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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q




| |  | [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended May 30, 2003
| |  | ---------------------------------------------------------------------------------------------------------------------------------------

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 33-68412

AVONDALE INCORPORATED

(Exact name of registrant as specified in its charter)


|                                         |  |                    
|---------------------------------------- |  | -------------------
|Georgia                                  |  | 58-0477150         
|(State or other jurisdiction of          |  | (I.R.S. employer   
|incorporation or organization)           |  | identification no.)
|                                         |  |                    
|506 South Broad Street                   |  | 30655              
|Monroe, Georgia                          |  | (Zip code)         
|(Address of principal executive offices) |  |                    

Registrants telephone number, including area code: (770) 267-2226

Former name, former address and former fiscal year, if changed since last report: N/A

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 whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
YES [  ] NO [X]

Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date.

|                     |  |              |  |                    |  |  |  | 
|-------------------- |  | ------------ |  | ------------------ |  |  |  | 
|Description          |  | As Of        |  | Shares Outstanding
|                     |  |              |  |                   
|Class A Common Stock |  | July 3, 2003 |  | 11,401,737 Shares 
|Class B Common Stock |  | July 3, 2003 |  | 978,939 Shares    



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TABLE OF CONTENTS



|                                                 |                                                                                               |                                                      |  |  |  |  |  | 
|------------------------------------------------ | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I - FINANCIAL INFORMATION                  
|                                                 | Item 1. Financial Statements                                                                 
|                                                 |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                                                 |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF INCOME         
|                                                 |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                                 |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                                 | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                 | Item 3. Quantitative and Qualitative Disclosures about Market Risk.                          
|                                                 | Item 4. Controls and Procedures.                                                             
|PART II  OTHER INFORMATION                     
|                                                 | Item 1. Legal Proceedings                                                                    
|                                                 | Item 2. Changes in Securities and Use of Proceeds                                            
|                                                 | Item 3. Defaults upon Senior Securities                                                      
|                                                 | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                                 | Item 5. Other Information                                                                    
|                                                 | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                                       
|CERTIFICATION                                   
|EX-10.40 THIRD AMENDED/RESTATED CREDIT AGREEMENT
|EX-10.41 AMENDMENT NO. 1 TO AGREEMENTS          



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##### Table of Contents



INDEX TO FORM 10-Q

AVONDALE INCORPORATED

|                                             |                |                                                                                                               |  |           |    | 
|-------------------------------------------- | -------------- | ------------------------------------------------------------------------------------------------------------- |  | --------- | -- | 
|                                             |                |                                                                                                               |  | Page     
|                                             |                |                                                                                                               |  | Reference
|                                             |                |                                                                                                               |  |          
|PART I  -  FINANCIAL INFORMATION (Unaudited) |                |                                                                                                               |  |          
|                                             | Item 1:        | Financial Statements                                                                                          |  |           |    | 
|                                             |                | Condensed Consolidated Balance Sheets at August 30, 2002 and May 30, 2003                                     |  |           | 2  | 
|                                             |                | Condensed Consolidated Statements of Income for the Thirteen Weeks Ended
May 31, 2002 and May 30, 2003        |  |           | 3  | 
|                                             |                | Condensed Consolidated Statements of Income for the Thirty-Nine Weeks Ended
May 31, 2002 and May 30, 2003     |  |           | 4  | 
|                                             |                | Condensed Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended
May 31, 2002 and May 30, 2003 |  |           | 5  | 
|                                             |                | Notes to Condensed Consolidated Financial Statements                                                          |  |           | 6  | 
|                                             | Item 2:        | Managements Discussion and Analysis of Financial Condition and Results of Operations                         |  |           | 20 | 
|                                             | Item 3:        | Quantitative and Qualitative Disclosures about Market Risk                                                    |  |           | 28 | 
|                                             | Item 4:        | Controls and Procedures                                                                                       |  |           | 28 | 
|PART II  - OTHER INFORMATION                 |                |                                                                                                               |  |          
|                                             | Item 1:        | Legal Proceedings                                                                                             |  |           | 29 | 
|                                             | Item 2:        | Changes in Securities and Use of Proceeds                                                                     |  |           | 29 | 
|                                             | Item 3:        | Defaults upon Senior Securities                                                                               |  |           | 29 | 
|                                             | Item 4:        | Submission of Matters to a Vote of Security Holders                                                           |  |           | 29 | 
|                                             | Item 5:        | Other Information                                                                                             |  |           | 29 | 
|                                             | Item 6:        | Exhibits and Reports on Form 8-K                                                                              |  |           | 29 | 
|                                             | Signature      |                                                                                                               |  | 30        |   
|                                             | Certifications |                                                                                                               |  | 31        |   





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PART I  -  FINANCIAL INFORMATION




Item 1.          Financial Statements

AVONDALE INCORPORATED




CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)


|                                                      |                                                     |                                                                                                                 |                      |                                                                                   |          |          |         |             |          |         |         | 
|----------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- | -------------------- | --------------------------------------------------------------------------------- | -------- | -------- | ------- | ----------- | -------- | ------- | ------- | 
|                                                      |                                                     |                                                                                                                 |                      |                                                                                   |          |          |         |             |          | May 30,
|                                                      |                                                     |                                                                                                                 |                      |                                                                                   |          | Aug. 30, |         | 2003       
|                                                      |                                                     |                                                                                                                 |                      |                                                                                   |          | 2002     |         | (unaudited)
|                                                      |                                                     |                                                                                                                 |                      |                                                                                   |          |          |         |            
|ASSETS                                               
|Current Assets                                        |                                                     |                                                                                                                 |                      |                                                                                   |          |          |         |            
|                                                      |                                                     | Cash                                                                                                            |                      | $                                                                                 | 2,859    |          |         | $           | 138      |        
|                                                      |                                                     | Accounts receivable, less allowance for doubtful accounts
of $2,199 at Aug. 30, 2002 and $2,359 at May 30, 2003 |                      |                                                                                   | 43,305   |          |         |             | 37,150   |        
|                                                      |                                                     | Inventories                                                                                                     |                      |                                                                                   | 86,946   |          |         |             | 99,017   |        
|                                                      |                                                     | Prepaid expenses                                                                                                |                      |                                                                                   | 385      |          |         |             | 1,312    |        
|                                                      |                                                     | Income taxes refundable                                                                                         |                      |                                                                                   | 6,550    |          |         |             | 4,949    |        
|                                                      |                                                     |                                                                                                                 |                      |                                                                                   |          |          |         |             |          |        
|                                                      |                                                     |                                                                                                                 | Total current assets |                                                                                   |          | 140,045  |         |             |          | 142,566 |        
|Assets held for sale                                  |                                                     |                                                                                                                 | 3,645                |                                                                                   |          |          | 2,577   |            
|Property, plant and equipment                         |                                                     |                                                                                                                 |                      |                                                                                   |          |          |         |            
|                                                      |                                                     | Land                                                                                                            |                      |                                                                                   | 6,634    |          |         |             | 6,484    |        
|                                                      |                                                     | Buildings                                                                                                       |                      |                                                                                   | 81,823   |          |         |             | 80,639   |        
|                                                      |                                                     | Machinery and equipment                                                                                         |                      |                                                                                   | 526,897  |          |         |             | 517,372  |        
|                                                      |                                                     |                                                                                                                 |                      |                                                                                   |          |          |         |             |          |        
|                                                      |                                                     |                                                                                                                 | 615,354              |                                                                                   |          |          | 604,495 |            
|                                                      |                                                     | Less accumulated depreciation                                                                                   |                      |                                                                                   | (369,728 | )        |         |             | (380,087 | )      
|                                                      |                                                     |                                                                                                                 |                      |                                                                                   |          |          |         |             |          |        
|                                                      |                                                     |                                                                                                                 | 245,626              |                                                                                   |          |          | 224,408 |            
|Other assets                                          |                                                     |                                                                                                                 | 5,146                |                                                                                   |          |          | 5,466   |            
|Goodwill                                              |                                                     |                                                                                                                 | 2,951                |                                                                                   |          |          | 2,951   |            
|                                                      |                                                     |                                                                                                                 |                      |                                                                                   |          |          |         |             |          |        
|                                                      |                                                     | $                                                                                                               | 397,413              |                                                                                   |          | $        | 377,968 |            
|                                                      |                                                     |                                                                                                                 |                      |                                                                                   |          |          |         |             |          |        
|LIABILITIES AND SHAREHOLDERS EQUITY                 
|Current liabilities                                   |                                                     |                                                                                                                 |                      |                                                                                   |          |          |         |            
|                                                      | Accounts payable                                    |                                                                                                                 | $                    | 30,591                                                                            |          |          | $       | 23,530      |         
|                                                      | Accrued compensation, benefits and related expenses |                                                                                                                 |                      | 10,369                                                                            |          |          |         | 10,030      |         
|                                                      | Accrued interest                                    |                                                                                                                 |                      | 4,576                                                                             |          |          |         | 1,266       |         
|                                                      | Other accrued expenses                              |                                                                                                                 |                      | 10,207                                                                            |          |          |         | 10,481      |         
|                                                      | Long-term debt due in one year                      |                                                                                                                 |                      | 2,523                                                                             |          |          |         | 4,325       |         
|                                                      |                                                     |                                                                                                                 |                      |                                                                                   |          |          |         |             |          |        
|                                                      |                                                     |                                                                                                                 |                      | Total current liabilities                                                         |          |          | 58,266  |             |          |         | 49,632  | 
|Long-term debt                                        |                                                     |                                                                                                                 | 167,477              |                                                                                   |          |          | 162,568 |            
|Deferred income taxes and other long-term liabilities |                                                     |                                                                                                                 | 41,415               |                                                                                   |          |          | 40,080  |            
|Shareholders equity                                  |                                                     |                                                                                                                 |                      |                                                                                   |          |          |         |            
|                                                      |                                                     | Preferred stock                                                                                                 |                      |                                                                                   |          |          |         |             |          |        
|                                                      |                                                     |                                                                                                                 |                      | $.01 par value; 10,000 shares authorized                                          |          |          |        |             |          |         |        | 
|                                                      |                                                     | Common stock                                                                                                    |                      |                                                                                   |          |          |         |             |          |        
|                                                      |                                                     |                                                                                                                 |                      | Class A, $.01 par value; 100,000 shares
authorized, 11,402 issued and outstanding |          |          | 115     |             |          |         | 114     | 
|                                                      |                                                     |                                                                                                                 |                      | Class B, $.01 par value; 5,000 shares
authorized, 979 issued and outstanding      |          |          | 10      |             |          |         | 10      | 
|                                                      |                                                     | Capital in excess of par value                                                                                  |                      |                                                                                   | 39,669   |          |         |             | 39,194   |        
|                                                      |                                                     | Accumulated other comprehensive loss                                                                            |                      |                                                                                   | (889     | )        |         |             | (447     | )      
|                                                      |                                                     | Retained earnings                                                                                               |                      |                                                                                   | 91,350   |          |         |             | 86,817   |        
|                                                      |                                                     |                                                                                                                 |                      |                                                                                   |          |          |         |             |          |        
|                                                      |                                                     |                                                                                                                 |                      | Total shareholders equity                                                        |          |          | 130,255 |             |          |         | 125,688 | 
|                                                      |                                                     |                                                                                                                 |                      |                                                                                   |          |          |         |             |          |        
|                                                      |                                                     | $                                                                                                               | 397,413              |                                                                                   |          | $        | 377,968 |            
|                                                      |                                                     |                                                                                                                 |                      |                                                                                   |          |          |         |             |          |        

