have been antidilutive.


NOTE 9.   Leases

     The Company leases certain manufacturing  equipment,  warehouses and office
facilities  under  operating  leases that expire at various  dates through 2014.
Rental  expense  for  fiscal  2001,  2000 and  1999  amounted  to  approximately
$8,261,000,  $7,806,000 and  $8,344,000,  respectively,  net of rental income on
noncancelable leases and subleases of $0, $992,000 and $1,021,000, respectively.

     The Company also leases certain manufacturing equipment and a manufacturing
facility  under  arrangements  treated  as  capital  leases.  The  manufacturing
equipment  leases expire at various dates  through 2005,  and the  manufacturing
facility lease expires in 2018.

                                       43
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     Assets under capital  leases  included in property,  plant and equipment at
December 29, 2001 and December 30, 2000 are as follows:

                                                      2001          2000
                                                     ------        ------
                                                       (in thousands)
Land.........................................         $ 609         $ 609
Buildings and improvements...................         2,281         2,281
Machinery and equipment......................        10,749        14,820
                                                     ------        ------
                                                     13,639        17,710
Less accumulated depreciation................         3,217         3,349
                                                     ------        ------
Net assets under capital leases..............       $10,422       $14,361
                                                    =======       =======



     The future  minimum  lease  payments  due under leases that have initial or
remaining  noncancelable lease terms in excess of one year at December 29, 2001,
are as follows:

                                                        Capital  Operating
                                                         Leases     Leases
                                                         ------     ------
                                                          (in thousands)
2002.............................................        $1,482    $5,266
2003.............................................         1,321     4,814
2004.............................................         2,131     4,539
2005.............................................         2,645     3,568
2006.............................................            15     2,636
Later............................................           180    13,288
                                                         ------    ------
Total minimum lease payments.....................         7,774   $34,111
                                                                  =======
Less: amount representing interest...............         1,411
                                                         ------
Present value of minimum lease payments..........        $6,363
                                                         ======


NOTE 10.   Contingencies

     The Company is subject to various legal  proceedings  and claims which have
arisen  in the  ordinary  course  of its  business  and have  not  been  finally
adjudicated.  It is  impossible at this time for the Company to predict with any
certainty the outcome of such litigation. However, management is of the opinion,
based upon information  presently  available,  that it is unlikely that any such
liability, to the extent not provided for through insurance or otherwise,  would
be  material in relation to the  Company's  consolidated  financial  position or
results of operations.


NOTE 11.   Financial Instruments

Off balance sheet risk

     In  connection  with the purchase of cotton for  anticipated  manufacturing
requirements,  the  Company  enters into cotton  forward  purchase  commitments,
futures and option  contracts in order to reduce the risk associated with future
price  fluctuations.  The Company does not engage in speculation.  There were no
material cotton futures or options contracts outstanding at December 29, 2001 or
December 30, 2000.


Concentrations of credit risk

     Financial   instruments   that   potentially   subject  the  Company  to  a
concentration  of credit risk consist  principally of temporary cash investments
and trade accounts receivable. The Company places its temporary cash investments

                                       44
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

with high credit quality  financial  institutions.  Concentration of credit risk
with respect to trade accounts receivable is managed by an in-house professional
credit staff. The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral.

     A customer who accounted for 18% of the Company's consolidated net sales in
fiscal 2001 (see Note 12) filed for  bankruptcy  protection  under Chapter 11 of
the U.S.  Bankruptcy  Code  subsequent to year end. The Company  recorded a $3.5
million charge to bad debt expense in fiscal 2001 related to this event.


Fair values

     The carrying values of cash and cash equivalents,  accounts  receivable and
accounts payable  approximate fair values due to the short-term  nature of these
instruments. The fair value of the Company's senior subordinated notes, based on
quoted market prices,  was  $48,000,000 and $93,600,000 at December 29, 2001 and
December 30, 2000,  respectively,  compared to a carrying value of $120,000,000.
Based on rates available for similar types of borrowings, the carrying values of
the  Company's  other debt  approximated  fair value at  December  29,  2001 and
December 30, 2000.


NOTE 12.   Segment Information

     The Company  operates in three major segments within the textile  industry:
home fashions,  apparel  fabrics,  and engineered  products.  Each segment has a
separate  management  team, and although  certain  aspects of the  manufacturing
process are similar, each segment can be differentiated by the products it sells
and the  nature of its  customers.  Home  fashions  products  consist  mostly of
packaged bedroom furnishings,  which are sold to domestic retailers, and bedding
products for the hospitality and healthcare industries. Apparel fabrics products
include  a broad  range  of  woven  cotton  and  cotton-blend  fabrics,  and are
distributed primarily to clothing manufacturers. The engineered products segment
produces  specially-treated  engineered  yarns and fabrics for industrial  uses,
including  high-pressure  hoses and conveyer belts,  which are sold primarily to
automobile and tire manufacturers.

