Capital Ventures

his month, instead of the usual roundup of mill running conditions and market outlooks,

Textile World
surveyed spinners about their capital spending priorities. The primary subjects of discussion
were capital projects completed in the last year and plans for future investment.

All of the spinners reported some type of capital program completed in the past 12 months.
These ranged from multimillion-dollar expenditures to minor tweaking of operations.

“The only capital spending we’ve done has been to get the flexibility to run a multitude of
products and keep from being so dependent on the commodity business,” said a ring spinner.

This included adding blend lines and additional ductwork to run polyester blends. The company
also made some changes necessary to get into some military business.

A specialty spinner reported completing a major capital project that included a new
accounting software system, additional Toyoda spinning machinery and the newest of the new Murata
winding equipment.

“We have just gone through an extensive machinery installation in our ring operations,” said
a multisystem spinner. “We’ve spent $2 million, and we plan to add more.”

“We have increased our production through small capital expenditures in order to maximize our
production capacity,” said a specialty ring spinner. “We continue to see yarn counts go finer and
finer. The opportunities have generally been in the finer-count yarns.”

Software Sells

Spinners spoke enthusiastically about timekeeping and accounting software packages. Two
vendors were mentioned by name: Kronos Inc., Chelmsford, Mass., and Datatex AG, Switzerland. In
fact, two spinners mentioned new software systems before they spoke about production equipment. The
times and the mills are definitely changing.

“We were concerned that we were going to outrun our old system,” said one spinner. “The new
system is browser based. We went from the bottom to the top as far as technology.”

Investing In The Future

As far as future reinvestment programs go, the spinners contacted for this column appeared to
sort into two groups: those that plan to minimize their capital spending in the near term and those
that feel upgrading equipment and capabilities must be a continuous process. The two primary
determinants of these philosophies are most likely the current state of a company’s technology and
the amount of capital it can spend. Some things don’t change.

“We’ve looked at new machinery such as cards, roving and drawing; but not spinning and
winding — they are just too darned expensive,” said a ring spinner. “If we were going to make some
capital expenditures, it would be on the back end of our plants.”

“We currently don’t have any specific plans for significant capital expenditures,” said a
specialty ring spinner. “We have talked a bit about some internal expansions to better balance our
production capacity.”

Interestingly enough, both of the mill managers who described their capital programs as a
constant worked for multisystem spinners.

“We continue to replace older open-end equipment and also look at additional ring spinning,”
said one multi-system spinner. “We are spending $3 million or $4 million a year, year after year. I
don’t see any slowdown.”

“We figure that the only way we are going to survive in this market is to continue to
reinvest money into our plants and equipment to remain competitive,” said a second multisystem

Cotton Crop Projections Down 200K Bales

The US cotton crop for the 2006-07 season was reduced 200,000 bales to 20.5 million, 14
percent below the 2005-06 record, according to the latest US Department of Agriculture (USDA)
Cotton and Wool outlook.

The lower forecast resulted from the continuation of drought conditions in the Southwest –
and the expected reduction this season in harvestable acres – which more than offset higher area
planted to cotton, as reported in the June Acreage report. In that report, US producers indicated
they had planted nearly 15.3 million acres of cotton in 2006, 4 percent above the March prospective
plantings. In addition, the 2006 area is 7 percent higher than plantings in 2005 and the highest in
five years. However, US harvested area is forecast to fall below the last two seasons, as the
forecast abandonment rate of 16 percent rises to its highest level since 1998.

The USDA further noted that on a regional basis, the Southwest has seen the largest increase
in cotton area for 2006, expanding nearly 600,000 acres or 9 percent above a year ago. Meanwhile,
the Southeast and Delta plantings each rose about 300,000 acres, 11 percent and 6 percent,
respectively. In the West, upland cotton area has been reduced by 19 percent to only 580,000 acres
– less than half the level grown a decade ago. However, more extra-long-staple cotton is being
grown in the West, pushing the total U.S. area to a record 336,000 acres in 2006.

August 2006