The accompanying notes are an integral part of these condensed
consolidated financial statements.

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AVONDALE INCORPORATED




CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)


|                                              |                                     |                           |         |                      |        |         |         |         |       |  
|--------------------------------------------- | ----------------------------------- | ------------------------- | ------- | -------------------- | ------ | ------- | ------- | ------- | ----- | -
|                                              |                                     |                           |         | Thirteen Weeks Ended
|                                              |                                     |                           |         |                     
|                                              |                                     |                           |         | May 31,              |        | May 30,
|                                              |                                     |                           |         | 2002                 |        | 2003   
|                                              |                                     |                           |         |                      |        |        
|Net sales                                     |                                     | $                         | 182,525 |                      |        | $       | 152,336 |        
|Operating costs and expenses                  |                                     |                           |         |                      |        |         |         |        
|                                              | Cost of goods sold                  |                           |         | 152,124              |        |         |         | 127,988 |      
|                                              | Depreciation                        |                           |         | 11,005               |        |         |         | 10,402  |      
|                                              | Selling and administrative expenses |                           |         | 7,417                |        |         |         | 6,644   |      
|                                              | Facility restructuring charges      |                           |         | 500                  |        |         |         | 2,450   |      
|                                              |                                     |                           |         |                      |        |         |         |        
|                                              |                                     | Operating income          |         |                      | 11,479 |         |         |         | 4,852 |  
|Interest expense, net                         |                                     |                           | 5,168   |                      |        |         | 4,328   |        
|Discount and expenses on sales of receivables |                                     |                           | 398     |                      |        |         | 679     |        
|Other, net                                    |                                     |                           | (243    | )                    |        |         | (150    | )      
|                                              |                                     |                           |         |                      |        |         |         |        
|                                              | Income (loss) before income taxes   |                           |         | 6,156                |        |         |         | (5      | )    
|Provision for income taxes                    |                                     |                           | 1,850   |                      |        |         | 5       |        
|                                              |                                     |                           |         |                      |        |         |         |        
|                                              |                                     | Net income (loss)         |         | $                    | 4,306  |         |         | $       | (10   | )
|                                              |                                     |                           |         |                      |        |         |         |        
|Per share data:                               |                                     |                           |         |                      |        |         |         |        
|                                              |                                     | Net income (loss)-basic   |         | $                    | .34    |         |         | $       |      |  
|                                              |                                     |                           |         |                      |        |         |         |        
|                                              |                                     | Net income (loss)-diluted |         | $                    | .34    |         |         | $       |      |  
|                                              |                                     |                           |         |                      |        |         |         |        
|                                              |                                     | Dividends declared        |         | $                    | .10    |         |         | $       | .10   |  
|                                              |                                     |                           |         |                      |        |         |         |        

The accompanying notes are an integral part of these condensed
consolidated financial statements.

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AVONDALE INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)


|                                              |                                     |                           |         |                         |        |         |         |         |        | 
|--------------------------------------------- | ----------------------------------- | ------------------------- | ------- | ----------------------- | ------ | ------- | ------- | ------- | ------ | 
|                                              |                                     |                           |         | Thirty-Nine Weeks Ended
|                                              |                                     |                           |         |                        
|                                              |                                     |                           |         | May 31,                 |        | May 30,
|                                              |                                     |                           |         | 2002                    |        | 2003   
|                                              |                                     |                           |         |                         |        |        
|Net sales                                     |                                     | $                         | 475,163 |                         |        | $       | 461,136 |        
|Operating costs and expenses                  |                                     |                           |         |                         |        |         |         |        
|                                              | Cost of goods sold                  |                           |         | 406,810                 |        |         |         | 388,491 |       
|                                              | Depreciation                        |                           |         | 33,995                  |        |         |         | 32,120  |       
|                                              | Selling and administrative expenses |                           |         | 21,594                  |        |         |         | 21,001  |       
|                                              | Facility restructuring charges      |                           |         | 7,000                   |        |         |         | 2,450   |       
|                                              |                                     |                           |         |                         |        |         |         |        
|                                              |                                     | Operating income          |         |                         | 5,764  |         |         |         | 17,074 | 
|Interest expense, net                         |                                     |                           | 15,342  |                         |        |         | 13,418  |        
|Discount and expenses on sales of receivables |                                     |                           | 1,314   |                         |        |         | 2,096   |        
|Other, net                                    |                                     |                           | (382    | )                       |        |         | (162    | )      
|                                              |                                     |                           |         |                         |        |         |         |        
|                                              | Income (loss) before income taxes   |                           |         | (10,510                 | )      |         |         | 1,722   |       
|Provision for (benefit of) income taxes       |                                     |                           | (4,680  | )                       |        |         | 665     |        
|                                              |                                     |                           |         |                         |        |         |         |        
|                                              |                                     | Net income (loss)         |         | $                       | (5,830 | )       |         | $       | 1,057  | 
|                                              |                                     |                           |         |                         |        |         |         |        
|Per share data:                               |                                     |                           |         |                         |        |         |         |        
|                                              |                                     | Net income (loss)-basic   |         | $                       | (.47   | )       |         | $       | .08    | 
|                                              |                                     |                           |         |                         |        |         |         |        
|                                              |                                     | Net income (loss)-diluted |         | $                       | (.47   | )       |         | $       | .08    | 
|                                              |                                     |                           |         |                         |        |         |         |        
|                                              |                                     | Dividends declared        |         | $                       | .20    |         |         | $       | .30    | 
|                                              |                                     |                           |         |                         |        |         |         |        

The accompanying notes are an integral part of these condensed
consolidated financial statements.