     The accounting  policies of the segments are the same as those described in
Note 1. The Company evaluates the performance of each segment based on operating
income  excluding:  amortization  of goodwill;  plant closure  charges and other
one-time  items  reflected on the  Consolidated  Statements  of Income as "Other
Operating  Costs,  Net";  depreciation  on the write-up of the  Company's  fixed
assets from when it was acquired in 1989; and certain other items,  such as idle
facility costs.  Assets attributable to the Company's operating segments consist
primarily  of:  accounts  receivable;   inventories;   and  property  plant  and
equipment,  including  an allocable  share of shared  facilities  and  corporate
headquarters  assets.  Assets  not  attributable  to  segments  include:   cash;
miscellaneous  receivables;   certain  inventories  of  raw  materials;  prepaid
expenses  and  other  current  assets;   deferred   income  taxes;   book  value
attributable  to the  write-up of the  Company's  fixed  assets from when it was
acquired in 1989; goodwill; and other noncurrent assets.

                                       45
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     Summarized  information  by  reportable  segment is shown in the  following
table:
<TABLE>
<CAPTION>

                                                                                2001         2000        1999
                                                                              --------     --------    --------

                                                                                      (In thousands)
Net sales
<S>                                                                           <C>          <C>         <C>
     Home fashions........................................................    $469,862     $469,758    $431,828
     Apparel fabrics......................................................     118,881      143,639     150,401
     Engineered products..................................................      42,329       50,070      46,670
                                                                              --------     --------    --------
     Consolidated net sales...............................................    $631,072     $663,467    $628,899
                                                                              ========     ========    ========
Operating income (loss)
     Home fashions........................................................     $10,922      $43,344     $50,878
     Apparel fabrics......................................................      (8,579)       10,930      4,358
     Engineered products..................................................        (830)        2,341      2,725
     Corporate items not allocated to segments:
          Amortization of goodwill........................................      (3,617)      (3,137)     (2,859)
          Other operating costs, net......................................      (4,282)          --       2,267
          Depreciation....................................................        (333)         154      (5,162)
          Other...........................................................        (624)      (1,700)     (1,424)
                                                                              --------     --------    --------
          Consolidated operating income (loss)............................    $ (7,343)    $ 51,932    $ 50,783
                                                                              ========     ========    ========
Depreciation and amortization of property, plant and equipment
     Home fashions........................................................     $24,982      $23,571     $20,358
     Apparel fabrics......................................................      12,645      12,594       12,401
     Engineered products..................................................       1,491        1,199         991
     Corporate depreciation not allocated to segments.....................         333         (154)      5,162
                                                                              --------     --------    --------
     Consolidated depreciation and amortization of property, plant and
        equipment.........................................................     $39,451      $37,210     $38,912
                                                                               =======      =======     =======
Capital expenditures
     Home fashions........................................................     $10,789      $27,837     $25,723
     Apparel fabrics......................................................       3,821        4,584      10,637
     Engineered products..................................................       3,636        1,322         369
                                                                              --------     --------    --------
     Consolidated capital expenditures in cash............................     $18,246      $33,743     $36,729
                                                                               =======      =======     =======
Assets at end of year
     Home fashions........................................................    $362,094     $425,704    $368,956
     Apparel fabrics......................................................     108,793      123,605     138,540
     Engineered products..................................................      23,191       21,957      21,226
     Corporate assets not allocated to segments:..........................     172,291      174,207     155,860
                                                                              --------     --------    --------
     Consolidated assets..................................................    $666,369     $745,473    $684,582
                                                                              ========     ========    ========
</TABLE>

     In fiscal years 2001,  2000 and 1999,  sales to one home fashions  customer
accounted  for 18%, 12% and 5%,  respectively,  of  consolidated  net sales.  In
fiscal years 2001, 2000 and 1999, sales to another customer,  principally by the
home  fashions  segment,  accounted  for  13%,  12% and  13%,  respectively,  of
consolidated net sales. Sales to customers outside of the United States amounted
to less than 4% of  consolidated  net sales in fiscal 2001,  2000 and 1999. Less
than 2% of the  Company's  assets were located  outside of the United  States at
December 29, 2001.