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AVONDALE INCORPORATED




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)


|                            |                                                                                          |                                                                  |                                           |         |                         |         |         |         |         |         |  
|--------------------------- | ---------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ----------------------------------------- | ------- | ----------------------- | ------- | ------- | ------- | ------- | ------- | -
|                            |                                                                                          |                                                                  |                                           |         | Thirty-Nine Weeks Ended
|                            |                                                                                          |                                                                  |                                           |         |                        
|                            |                                                                                          |                                                                  |                                           |         | May 31,                 |         | May 30,
|                            |                                                                                          |                                                                  |                                           |         | 2002                    |         | 2003   
|                            |                                                                                          |                                                                  |                                           |         |                         |         |        
|Operating activities        |                                                                                          |                                                                  |                                           |         |                         |         |         |        
|                            | Net income (loss)                                                                        |                                                                  | $                                         | (5,830  | )                       |         | $       | 1,057   |        
|                            | Adjustments to reconcile net income (loss) to net
cash provided by operating activities: |                                                                  |                                           |         |                         |         |         |         |        
|                            |                                                                                          | Depreciation and amortization                                    |                                           |         | 34,437                  |         |         |         | 32,394  |        
|                            |                                                                                          | Benefit of deferred income taxes                                 |                                           |         | (1,807                  | )       |         |         | (934    | )      
|                            |                                                                                          | Loss on disposal of equipment and facility restructuring charges |                                           |         | 4,652                   |         |         |         | 2,151   |        
|                            |                                                                                          | Sale of accounts receivable, net                                 |                                           |         | 4,000                   |         |         |         | (15,516 | )      
|                            |                                                                                          | Changes in operating assets and liabilities                      |                                           |         | 9,142                   |         |         |         | (714    | )      
|                            |                                                                                          |                                                                  |                                           |         |                         |         |         |         |        
|                            |                                                                                          |                                                                  | Net cash provided by operating activities |         |                         | 44,594  |         |         |         | 18,438  |  
|Investing activities        |                                                                                          |                                                                  |                                           |         |                         |         |         |        
|                            | Purchases of property, plant and equipment                                               |                                                                  |                                           | (9,674  | )                       |         |         | (13,102 | )      
|                            | Proceeds from sale of property, plant and equipment and
assets held for sale             |                                                                  |                                           | 1,100   |                         |         |         | 1,116   |        
|                            |                                                                                          |                                                                  |                                           |         |                         |         |         |         |        
|                            |                                                                                          |                                                                  | Net cash used in investing activities     |         |                         | (8,574  | )       |         |         | (11,986 | )
|Financing activities        |                                                                                          |                                                                  |                                           |         |                         |         |         |        
|                            | Net payments on revolving line of credit and long-term debt                              |                                                                  |                                           | (33,250 | )                       |         |         | (3,106  | )      
|                            | Purchase and retirement of common stock                                                  |                                                                  |                                           |        |                         |         |         | (2,315  | )      
|                            | Dividends paid                                                                           |                                                                  |                                           | (2,506  | )                       |         |         | (3,752  | )      
|                            |                                                                                          |                                                                  |                                           |         |                         |         |         |         |        
|                            |                                                                                          |                                                                  | Net cash used in financing activities     |         |                         | (35,756 | )       |         |         | (9,173  | )
|                            |                                                                                          |                                                                  |                                           |         |                         |         |         |         |        
|Increase (decrease) in cash |                                                                                          |                                                                  | 264                                       |         |                         |         | (2,721  | )      
|Cash at beginning of period |                                                                                          |                                                                  | 2,969                                     |         |                         |         | 2,859   |        
|                            |                                                                                          |                                                                  |                                           |         |                         |         |         |         |        
|Cash at end of period       |                                                                                          | $                                                                | 3,233                                     |         |                         | $       | 138     |        
|                            |                                                                                          |                                                                  |                                           |         |                         |         |         |         |        

The accompanying notes are an integral part of these condensed
consolidated financial statements.

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AVONDALE INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
May 30, 2003

1.     Basis of Presentation: The accompanying unaudited condensed
consolidated financial statements include the accounts of Avondale Incorporated
and its wholly owned subsidiary, Avondale Mills, Inc. (Avondale Mills) and,
prior to its dissolution on August 30, 2002, Avondale Receivables Company, a
special purpose subsidiary of Avondale Mills, (collectively, the Company).
All significant intercompany accounts and transactions have been eliminated.
Certain prior year financial statement amounts have been reclassified to
conform to the current years presentation. The August 30, 2002 balance sheet
has been derived from the audited financial statements at that date. The
accounting policies and basis of presentation followed by the Company are
presented in Note 1 to the August 30, 2002 Audited Consolidated Financial
Statements.

On August 30, 2002, Avondale Funding LLC (Funding), a special purpose
subsidiary of Avondale Mills, was established to replace Avondale Receivables
Corporation and provide financing through the sale of accounts receivable
generated by the Company. The Company accounts for its investment in Avondale
Funding, LLC using the equity method of accounting.

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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

These statements have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements.

In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation. Operating results for
the thirty-nine weeks ended May 30, 2003 are not necessarily indicative of the
results that may be expected for the fiscal year ending August 29, 2003.

2.     Inventories: Components of inventories are as follows (amounts
in thousands):

|                                                                     |  |          |        |         |  |   |        | 
|-------------------------------------------------------------------- |  | -------- | ------ | ------- |  | - | ------ | 
|                                                                     |  | Aug. 30, |        | May 30,
|                                                                     |  | 2002     |        | 2003   
|                                                                     |  |          |        |        
|Finished goods                                                       |  | $        | 27,013 |         |  | $ | 34,884 | 
|Work in process                                                      |  |          | 33,586 |         |  |   | 37,500 | 
|Raw materials                                                        |  |          | 9,042  |         |  |   | 11,129 | 
|Dyes and chemicals                                                   |  |          | 6,163  |         |  |   | 4,610  | 
|                                                                     |  |          |        |         |  |   |        | 
|Inventories at FIFO                                                  |  |          | 75,804 |         |  |   | 88,123 | 
|Adjustment of carrying value to LIFO basis,
net of market adjustment |  |          | 4,900  |         |  |   | 4,250  | 
|                                                                     |  |          |        |         |  |   |        | 
|                                                                     |  |          | 80,704 |         |  |   | 92,373 | 
|Supplies at average cost                                             |  |          | 6,242  |         |  |   | 6,644  | 
|                                                                     |  |          |        |         |  |   |        | 
|                                                                     |  | $        | 86,946 |         |  | $ | 99,017 | 
|                                                                     |  |          |        |         |  |   |        | 

6



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##### Table of Contents



AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
May 30, 2003

The Companys inventories at May 30, 2003 under the last-in, first-out
(LIFO) method and the related impact on the statement of income for the
thirty-nine weeks then ended have been recorded using estimated quantities and
costs as of August 29, 2003, the end of fiscal 2003. As a result, these interim
amounts are subject to the final LIFO calculations for fiscal 2003.

3.     Earnings Per Share: Earnings per share is calculated by dividing the
reported net income (loss) for the period by the appropriate weighted average
number of shares of common stock outstanding, as shown below (amounts in
thousands):

|                                              |  |                      |        |                         |  |         |        |         |  |  |        |  |  |  |        | 
|--------------------------------------------- |  | -------------------- | ------ | ----------------------- |  | ------- | ------ | ------- |  |  | ------ |  |  |  | ------ | 
|                                              |  | Thirteen Weeks Ended |        | Thirty-Nine Weeks Ended
|                                              |  |                      |        |                        
|                                              |  | May 31,              |        | May 30,                 |  | May 31, |        | May 30,
|                                              |  | 2002                 |        | 2003                    |  | 2002    |        | 2003   
|                                              |  |                      |        |                         |  |         |        |        
|Weighted average shares outstanding  basic   |  |                      | 12,531 |                         |  |         | 12,426 |         |  |  | 12,531 |  |  |  | 12,483 | 
|Effect of employee stock options              |  |                      | 115    |                         |  |         |       |         |  |  |       |  |  |  | 90     | 
|                                              |  |                      |        |                         |  |         |        |         |  |  |        |  |  |  |        | 
|Weighted average shares outstanding  diluted |  |                      | 12,646 |                         |  |         | 12,426 |         |  |  | 12,531 |  |  |  | 12,573 | 
|                                              |  |                      |        |                         |  |         |        |         |  |  |        |  |  |  |        | 

4.     Segment Information: Condensed segment information is as follows
(amounts in thousands):

|               |                                              |                                   |         |                      |         |                         |         |         |         |         |         |         |         |   |         |         |         | 
|-------------- | -------------------------------------------- | --------------------------------- | ------- | -------------------- | ------- | ----------------------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|               |                                              |                                   |         | Thirteen Weeks Ended |         | Thirty-Nine Weeks Ended
|               |                                              |                                   |         |                      |         |                        
|               |                                              |                                   |         | May 31,              |         | May 30,                 |         | May 31, |         | May 30,
|               |                                              |                                   |         | 2002                 |         | 2003                    |         | 2002    |         | 2003   
|               |                                              |                                   |         |                      |         |                         |         |         |         |        
|Revenues:      |                                              |                                   |         |                      |         |                         |         |         |         |         |         |         |         |   |         |        
|               | Apparel fabrics                              |                                   | $       | 155,022              |         |                         | $       | 127,489 |         |         | $       | 398,534 |         |   | $       | 393,709 |        
|               | Yarns                                        |                                   |         | 50,019               |         |                         |         | 42,407  |         |         |         | 137,052 |         |   |         | 131,936 |        
|               | Other                                        |                                   |         | 19,676               |         |                         |         | 17,013  |         |         |         | 51,575  |         |   |         | 50,974  |        
|               |                                              |                                   |         |                      |         |                         |         |         |         |         |         |         |         |   |         |         |        
|               |                                              |                                   | 224,717 |                      |         |                         | 186,909 |         |         |         | 587,161 |         |         |   | 576,619 |        
|               | Less intersegment sales                      |                                   |         | 42,192               |         |                         |         | 34,573  |         |         |         | 111,998 |         |   |         | 115,483 |        
|               |                                              |                                   |         |                      |         |                         |         |         |         |         |         |         |         |   |         |         |        
|               |                                              | Total                             |         | $                    | 182,525 |                         |         | $       | 152,336 |         |         | $       | 475,163 |   |         | $       | 461,136 | 
|               |                                              |                                   |         |                      |         |                         |         |         |         |         |         |         |         |   |         |         |        
|Income (loss): |                                              |                                   |         |                      |         |                         |         |         |         |         |         |         |         |   |         |        
|               | Apparel fabrics                              |                                   | $       | 15,269               |         |                         | $       | 9,903   |         |         | $       | 28,024  |         |   | $       | 27,661  |        
|               | Yarns                                        |                                   |         | (570                 | )       |                         |         | 301     |         |         |         | (5,868  | )       |   |         | 2,413   |        
|               | Other                                        |                                   |         | 1,931                |         |                         |         | 1,641   |         |         |         | 2,616   |         |   |         | 3,775   |        
|               | Facility restructuring charges               |                                   |         | (500                 | )       |                         |         | (2,450  | )       |         |         | (7,000  | )       |   |         | (2,450  | )      
|               | Unallocated                                  |                                   |         | (4,651               | )       |                         |         | (4,543  | )       |         |         | (12,008 | )       |   |         | (14,325 | )      
|               |                                              |                                   |         |                      |         |                         |         |         |         |         |         |         |         |   |         |         |        
|               |                                              | Total operating income            |         |                      | 11,479  |                         |         |         | 4,852   |         |         |         | 5,764   |   |         |         | 17,074  | 
|               | Interest expense, net                        |                                   |         | 5,168                |         |                         |         | 4,328   |         |         |         | 15,342  |         |   |         | 13,418  |        
|               | Discount and expenses on sale of receivables |                                   |         | 398                  |         |                         |         | 679     |         |         |         | 1,314   |         |   |         | 2,096   |        
|               | Other expense (income), net                  |                                   |         | (243                 | )       |                         |         | (150    | )       |         |         | (382    | )       |   |         | (162    | )      
|               |                                              |                                   |         |                      |         |                         |         |         |         |         |         |         |         |   |         |         |        
|               |                                              | Income (loss) before income taxes |         | $                    | 6,156   |                         |         | $       | (5      | )       |         | $       | (10,510 | ) |         | $       | 1,722   | 
|               |                                              |                                   |         |                      |         |                         |         |         |         |         |         |         |         |   |         |         |        

7



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AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
May 30, 2003

5.     Comprehensive income (loss): Comprehensive income (loss) includes
unrealized gains and losses in the fair value of certain derivative instruments
which qualify for hedge accounting. A reconciliation of net income (loss) to
comprehensive income (loss) is as follows (amounts in thousands):

|                                                                 |  |                      |       |                         |  |         |     |         |  |   |        |   |  |   |       | 
|---------------------------------------------------------------- |  | -------------------- | ----- | ----------------------- |  | ------- | --- | ------- |  | - | ------ | - |  | - | ----- | 
|                                                                 |  | Thirteen Weeks Ended |       | Thirty-Nine Weeks Ended
|                                                                 |  |                      |       |                        
|                                                                 |  | May 31,              |       | May 30,                 |  | May 31, |     | May 30,
|                                                                 |  | 2002                 |       | 2003                    |  | 2002    |     | 2003   
|                                                                 |  |                      |       |                         |  |         |     |        
|Net income (loss)                                                |  | $                    | 4,306 |                         |  | $       | (10 | )       |  | $ | (5,830 | ) |  | $ | 1,057 | 
|Change in fair value of
interest rate swaps, net
of
income taxes |  |                      | 116   |                         |  |         | 201 |         |  |   | (194   | ) |  |   | 443   | 
|                                                                 |  |                      |       |                         |  |         |     |         |  |   |        |   |  |   |       | 
|Comprehensive income (loss)                                      |  | $                    | 4,422 |                         |  | $       | 191 |         |  | $ | (6,024 | ) |  | $ | 1,500 | 
|                                                                 |  |                      |       |                         |  |         |     |         |  |   |        |   |  |   |       | 

6.     New Accounting Pronouncements: The Company adopted the provisions of
Statement of Financial Accounting Standard No. 142, Goodwill and Other
Intangible Assets, effective August 31, 2002, and ceased amortization of
goodwill on that date. The Company completed the transitional goodwill
impairment test as required by Statement No. 142 during the thirteen weeks
ended November 29, 2002 and determined that no impairment of goodwill should be
recorded. In accordance with the provisions of Statement No. 142, the adoption
of this accounting policy is reflected prospectively. Had the Company accounted
for goodwill in accordance with this policy in fiscal 2002, the net loss for
the thirty-nine weeks ended May 31, 2002 would have been ($5.7) million or
($.45) per share-basic and ($.45) per share-diluted.

Effective August 31, 2002, the Company adopted the provisions of
Statements of Financial Accounting Standard No. 141 - Business Combinations,
No. 143 - Accounting for Asset Retirement Obligations, No. 144 - Impairment or
Disposal of Long-lived Assets, No. 145 - Rescission of Statements No. 4, 44,
and 64, Amendment of Statement No. 13, and Technical Corrections, and No. 146 -
Accounting for Costs Associated with Exit or Disposal Activities. The adoption
of these Statements had no impact on the condensed consolidated financial
statements.

In December 2002, Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure,
established accounting and disclosure requirements pertaining to a change from
the intrinsic value method to the fair value method of accounting for
stock-based compensation, and revised disclosure requirements for companies
continuing to apply the intrinsic value method. The Company adopted the
provisions of this statement during the thirteen weeks ended May 30, 2003,
electing to continue its use of the intrinsic value method. Accordingly, no
stock-based compensation has been recorded, as all options granted under the
existing plan have an exercise price equal to the market value of the
underlying common stock on the date of grant. If the Company had elected to
record stock-based compensation in accordance with the fair value method and
provisions of Statement No. 123, reported net income and earnings per share
would be revised to the following pro forma amounts (amounts in thousands,
except per share data):

8



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##### Table of Contents



AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
May 30, 2003

|                                                        |                                       |   |                      |     |                         |   |         |   |         |   |        |      |   |   |       |     | 
|------------------------------------------------------- | ------------------------------------- | - | -------------------- | --- | ----------------------- | - | ------- | - | ------- | - | ------ | ---- | - | - | ----- | --- | 
|                                                        |                                       |   | Thirteen Weeks Ended |     | Thirty-Nine Weeks Ended
|                                                        |                                       |   |                      |     |                        
|                                                        |                                       |   | May 31,              |     | May 30,                 |   | May 31, |   | May 30,
|                                                        |                                       |   | 2002                 |     | 2003                    |   | 2002    |   | 2003   
|                                                        |                                       |   |                      |     |                         |   |         |   |        
|Net income (loss) as reported                           |                                       | $ | 4,306                |     |                         | $ | (10     | ) |         | $ | (5,830 | )    |   | $ | 1,057 |    
|Pro forma stock-based compensation, net of
income taxes |                                       |   | (9                   | )   |                         |   | (9      | ) |         |   | (28    | )    |   |   | (28   | )  
|                                                        |                                       |   |                      |     |                         |   |         |   |         |   |        |      |   |   |       |    
|Pro forma net income (loss)                             |                                       | $ | 4,297                |     |                         | $ | (19     | ) |         | $ | (5,858 | )    |   | $ | 1,029 |    
|                                                        |                                       |   |                      |     |                         |   |         |   |         |   |        |      |   |   |       |    
|Per share data:                                         |                                       |   |                      |     |                         |   |         |   |         |   |        |      |   |   |       |    
|                                                        | Net income (loss)-basic as reported   |   | $                    | .34 |                         |   | $       |  |         |   | $      | (.47 | ) |   | $     | .08 | 
|                                                        |                                       |   |                      |     |                         |   |         |   |         |   |        |      |   |   |       |    
|                                                        | Net income (loss)-basic pro forma     |   | $                    | .34 |                         |   | $       |  |         |   | $      | (.47 | ) |   | $     | .08 | 
|                                                        |                                       |   |                      |     |                         |   |         |   |         |   |        |      |   |   |       |    
|                                                        | Net income (loss)-diluted as reported |   | $                    | .34 |                         |   | $       |  |         |   | $      | (.47 | ) |   | $     | .08 | 
|                                                        |                                       |   |                      |     |                         |   |         |   |         |   |        |      |   |   |       |    
|                                                        | Net income (loss)-diluted pro forma   |   | $                    | .34 |                         |   | $       |  |         |   | $      | (.47 | ) |   | $     | .08 | 
|                                                        |                                       |   |                      |     |                         |   |         |   |         |   |        |      |   |   |       |    

In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, Consolidation of Variable Interest Entities, which
requires the accounts of a variable interest entity to be included in the
consolidated financial statements of a company if that company is subject to a
majority of the risk of loss from the variable interest entitys activities, is
entitled to receive a majority of the entitys residual returns, or both.
Interpretation No. 46 also requires certain disclosures regarding a variable
interest entity in which a company has a significant variable interest but is
not required to include its accounts in the companys consolidated financial
statements. The consolidation requirements of Interpretation No. 46 apply
immediately to variable interest entities created after January 31, 2003 and in
the first fiscal year or interim period beginning after June 15, 2003 for
entities existing on or before January 31, 2003. Certain of the disclosure
requirements apply to financial statements issued after January 31, 2003,
regardless of the date on which the variable interest entity was created. The
Company has evaluated the provisions of this interpretation and concluded that
the interpretation will have no effect on the consolidated financial statements
of the Company since Avondale Funding LLC is a qualified special purpose
entity.