                                       46
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 13.   Quarterly Financial Data (unaudited)

     The Company's  unaudited  consolidated  results of operations are presented
below (in thousands, except per share data):
<TABLE>
<CAPTION>

                                                 Year ended December 29, 2001
                                                 ----------------------------
                                          First      Second        Third     Fourth
                                         Quarter     Quarter      Quarter    Quarter
                                         -------     -------      -------    -------

<S>                                      <C>         <C>          <C>        <C>
Net sales...........................     $164,000    $161,858     $159,390   $145,824
Gross profit .......................       16,056      17,343       19,425     15,642
Net income (loss)...................       (6,519)     (6,139)       1,812    (10,023)
Per share:
Basic...............................        (0.30)      (0.28)        0.08      (0.46)
Diluted.............................        (0.30)      (0.28)        0.08      (0.46)

<CAPTION>
                                                    Year ended December 30, 2000
                                                 ----------------------------
                                          First      Second        Third     Fourth
                                         Quarter     Quarter      Quarter    Quarter
                                         -------     -------      -------    -------

Net sales..... .....................     $164,949    $157,232     $175,458   $165,828
Gross profit.... ...................       30,898      31,854       36,299     23,353
Net income (loss)...................        4,073       2,959        5,993     (2,252)
Per share:
Basic...............................         0.18        0.13         0.28      (0.10)
Diluted.............................         0.18        0.13         0.28      (0.10)
</TABLE>

     The interim  earnings  (loss) per share  amounts  were  computed as if each
quarter was a discrete period.  As a result,  the sum of the earnings (loss) per
share by  quarter  will not  necessarily  total the annual  earnings  (loss) per
share.

     Results for the third quarter of fiscal 2001 include a one-time  income tax
benefit  of  $4,987,000  ($0.23  per  share)  from the  reversal  of income  tax
liabilities  recorded in prior years (Note 5). Results for the fourth quarter of
fiscal 2001 include net pre-tax charges of $4,282,000  ($2,631,000 after tax, or
$0.12 per share) relating primarily to plant consolidations (Note 7).

                                       47
<PAGE>

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURES.

     None.


                                    PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The sections  under the heading  "Election of Directors"  entitled "What is
the background of this year's  nominee?,"  "Who are the directors  continuing in
office  until  2003?," and "Who are the  directors  continuing  in office  until
2004?" in the Proxy  Statement for the Annual Meeting of Shareholders to be held
April 30, 2002 are  incorporated  herein by  reference  for  information  on the
directors  of the  Registrant.  See  Item X in  Part I  hereof  for  information
regarding the executive officers of the Registrant.


Item 11.  EXECUTIVE COMPENSATION

     The  section  under  heading  "Election  of  Directors"  entitled  "How are
directors   compensated?"   and  the  sections  under  the  heading   "Executive
Compensation"  entitled  "Summary  Compensation  Table,"  "Option Grants Table,"
"Aggregated  Options Table,"  "Retirement Plans" and "Employment  Agreements" in
the Proxy  Statement for the Annual Meeting of Shareholders to be held April 30,
2002 are incorporated herein by reference.


Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information under the heading "Security Ownership of Certain Beneficial
Owners  and  Management"  in the  Proxy  Statement  for the  Annual  Meeting  of
Shareholders to be held April 30, 2002 is incorporated herein by reference.


Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The  information  under the  heading  "Certain  Relationships  and  Related
Transactions"  in the Proxy  Statement for the Annual Meeting of Shareholders to
be held April 30, 2002 is incorporated herein by reference.

                                       48
<PAGE>

                                     PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

   (a) 1.    Financial Statements

     The following financial statements are filed under Item 8 of this Report:

     Report of Independent Auditors.

     Consolidated Balance Sheets as of December 29, 2001 and December 30, 2000.

     Consolidated  Statements of Operations  for the fiscal years ended December
29, 2001, December 30, 2000 and January 1, 2000.

     Consolidated  Statements of Shareholders' Equity for the fiscal years ended
December 29, 2001, December 30, 2000 and January 1, 2000.

     Consolidated  Statements of Cash Flows for the fiscal years ended  December
29, 2001, December 30, 2000 and January 1, 2000.

     Notes to  Consolidated  Financial  Statements  for the fiscal  years  ended
December 29, 2001, December 30, 2000 and January 1, 2000.