In April 2003, the Financial Accounting Standards Board issued Statement
No. 149, Amendments of Statement No. 133 on Derivative Instruments and Hedging
Activities, which requires certain contracts to be treated as either
derivatives or hybrid instruments, on a consistent basis. Statement No. 149 is
effective for contracts and hedging transactions executed or modified after
June 30, 2003. The Company is currently evaluating the impact of Statement 149
on its consolidated financial statements.

In May 2003, the Financial Accounting Standards Board issued Statement No.
150, Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity, which requires certain financial instruments that were
previously presented on the consolidated balance sheets as equity or temporary
equity to be presented as liabilities. Such instruments include mandatory
redeemable preferred and common stock, and certain options and warrants.
Statement No. 150 is generally effective for financial instruments entered into
or modified after May 31, 2003 and for the first interim period beginning after
June 15, 2003. The Company is currently evaluating the impact of Statement 150
on its consolidated financial statements.

9



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AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
May 30, 2003

7.     Contingencies: The Company is involved in certain environmental
matters and claims. The Company has provided reserves to cover managements
estimates of the costs of investigating, monitoring and remediating these and
other environmental conditions. If more costly remediation measures are
necessary than those believed to be probable based on current facts and
circumstances, actual costs may exceed the reserves provided. However, based
on the information currently available, management does not believe that the
outcome of these matters will have a material adverse effect on the Companys
results of operations or financial condition.

For discussion of certain legal proceedings to which the Company is a
party, see Item 3 Legal Proceedings in the Companys Annual Report on Form
10-K for the fiscal year ended August 30, 2002. The Company is also a party to
other litigation incidental to its business from time to time. The Company is
not currently a party to any litigation that management, in consultation with
legal counsel, believes would have a material adverse effect on the Companys
financial condition or results of operations.

8.     Purchase and retirement of treasury stock: During the thirty-nine
weeks ended May 30, 2003, the Company repurchased 150,000 shares of its Class A
Common Stock for an aggregate purchase price of approximately $2.3 million,
pursuant to offers to sell by the Avondale Mills, Inc. Associate Profit Sharing
and Savings Plan.

9.     Facility restructuring: In response to the highly competitive market
conditions and continued oversupply of open-end yarns, in January 2002, the
Company completed the closing of two separate open-end yarn manufacturing
facilities located in North Carolina. In connection with these closings, the
Company recorded facility restructuring charges and other non-operating costs
of approximately $5.8 million during fiscal 2002. Additionally, the Company
implemented reductions in certain manufacturing overhead costs and selling,
general and administrative expenses in September 2001. In conjunction with
these actions and the two plant closings, the Company recorded expense of
approximately $1.2 million related to the termination of approximately 70
associates holding manufacturing, marketing and administrative positions.

In response to the deterioration of domestic and regional demand for
heather and stock-dyed open-end yarns over the past several years, in May 2003,
the Company completed the closing of an open-end yarn manufacturing facility
located in Alabama. Continued operation of this facility could not be justified
given the diminished volume and pricing for these products. Production of
stock-dyed yarns for internal consumption by the apparel fabrics operation will
be shifted to other manufacturing facilities within the Company. In connection
with this action, the Company recorded facility restructuring charges and other
non-operating costs of approximately $2.5 million during the thirty-nine weeks
ended May 30, 2003.

10.     Long-term debt: On March 28, 2003, the Company completed a
restructuring of its senior secured revolving credit facility with a group of
lenders, which provides aggregate borrowing availability of a maximum of $62
million through March 27, 2006, or November 1, 2005 if the Companys 10.25%
Senior Subordinated Notes have not been refinanced by that date. Borrowings
under the revolving credit facility include revolving loans provided by the
lenders and up to $10 million of revolving swing loans provided by Wachovia
Bank, N. A. (Wachovia). With respect to revolving loans, the Company can
designate an interest rate tied to the Eurodollar rate (adjusted for any
reserves) plus a specified number of basis points or the base rate (which is
the higher of Wachovias prime rate or one-half of one percent over the
overnight federal funds rate) plus a specified number of basis points. Interest
accrues on revolving swing loans at the Companys option at either the base
rate plus a specified number of basis points or at an interest rate to be
mutually determined by the Company and Wachovia at the time such loan is made.
A commitment fee is payable quarterly on the average daily unused portion of
the revolving credit commitment. The revolving credit facility is secured by
substantially all of the Companys assets. Covenants of the credit agreement,
among other things, require the Company to maintain a minimum operating cash
flow and certain financial ratios, and contain restrictions on payment of
dividends. At May 30, 2003 the Company had borrowings of $23.0 million
outstanding under the revolving credit facility.

10



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AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
May 30, 2003

11.     Subsequent events: On June 30, 2003, Avondale Mills issued at par $150
million of 10.25% Senior Subordinated Notes (the Notes) in a private placement
to qualified institutional buyers. The Notes, which mature on July 1, 2013, are
unsecured and subordinated to all existing and future senior indebtedness of
the Company. Interest on the Notes is due semiannually, on January 1 and July
1, commencing January 1, 2004. Proceeds from the sale of the Notes will be used
to redeem Avondale Mills 10.25% Senior Subordinated Notes Due 2006, to repay
indebtedness outstanding under the revolving credit facility and for general
corporate purposes.

The Company has entered into an agreement with Wachovia Securities, LLC,
the original purchaser of the Notes, to use reasonable best efforts to file a
registration statement with the Securities and Exchange Commission within 90
days after June 30, 2003, with respect to an offer to exchange the unregistered
notes for freely tradable notes that have substantially identical terms. In the
event of a registration default, the annual interest rate on the Notes will
increase by .25%.

The Notes contain a redemption feature allowing the Company, at any time
prior to July 1, 2006, to redeem up to an aggregate of $52.5 million of the
principal amount of the Notes with the proceeds of one or more public equity
offerings, at a redemption price of 110.25% plus accrued interest to the
redemption date, provided that at least $97.5 million aggregate principal
amount of the Notes remains outstanding after such redemption. On or after July
1, 2008, the Notes are redeemable at the Companys option, in whole or in part,
at a redemption price of 105.125%, which declines in intervals to 100% in 2011
and thereafter.

The indenture under which the Notes were issued contains, among other
things, certain restrictive covenants applicable to issuance of additional
debt, payment of dividends, retirement of capital stock or indebtedness,
purchase of investments, sales or transfers of assets, certain consolidations
or mergers and certain transactions with affiliates.

12.     Consolidating guarantor and non-guarantor financial information: The
following consolidating financial information presents balance sheets,
statements of income and statements of cash flow of the Company and its
subsidiaries. Avondale Incorporated, the parent company and sole shareholder of
Avondale Mills, has fully and unconditionally guaranteed the Notes. Avondale
Mills Graniteville Fabrics, Inc., a wholly owned subsidiary of Avondale Mills
and non-guarantor of the Notes, operates a denim manufacturing facility and
warehouse operation located in South Carolina.

11



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AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
May 30, 2003

AVONDALE INCORPORATED
CONSOLIDATING BALANCE SHEETS
May 30, 2003
(amounts in thousands)