     2.   The following Financial Statement Schedule is filed as part of this
Report:

     Schedule II--Valuation and Qualifying Accounts

     All other  schedules  are omitted  because they are not  applicable  or not
required.


     3.   Exhibits

     The exhibits listed on the accompanying  Exhibit Index are filed as part of
this Annual Report.


   (b) Reports on Form 8-K

     We filed a Report on Form 8-K as follows:

     Report on Form 8-K dated  December 10, 2001,  in which we filed the form of
fifth  amendment to our credit  agreement and announced  that we had amended our
credit agreement with our senior lenders.

                                       49
<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) 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.

                                    DAN RIVER INC.




                                    By: /s/ Joseph L. Lanier, Jr.
                                        ------------------------------------
                                                 Joseph L. Lanier, Jr.
                                        Chairman and Chief Executive Officer


                                    Date: March 21, 2002



     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
Report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<S> <C>

               /s/ Donald J. Keller                Director                                       March 21, 2002
     -----------------------------------------
                 Donald J. Keller


             /s/Joseph L. Lanier, Jr.              Chairman, Chief Executive Officer              March 21, 2002
    ------------------------------------------     and Director (Principal
               Joseph L. Lanier, Jr.               Executive Officer)



                /s/ Edward J. Lill                 Director                                       March 21, 2002
    ------------------------------------------
                  Edward J. Lill


                /s/ John F. Maypole                Director                                       March 21, 2002
     -----------------------------------------
                  John F. Maypole


                 /s/ Barry F. Shea                 Executive Vice President--Chief                March 21, 2002
     -----------------------------------------     Financial Officer (Principal
                   Barry F. Shea                   Financial and Accounting
                                                   Officer)



            /s/ Richard L. Williams                President and Chief Operating                  March 21, 2002
     -----------------------------------------     Officer and Director
                Richard L. Williams
</TABLE>

                                       50
<PAGE>

                                                                     SCHEDULE II

                                 DAN RIVER INC.

                        VALUATION AND QUALIFYING ACCOUNTS

      Years ended December 29, 2001, December 30, 2000 and January 1, 2000

<TABLE>
<CAPTION>

                                                                         Additions
                                                                         ---------
                                              Balance at     Charged to
                                               Beginning        Costs                                  Balance at
                                               of Year      and Expenses     Other     Deductions(B)  End of Year
                                              ----------    ------------     ------    -------------  -----------
               Description
               ------------
                                                                  (in thousands)
Allowance  for  uncollectible  accounts,
   discounts  and claims  (deducted  from
   accounts receivable):
<S>                                               <C>          <C>           <C>            <C>          <C>
Year ended December 29, 2001.............         $  14,011    $22,375       $   --         $20,503      $ 15,883
                                                  =========    =======       ======         =======      ========
Year Ended December 30, 2000.............         $   9,693    $21,651       $   316(A)     $17,649      $ 14,011
                                                  =========    =======       =======        =======      ========
Year Ended January 1, 2000...............         $  10,020    $15,761       $   --         $16,088       $ 9,693
                                                  =========    =======       ======         =======       =======
</TABLE>

(A) Allowance related to receivables acquired through business combination.

(B) Includes writeoff of receivables (net of recoveries) and claims allowed.


                                       51
<PAGE>

                                  EXHIBIT INDEX

Exhibit
Number                           Description of Exhibit
------                           ----------------------


2.1     Agreement  and Plan of  Merger,  dated as of June 28,  1998,  as amended
        August 14,  1998,  by and  between Dan River Inc.  and The Bibb  Company
        (incorporated   by   reference   to   Annex   A  to  the   Joint   Proxy
        Statements/Prospectus  forming a part of Registration  Statement on Form
        S-4, Amendment No. 1 (File No. 333-58855))


2.2     Second Amendment to Agreement and Plan of Merger,  dated as of September
        3, 1998, among Dan River Inc., DR Acquisition Corp. and The Bibb Company
        (incorporated by reference to Annex S-A to the Supplement to Joint Proxy
        Statement/Prospectus  forming a part of  Registration  Statement on Form
        S-4, Post-Effective Amendment No. 1 (File No. 333-58855))


3.1     Amended  and  Restated  Articles  of  Incorporation  of Dan  River  Inc.
        (incorporated  by  reference  to Exhibit 3.1 in  Amendment  No. 1 to Dan
        River's Registration Statement on Form S-1 (File No. 333-36479))


3.2     Bylaws of Dan River Inc.  (incorporated  by  reference to Exhibit 3.2 in
        Amendment No. 1 to Dan River's Registration  Statement on Form S-1 (File
        No. 333-36479))