|                                                      |  |                                 |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |   |          |   |         | 
|----------------------------------------------------- |  | ------------------------------- | ------- | ------------------------- | -------- | ----------- | ------- | ------------ | - | --------- | ------ | ------------ | ------- | ------------ | -------- | - | - | - | ------- | - | -------- | - | ------- | 
|                                                      |  |                                 |         |                           |          |             |         |              |   |           |        |              |         | Non-         |          |   |   |   |         |   |          |  
|                                                      |  |                                 |         |                           |          |             |         |              |   |           |        |              |         | Guarantor    |          |   |   |   |         |   |          |  
|                                                      |  |                                 |         |                           |          |             |         |              |   |           |        |              |         | Avondale     |          |   |   |   |         |   |          |  
|                                                      |  |                                 |         |                           |          |             |         |              |   |           |        |              |         | Mills        |          |   |   |   |         |   |          |  
|                                                      |  |                                 |         |                           |          |             |         |              |   | Guarantor |        | Graniteville |         |              |          |   |   |   |         |  
|                                                      |  |                                 |         |                           |          | Avondale    |         | Avondale     |   | Fabrics,  |        |              |         |              |          |   |   |  
|                                                      |  |                                 |         |                           |          | Mills, Inc. |         | Incorporated |   | Inc.      |        | Eliminations |         | Consolidated
|                                                      |  |                                 |         |                           |          |             |         |              |   |           |        |              |         |             
|ASSETS                                               
|Current Assets                                        |  |                                 |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |  
|                                                      |  | Cash                            |         | $                         | 138      |             |         | $            |  |           |        | $            |        |              |          | $ |  |   |         | $ | 138      |  
|                                                      |  | Accounts receivable             |         |                           | 37,148   |             |         |              |  |           |        |              | 2       |              |          |   |  |   |         |   | 37,150   |  
|                                                      |  | Inventories                     |         |                           | 95,445   |             |         |              |  |           |        |              | 3,572   |              |          |   |  |   |         |   | 99,017   |  
|                                                      |  | Prepaid expenses                |         |                           | 1,312    |             |         |              |  |           |        |              |        |              |          |   |  |   |         |   | 1,312    |  
|                                                      |  | Income taxes refundable         |         |                           | 4,949    |             |         |              |  |           |        |              |        |              |          |   |  |   |         |   | 4,949    |  
|                                                      |  |                                 |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |   |          |  
|                                                      |  |                                 |         | Total current assets      |          |             | 138,992 |              |   |           |       |              |         |              | 3,574    |   |   |   |        |   |          |   | 142,566 | 
|Assets held for sale                                  |  |                                 | 2,577   |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   | 2,577   |  
|Property, plant and equipment                         |  |                                 |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |  
|                                                      |  | Land                            |         |                           | 6,288    |             |         |              |  |           |        |              | 196     |              |          |   |  |   |         |   | 6,484    |  
|                                                      |  | Buildings                       |         |                           | 68,889   |             |         |              |  |           |        |              | 11,750  |              |          |   |  |   |         |   | 80,639   |  
|                                                      |  | Machinery and equipment         |         |                           | 479,660  |             |         |              |  |           |        |              | 37,712  |              |          |   |  |   |         |   | 517,372  |  
|                                                      |  |                                 |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |   |          |  
|                                                      |  |                                 | 554,837 |                           |          |             |        |              |   |           | 49,658 |              |         |              |         |   |   |   | 604,495 |  
|                                                      |  | Less accumulated depreciation   |         |                           | (355,561 | )           |         |              |  |           |        |              | (24,526 | )            |          |   |  |   |         |   | (380,087 | )
|                                                      |  |                                 |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |   |          |  
|                                                      |  |                                 | 199,276 |                           |          |             |        |              |   |           | 25,132 |              |         |              |         |   |   |   | 224,408 |  
|Other assets                                          |  |                                 | 5,466   |                           |          |             |        |              |   |           |       |              |         |              |         |   |   |   | 5,466   |  
|Investment in subsidiaries                            |  |                                 | 8,380   |                           |          |             | 115,768 |              |   |           |       |              |         |              | (124,148 | ) |   |   |        |  
|Goodwill                                              |  |                                 | 2,951   |                           |          |             |        |              |   |           |       |              |         |              |         |   |   |   | 2,951   |  
|                                                      |  |                                 |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |   |          |  
|                                                      |  | $                               | 357,642 |                           |          | $           | 115,768 |              |   | $         | 28,706 |              |         | $            | (124,148 | ) |   | $ | 377,968 |  
|                                                      |  |                                 |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |   |          |  
|LIABILITIES AND SHAREHOLDERS EQUITY                 
|Current Liabilities                                   |  |                                 |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |  
|                                                      |  | Accounts payable                |         | $                         | 22,528   |             |         |              |  |           |        |              | 1,002   |              |          |   |  |   |         | $ | 23,530   |  
|                                                      |  | Accrued compensation, benefits  |         |                           | 9,823    |             |         |              |  |           |        |              | 207     |              |          |   |  |   |         |   | 10,030   |  
|                                                      |  | Accrued interest                |         |                           | 1,266    |             |         |              |  |           |        |              | 0       |              |          |   |  |   |         |   | 1,266    |  
|                                                      |  | Other accrued expenses          |         |                           | 10,480   |             |         |              |  |           |        |              | 1       |              |          |   |  |   |         |   | 10,481   |  
|                                                      |  | Long- term debt due in one year |         |                           | 4,325    |             |         |              |  |           |        |              |        |              |          |   |  |   |         |   | 4,325    |  
|                                                      |  |                                 |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |   |          |  
|                                                      |  |                                 |         | Total current liabilities |          |             | 48,422  |              |   |           |       |              |         |              | 1,210    |   |   |   |        |   |          |   | 49,632  | 
|Long-term debt                                        |  |                                 | 162,568 |                           |          |             |        |              |   |           |       |              |         |              |         |   |   |   | 162,568 |  
|Deferred income taxes and other long term liabilities |  |                                 | 40,080  |                           |          |             |        |              |   |           |       |              |         |              |         |   |   |   | 40,080  |  
|Due to (from) subsidiaries                            |  |                                 | (9,196  | )                         |          |             | (9,920  | )            |   |           | 19,116 |              |         |              |         |   |   |   |        |  
|Shareholders equity                                  |  |                                 | 115,768 |                           |          |             | 125,688 |              |   |           | 8,380  |              |         |              | (124,148 | ) |   |   | 125,688 |  
|                                                      |  |                                 |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |   |          |  
|                                                      |  | $                               | 357,642 |                           |          | $           | 115,768 |              |   | $         | 28,706 |              |         | $            | (124,148 | ) |   | $ | 377,968 |  
|                                                      |  |                                 |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |   |          |  

12



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##### Table of Contents



AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)

AVONDALE INCORPORATED
CONSOLIDATING BALANCE SHEETS
August 30, 2002
(amounts in thousands)

|                                                      |  |                                |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |   |          |   |         | 
|----------------------------------------------------- |  | ------------------------------ | ------- | ------------------------- | -------- | ----------- | ------- | ------------ | - | --------- | ------ | ------------ | ------- | ------------ | -------- | - | - | - | ------- | - | -------- | - | ------- | 
|                                                      |  |                                |         |                           |          |             |         |              |   |           |        |              |         | Non-         |          |   |   |   |         |   |          |  
|                                                      |  |                                |         |                           |          |             |         |              |   |           |        |              |         | Guarantor    |          |   |   |   |         |   |          |  
|                                                      |  |                                |         |                           |          |             |         |              |   |           |        |              |         | Avondale     |          |   |   |   |         |   |          |  
|                                                      |  |                                |         |                           |          |             |         |              |   |           |        |              |         | Mills        |          |   |   |   |         |   |          |  
|                                                      |  |                                |         |                           |          |             |         |              |   | Guarantor |        | Graniteville |         |              |          |   |   |   |         |  
|                                                      |  |                                |         |                           |          | Avondale    |         | Avondale     |   | Fabrics,  |        |              |         |              |          |   |   |  
|                                                      |  |                                |         |                           |          | Mills, Inc. |         | Incorporated |   | Inc.      |        | Eliminations |         | Consolidated
|                                                      |  |                                |         |                           |          |             |         |              |   |           |        |              |         |             
|ASSETS                                               
|Current Assets                                        |  |                                |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |  
|                                                      |  | Cash                           |         | $                         | 2,859    |             |         | $            |  |           |        | $            |        |              |          | $ |  |   |         | $ | 2,859    |  
|                                                      |  | Accounts receivable            |         |                           | 43,304   |             |         |              |  |           |        |              | 1       |              |          |   |  |   |         |   | 43,305   |  
|                                                      |  | Inventories                    |         |                           | 83,311   |             |         |              |  |           |        |              | 3,635   |              |          |   |  |   |         |   | 86,946   |  
|                                                      |  | Prepaid expenses               |         |                           | 385      |             |         |              |  |           |        |              |        |              |          |   |  |   |         |   | 385      |  
|                                                      |  | Income taxes refundable        |         |                           | 6,550    |             |         |              |  |           |        |              |        |              |          |   |  |   |         |   | 6,550    |  
|                                                      |  |                                |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |   |          |  
|                                                      |  |                                |         | Total current assets      |          |             | 136,409 |              |   |           |       |              |         |              | 3,635    |   |   |   |        |   |          |   | 140,045 | 
|Assets held for sale                                  |  |                                | 3,645   |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   | 3,645   |  
|Property, plant and equipment                         |  |                                |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |  
|                                                      |  | Land                           |         |                           | 6,438    |             |         |              |  |           |        |              | 196     |              |          |   |  |   |         |   | 6,634    |  
|                                                      |  | Buildings                      |         |                           | 70,073   |             |         |              |  |           |        |              | 11,750  |              |          |   |  |   |         |   | 81,823   |  
|                                                      |  | Machinery and equipment        |         |                           | 489,675  |             |         |              |  |           |        |              | 37,222  |              |          |   |  |   |         |   | 526,897  |  
|                                                      |  |                                |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |   |          |  
|                                                      |  |                                | 566,186 |                           |          |             |        |              |   |           | 49,168 |              |         |              |         |   |   |   | 615,354 |  
|                                                      |  | Less accumulated depreciation  |         |                           | (348,200 | )           |         |              |  |           |        |              | (21,528 | )            |          |   |  |   |         |   | (369,728 | )
|                                                      |  |                                |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |   |          |  
|                                                      |  |                                | 217,986 |                           |          |             |        |              |   |           | 27,640 |              |         |              |         |   |   |   | 245,626 |  
|Other assets                                          |  |                                | 5,146   |                           |          |             |        |              |   |           |       |              |         |              |         |   |   |   | 5,146   |  
|Investment in subsidiaries                            |  |                                | 7,901   |                           |          |             | 114,520 |              |   |           |       |              |         |              | (122,421 | ) |   |   |        |  
|Goodwill                                              |  |                                | 2,951   |                           |          |             |        |              |   |           |       |              |         |              |         |   |   |   | 2,951   |  
|                                                      |  |                                |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |   |          |  
|                                                      |  | $                              | 374,038 |                           |          | $           | 114,520 |              |   | $         | 31,276 |              |         | $            | (122,421 | ) |   | $ | 397,413 |  
|                                                      |  |                                |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |   |          |  
|LIABILITIES AND SHAREHOLDERS EQUITY                 
|Current Liabilities                                   |  |                                |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |  
|                                                      |  | Accounts payable               |         | $                         | 29,114   |             |         |              |  |           |        |              | 1,477   |              |          |   |  |   |         | $ | 30,591   |  
|                                                      |  | Accrued compensation, benefits |         |                           | 10,249   |             |         |              |  |           |        |              | 120     |              |          |   |  |   |         |   | 10,369   |  
|                                                      |  | Accrued interest               |         |                           | 4,576    |             |         |              |  |           |        |              |        |              |          |   |  |   |         |   | 4,576    |  
|                                                      |  | Other accrued expenses         |         |                           | 10,206   |             |         |              |  |           |        |              | 1       |              |          |   |  |   |         |   | 10,207   |  
|                                                      |  | Long-term debt due in one year |         |                           | 2,523    |             |         |              |  |           |        |              |        |              |          |   |  |   |         |   | 2,523    |  
|                                                      |  |                                |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |   |          |  
|                                                      |  |                                |         | Total current liabilities |          |             | 56,668  |              |   |           |       |              |         |              | 1,598    |   |   |   |        |   |          |   | 58,266  | 
|Long-term debt                                        |  |                                | 167,477 |                           |          |             |        |              |   |           |       |              |         |              |         |   |   |   | 167,477 |  
|Deferred income taxes and other long term liabilities |  |                                | 41,415  |                           |          |             |        |              |   |           |       |              |         |              |         |   |   |   | 41,415  |  
|Due to (from) subsidiaries                            |  |                                | (6,042  | )                         |          |             | (15,735 | )            |   |           | 21,777 |              |         |              |         |   |   |   |        |  
|Shareholders equity                                  |  |                                | 114,520 |                           |          |             | 130,255 |              |   |           | 7,901  |              |         |              | (122,421 | ) |   |   | 130,255 |  
|                                                      |  |                                |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |   |          |  
|                                                      |  | $                              | 374,038 |                           |          | $           | 114,520 |              |   | $         | 31,276 |              |         | $            | (122,421 | ) |   | $ | 397,413 |  
|                                                      |  |                                |         |                           |          |             |         |              |   |           |        |              |         |              |          |   |   |   |         |   |          |  

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##### Table of Contents



AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
May 30, 2003

AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF INCOME
For the Thirteen weeks ended May 30, 2003
(amounts in thousands)

|                                                        |                                     |                          |         |             |       |              |     |           |     |              |        |              |     |   |         |         |      |   |         |         |       |  
|------------------------------------------------------- | ----------------------------------- | ------------------------ | ------- | ----------- | ----- | ------------ | --- | --------- | --- | ------------ | ------ | ------------ | --- | - | ------- | ------- | ---- | - | ------- | ------- | ----- | -
|                                                        |                                     |                          |         |             |       |              |     |           |     |              |        | Non-         |     |   |         |         |      |   |         |        
|                                                        |                                     |                          |         |             |       |              |     |           |     |              |        | Guarantor    |     |   |         |         |      |   |         |        
|                                                        |                                     |                          |         |             |       |              |     |           |     |              |        | Avondale     |     |   |         |         |      |   |         |        
|                                                        |                                     |                          |         |             |       |              |     |           |     |              |        | Mills        |     |   |         |         |      |   |         |        
|                                                        |                                     |                          |         |             |       |              |     | Guarantor |     | Graniteville |        |              |     |   |         |         |      |  
|                                                        |                                     |                          |         | Avondale    |       | Avondale     |     | Fabrics,  |     |              |        |              |     |   |         |        
|                                                        |                                     |                          |         | Mills, Inc. |       | Incorporated |     | Inc.      |     | Eliminations |        | Consolidated
|                                                        |                                     |                          |         |             |       |              |     |           |     |              |        |             
|Net sales, including intercompany
transfers and charges |                                     | $                        | 152,336 |             |       | $            | 36  |           |     | $            | 23,424 |              |     | $ | (23,460 | )       |      | $ | 152,336 |        
|Operating costs and expenses                            |                                     |                          |         |             |       |              |     |           |     |              |        |              |     |   |         |         |      |   |         |        
|                                                        | Cost of goods sold                  |                          |         | 129,733     |       |              |     |          |     |              |        | 21,679       |     |   |         | (23,424 | )    |   |         | 127,988 |      
|                                                        | Depreciation                        |                          |         | 9,404       |       |              |     |          |     |              |        | 998          |     |   |         |         |      |   |         | 10,402  |      
|                                                        | Selling and administrative expenses |                          |         | 6,680       |       |              |     |          |     |              |        |             |     |   |         | (36     | )    |   |         | 6,644   |      
|                                                        | Facility restructuring charges      |                          |         | 2,450       |       |              |     |          |     |              |        |             |     |   |         |        |      |   |         | 2,450   |      
|                                                        |                                     |                          |         |             |       |              |     |           |     |              |        |              |     |   |         |         |      |   |         |        
|                                                        |                                     | Operating income         |         |             | 4,069 |              |     |           | 36  |              |        |              | 747 |   |         |         |     |   |         |         | 4,852 |  
|Interest expense, net                                   |                                     |                          | 4,328   |             |       |              |    |           |     |              |       |              |     |   |        |         |      |   | 4,328   |        
|Discount and expenses on sales
of receivables           |                                     |                          | 679     |             |       |              |    |           |     |              |       |              |     |   |        |         |      |   | 679     |        
|Other, net                                              |                                     |                          | (150    | )           |       |              |    |           |     |              |       |              |     |   |        |         |      |   | (150    | )      
|                                                        |                                     |                          |         |             |       |              |     |           |     |              |        |              |     |   |         |         |      |   |         |        
|                                                        |                                     | Loss before income taxes |         |             | (788  | )            |     |           | 36  |              |        |              | 747 |   |         |         |     |   |         |         | (5    | )
|Provision for income taxes                              |                                     |                          | (298    | )           |       |              | 15  |           |     |              | 288    |              |     |   |         |         |      |   | 5       |        
|Equity in earnings (loss) of subsidiary                 |                                     |                          | 459     |             |       |              | (31 | )         |     |              |       |              |     |   | (428    | )       |      |   |        |        
|                                                        |                                     |                          |         |             |       |              |     |           |     |              |        |              |     |   |         |         |      |   |         |        
|                                                        |                                     | Net Loss                 |         | $           | (31   | )            |     | $         | (10 | )            |        | $            | 459 |   |         | $       | (428 | ) |         | $       | (10   | )
|                                                        |                                     |                          |         |             |       |              |     |           |     |              |        |              |     |   |         |         |      |   |         |        

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##### Table of Contents



AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
May 30, 2003

AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF INCOME
For the Thirteen weeks ended May 31, 2002
(amounts in thousands)