4.1     Form of Indenture  between Dan River Inc. and Marine Midland Bank, N.A.,
        as  Trustee  (including  Form of Note)  (incorporated  by  reference  to
        Exhibit  4.1 in Dan  River's  Annual  Report on Form 10-K for the fiscal
        year ended January 1, 2000)


10.1    Credit  Agreement among Dan River Inc. and certain of its  subsidiaries,
        the several  lenders  parties  thereto and First Union  National Bank as
        Agent dated as of October 14, 1998 (incorporated by reference to Exhibit
        10.1 in Dan River's Annual Report on Form 10-K for the fiscal year ended
        January 2, 1999)


10.2    First Amendment to the Credit  Agreement dated as of May 21, 1999 to the
        Credit  Agreement among Dan River Inc. and certain of its  subsidiaries,
        the several  lenders  parties  thereto and First Union  National Bank as
        Agent dated as of October 14, 1998 (incorporated by reference to Exhibit
        10 in Dan River's Quarterly Report on Form 10-Q filed August 6, 1999)


10.3    Second  Amendment to the Credit  Agreement dated as of December 29, 1999
        to the  Credit  Agreement  among  Dan  River  Inc.  and  certain  of its
        subsidiaries,  the  several  lenders  parties  thereto  and First  Union
        National  Bank as Agent dated as of October 14,  1998  (incorporated  by
        reference to Exhibit 10.3 in Dan River's  Annual Report on Form 10-K for
        the fiscal year ended January 1, 2000)

                                       52
<PAGE>
Exhibit
Number                           Description of Exhibit
------                           ----------------------

10.4    Third Amendment to the Credit Agreement dated as of June 26, 2000 to the
        Credit  Agreement among Dan River Inc. and certain of its  subsidiaries,
        the several  lenders  parties  thereto and First Union  National Bank as
        Agent dated as of October 14, 1998 (incorporated by reference to Exhibit
        10 in Dan River's Quarterly Report on Form 10-Q for the quarterly period
        ended July 1, 2000)


10.5    Fourth  Amendment to the Credit  Agreement dated as of February 14, 2001
        to the  Credit  Agreement  among  Dan  River  Inc.  and  certain  of its
        subsidiaries,  the  several  lenders  parties  thereto  and First  Union
        National  Bank as Agent dated as of October 14,  1998  (incorporated  by
        reference to Exhibit 10.5 in Dan River's  Annual Report on Form 10-K for
        the fiscal year ended December 30, 2000)


10.6    Fifth Amendment to the Credit Agreement dated as of December 10, 2001 to
        the  Credit   Agreement   among  Dan  River  Inc.  and  certain  of  its
        subsidiaries,  the  several  lenders  parties  thereto  and First  Union
        National  Bank as Agent dated as of October 14,  1998  (incorporated  by
        reference  to Exhibit 10 in Dan River  Current  Report on Form 8-K dated
        December 10, 2001)

10.7    Registration Rights Agreement,  dated as of September 3, 1991, among Dan
        River Inc. and the parties named therein  (incorporated  by reference to
        Exhibit 10.4 in Dan River's Registration Statement on Form S-1 (File No.
        33-70442) filed on October 15, 1993)


10.8    Amendment to Registration Rights Agreement dated as of October 27, 1997,
        (incorporated  by  reference  to Exhibit  10.4.1 in Dan  River's  Annual
        Report on Form 10-K for the fiscal year ended January 3, 1998)


10.9    Voting  Agreement among Joseph L. Lanier,  Jr.,  Richard L. Williams and
        Barry F. Shea and certain  members of their  families  (incorporated  by
        reference to Exhibit 10.5 in Amendment No. 2 to Dan River's Registration
        Statement on Form S-1 (File No. 333-36479))


10.10   Amendment to Voting  Agreement among Joseph L. Lanier,  Jr.,  Richard L.
        Williams  and  Barry  F.  Shea and  certain  members  of their  families
        (incorporated  by reference to Exhibit 10.7 in Dan River's Annual Report
        on Form 10-K for the fiscal year ended January 1, 2000)


10.11   Employment  Agreement,  dated as of October 29, 1997,  between Dan River
        Inc. and Joseph L. Lanier, Jr. (incorporated by reference to Exhibit No.
        10.7 in Amendment  No. 2 to Dan River's  Registration  Statement on Form
        S-1 (File No. 333-36479))


10.12   Employment  Agreement,  dated as of October 29, 1997,  between Dan River
        Inc. and Richard L. Williams  (incorporated  by reference to Exhibit No.
        10.8 in Amendment  No. 2 to Dan River's  Registration  Statement on Form
        S-1 (File No. 333-36479))



                                       53
<PAGE>
Exhibit
Number                           Description of Exhibit
------                           ----------------------

10.13   Employment  Agreement,  dated as of October 29, 1997,  between Dan River
        Inc. and Barry F. Shea (incorporated by reference to Exhibit No. 10.9 in
        Amendment No. 2 to Dan River's Registration  Statement on Form S-1 (File
        No. 333-36479))


10.14   Form of Post-employment  Letter Agreement between the Dan River Inc. and
        certain  of  its  officers,   including  Messrs.   Boozer  and  Goodrich
        (incorporated   by  reference  to  Exhibit  No.  10.10  in  Dan  River's
        Registration  Statement on Form S-1 (File No. 33-70442) filed on October
        15, 1993)


10.15   Dan River Inc. Amended and Restated Stock Option Plan and form of Option
        Agreement  in  effect  prior  to  December  30,  1994  (incorporated  by
        reference to Exhibit No. 10.14 in Dan River's Registration  Statement on
        Form S-1 (File No. 33-70442) filed on October 15, 1993)


10.16   Dan River Inc. Amended and Restated Stock Option Plan and form of Option
        Agreement as amended as of December 30, 1994  (incorporated by reference
        to  Exhibit  10.15 in Dan  River's  Annual  Report  on Form 10-K for the
        fiscal year ended January 1, 2000)


10.17   Form of Dan River  Inc.  1997  Stock  Incentive  Plan  (incorporated  by
        reference to Exhibit No. 10.16 in Dan River's Registration  Statement on
        Form S-1 (File No. 333-36479))


10.18   Form  of  Dan  River  Inc.   1997  Stock  Plan  for  Outside   Directors
        (incorporated   by  reference  to  Exhibit  No.  10.19  in  Dan  River's
        Registration Statement on Form S-1 (File No. 333-36479))


10.19   Dan River Inc.  Management  Incentive Plan (incorporated by reference to
        Exhibit  10.18 in Dan River's  Annual Report on Form 10-K for the fiscal
        year ended January 1, 2000)


10.20   Dan River Inc. 2000 Long-Term  Incentive Plan (incorporated by reference
        to  Exhibit  10.19 in Dan  River's  Annual  Report  on Form 10-K for the
        fiscal year ended January 1, 2000)


10.21   Dan River Inc.  Non-qualified 401(k) and Deferred  Compensation Plan for
        Highly Compensated Employees and Directors (incorporated by reference to
        Exhibit  10.20 in Dan River's  Annual Report on Form 10-K for the fiscal
        year ended December 30, 2000)


10.22   Dan River Inc.  Supplemental  Executive Retirement Plan (incorporated by
        reference to Exhibit 10.21 in Dan River's Annual Report on Form 10-K for
        the fiscal year ended December 30, 2000)


10.23   Dan  River  Inc.  Restricted   Supplemental  Executive  Retirement  Plan
        (incorporated by reference to Exhibit 10.22 in Dan River's Annual Report
        on Form 10-K for the fiscal year ended December 30, 2000)


                                       54
<PAGE>
Exhibit
Number                           Description of Exhibit
------                           ----------------------

10.24   Members  Agreement  dated  as of  January  5,  2000  between  Dan  River
        International  Ltd. and Grupo Industrial  Zaga, S.A. de C.V.  (regarding
        Danza Textil, S. de. R.L. de C.V.) (incorporated by reference to Exhibit
        10.18 in Dan  River's  Annual  Report on Form 10-K for the  fiscal  year
        ended January 1, 2000)


10.25   Members  Agreement  dated  as of  January  5,  2000  between  Dan  River
        International  Ltd. and Grupo Industrial  Zaga, S.A. de C.V.  (regarding
        Zadar S. de R.L. de C.V.) (incorporated by reference to Exhibit 10.19 in
        Dan River's Annual Report on Form 10-K for the fiscal year ended January
        1, 2000)


11      Statement  regarding  Computation of Earnings per share (incorporated by
        reference to Note 8 to Dan River's Consolidated  Financial Statements in
        this Annual  Report on Form 10-K for the fiscal year ended  December 29,
        2001)


21*     List of Subsidiaries


23*     Consent of Ernst & Young LLP


99.1*   Cautionary Statements relating to Forward Looking Statements

*    filed herewith


                                       55