|                                                        |                                     |                                   |         |             |        |              |       |           |       |              |        |              |      |   |         |         |        |   |         |         |        | 
|------------------------------------------------------- | ----------------------------------- | --------------------------------- | ------- | ----------- | ------ | ------------ | ----- | --------- | ----- | ------------ | ------ | ------------ | ---- | - | ------- | ------- | ------ | - | ------- | ------- | ------ | 
|                                                        |                                     |                                   |         |             |        |              |       |           |       |              |        | Non-         |      |   |         |         |        |   |         |        
|                                                        |                                     |                                   |         |             |        |              |       |           |       |              |        | Guarantor    |      |   |         |         |        |   |         |        
|                                                        |                                     |                                   |         |             |        |              |       |           |       |              |        | Avondale     |      |   |         |         |        |   |         |        
|                                                        |                                     |                                   |         |             |        |              |       |           |       |              |        | Mills        |      |   |         |         |        |   |         |        
|                                                        |                                     |                                   |         |             |        |              |       | Guarantor |       | Graniteville |        |              |      |   |         |         |        |  
|                                                        |                                     |                                   |         | Avondale    |        | Avondale     |       | Fabrics,  |       |              |        |              |      |   |         |        
|                                                        |                                     |                                   |         | Mills, Inc. |        | Incorporated |       | Inc.      |       | Eliminations |        | Consolidated
|                                                        |                                     |                                   |         |             |        |              |       |           |       |              |        |             
|Net sales, including intercompany
transfers and charges |                                     | $                                 | 182,525 |             |        | $            | 24    |           |       | $            | 26,169 |              |      | $ | (26,193 | )       |        | $ | 182,525 |        
|Operating costs and expenses                            |                                     |                                   |         |             |        |              |       |           |       |              |        |              |      |   |         |         |        |   |         |        
|                                                        | Cost of goods sold                  |                                   |         | 152,981     |        |              |       |          |       |              |        | 25,312       |      |   |         | (26,169 | )      |   |         | 152,124 |       
|                                                        | Depreciation                        |                                   |         | 9,975       |        |              |       |          |       |              |        | 1,030        |      |   |         |         |        |   |         | 11,005  |       
|                                                        | Selling and administrative expenses |                                   |         | 7,441       |        |              |       |          |       |              |        |             |      |   |         | (24     | )      |   |         | 7,417   |       
|                                                        | Facility restructuring charges      |                                   |         | 500         |        |              |       |          |       |              |        |             |      |   |         |        |        |   |         | 500     |       
|                                                        |                                     |                                   |         |             |        |              |       |           |       |              |        |              |      |   |         |         |        |   |         |        
|                                                        |                                     | Operating income (loss)           |         |             | 11,628 |              |       |           | 24    |              |        |              | (173 | ) |         |         |       |   |         |         | 11,479 | 
|Interest expense, net                                   |                                     |                                   | 5,168   |             |        |              |      |           |       |              |       |              |      |   |        |         |        |   | 5,168   |        
|Discount and expenses on sales
of receivables           |                                     |                                   | 398     |             |        |              |      |           |       |              |       |              |      |   |        |         |        |   | 398     |        
|Other, net                                              |                                     |                                   | (243    | )           |        |              |      |           |       |              |       |              |      |   |        |         |        |   | (243    | )      
|                                                        |                                     |                                   |         |             |        |              |       |           |       |              |        |              |      |   |         |         |        |   |         |        
|                                                        |                                     | Income (loss) before income taxes |         |             | 6,305  |              |       |           | 24    |              |        |              | (173 | ) |         |         |       |   |         |         | 6,156  | 
|Provision for (benefit of) income taxes                 |                                     |                                   | 1,905   |             |        |              | 9     |           |       |              | (64    | )            |      |   |         |         |        |   | 1,850   |        
|Equity in earnings (loss) of subsidiary                 |                                     |                                   | (109    | )           |        |              | 4,291 |           |       |              |       |              |      |   | (4,182  | )       |        |   |        |        
|                                                        |                                     |                                   |         |             |        |              |       |           |       |              |        |              |      |   |         |         |        |   |         |        
|                                                        |                                     | Net income (loss)                 |         | $           | 4,291  |              |       | $         | 4,306 |              |        | $            | (109 | ) |         | $       | (4,182 | ) |         | $       | 4,306  | 
|                                                        |                                     |                                   |         |             |        |              |       |           |       |              |        |              |      |   |         |         |        |   |         |        

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##### Table of Contents



AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
May 30, 2003

AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF INCOME
For the Thirty-nine weeks ended May 30, 2003
(amounts in thousands)

|                                                        |                                     |                            |         |             |        |              |       |           |       |              |        |                |     |   |         |         |        |   |         |         |        | 
|------------------------------------------------------- | ----------------------------------- | -------------------------- | ------- | ----------- | ------ | ------------ | ----- | --------- | ----- | ------------ | ------ | -------------- | --- | - | ------- | ------- | ------ | - | ------- | ------- | ------ | 
|                                                        |                                     |                            |         |             |        |              |       |           |       |              |        | Non-Guarantor  |     |   |         |         |        |   |         |        
|                                                        |                                     |                            |         |             |        |              |       |           |       |              |        | Avondale Mills |     |   |         |         |        |   |         |        
|                                                        |                                     |                            |         |             |        |              |       | Guarantor |       | Graniteville |        |                |     |   |         |         |        |  
|                                                        |                                     |                            |         | Avondale    |        | Avondale     |       | Fabrics,  |       |              |        |                |     |   |         |        
|                                                        |                                     |                            |         | Mills, Inc. |        | Incorporated |       | Inc.      |       | Eliminations |        | Consolidated  
|                                                        |                                     |                            |         |             |        |              |       |           |       |              |        |               
|Net sales, including intercompany
transfers and charges |                                     | $                          | 461,136 |             |        | $            | 92    |           |       | $            | 69,363 |                |     | $ | (69,455 | )       |        | $ | 461,136 |        
|Operating costs and expenses                            |                                     |                            |         |             |        |              |       |           |       |              |        |                |     |   |         |         |        |   |         |        
|                                                        | Cost of goods sold                  |                            |         | 392,315     |        |              |       |          |       |              |        | 65,539         |     |   |         | (69,363 | )      |   |         | 388,491 |       
|                                                        | Depreciation                        |                            |         | 29,069      |        |              |       |          |       |              |        | 3,051          |     |   |         |         |        |   |         | 32,120  |       
|                                                        | Selling and administrative expenses |                            |         | 21,093      |        |              |       |          |       |              |        |               |     |   |         | (92     | )      |   |         | 21,001  |       
|                                                        | Facility restructuring charges      |                            |         | 2,450       |        |              |       |          |       |              |        |               |     |   |         |        |        |   |         | 2,450   |       
|                                                        |                                     |                            |         |             |        |              |       |           |       |              |        |                |     |   |         |         |        |   |         |        
|                                                        |                                     | Operating income           |         |             | 16,209 |              |       |           | 92    |              |        |                | 773 |   |         |         |       |   |         |         | 17,074 | 
|Interest expense, net                                   |                                     |                            | 13,418  |             |        |              |      |           |       |              |       |                |     |   |        |         |        |   | 13,418  |        
|Discount and expenses on sales
of receivables           |                                     |                            | 2,096   |             |        |              |      |           |       |              |       |                |     |   |        |         |        |   | 2,096   |        
|Other, net                                              |                                     |                            | (162    | )           |        |              |      |           |       |              |       |                |     |   |        |         |        |   | (162    | )      
|                                                        |                                     |                            |         |             |        |              |       |           |       |              |        |                |     |   |         |         |        |   |         |        
|                                                        |                                     | Income before income taxes |         |             | 857    |              |       |           | 92    |              |        |                | 773 |   |         |         |       |   |         |         | 1,722  | 
|Provision for income taxes                              |                                     |                            | 335     |             |        |              | 35    |           |       |              | 295    |                |     |   |         |         |        |   | 665     |        
|Equity in earnings of subsidiary                        |                                     |                            | 478     |             |        |              | 1,000 |           |       |              |       |                |     |   | (1,478  | )       |        |   |        |        
|                                                        |                                     |                            |         |             |        |              |       |           |       |              |        |                |     |   |         |         |        |   |         |        
|                                                        |                                     | Net income                 |         | $           | 1,000  |              |       | $         | 1,057 |              |        | $              | 478 |   |         | $       | (1,478 | ) |         | $       | 1,057  | 
|                                                        |                                     |                            |         |             |        |              |       |           |       |              |        |                |     |   |         |         |        |   |         |        

16



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AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
May 30, 2003

AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF INCOME
For the Thirty-nine weeks ended May 31, 2002
(amounts in thousands)

|                                                        |                                     |                                   |         |             |         |              |        |           |        |              |        |              |     |   |         |         |       |   |         |         |         |  
|------------------------------------------------------- | ----------------------------------- | --------------------------------- | ------- | ----------- | ------- | ------------ | ------ | --------- | ------ | ------------ | ------ | ------------ | --- | - | ------- | ------- | ----- | - | ------- | ------- | ------- | -
|                                                        |                                     |                                   |         |             |         |              |        |           |        |              |        | Non-         |     |   |         |         |       |   |         |        
|                                                        |                                     |                                   |         |             |         |              |        |           |        |              |        | Guarantor    |     |   |         |         |       |   |         |        
|                                                        |                                     |                                   |         |             |         |              |        |           |        |              |        | Avondale     |     |   |         |         |       |   |         |        
|                                                        |                                     |                                   |         |             |         |              |        |           |        |              |        | Mills        |     |   |         |         |       |   |         |        
|                                                        |                                     |                                   |         |             |         |              |        | Guarantor |        | Graniteville |        |              |     |   |         |         |       |  
|                                                        |                                     |                                   |         | Avondale    |         | Avondale     |        | Fabrics,  |        |              |        |              |     |   |         |        
|                                                        |                                     |                                   |         | Mills, Inc. |         | Incorporated |        | Inc.      |        | Eliminations |        | Consolidated
|                                                        |                                     |                                   |         |             |         |              |        |           |        |              |        |             
|Net sales, including intercompany
transfers and charges |                                     | $                                 | 475,163 |             |         | $            | 76     |           |        | $            | 69,509 |              |     | $ | (69,585 | )       |       | $ | 475,163 |        
|Operating costs and expenses                            |                                     |                                   |         |             |         |              |        |           |        |              |        |              |     |   |         |         |       |   |         |        
|                                                        | Cost of goods sold                  |                                   |         | 409,837     |         |              |        |          |        |              |        | 66,482       |     |   |         | (69,509 | )     |   |         | 406,810 |        
|                                                        | Depreciation                        |                                   |         | 30,906      |         |              |        |          |        |              |        | 3,089        |     |   |         |         |       |   |         | 33,995  |        
|                                                        | Selling and administrative expenses |                                   |         | 21,670      |         |              |        |          |        |              |        |             |     |   |         | (76     | )     |   |         | 21,594  |        
|                                                        | Facility restructuring charges      |                                   |         | 7,000       |         |              |        |          |        |              |        |             |     |   |         |        |       |   |         | 7,000   |        
|                                                        |                                     |                                   |         |             |         |              |        |           |        |              |        |              |     |   |         |         |       |   |         |        
|                                                        |                                     | Operating income (loss)           |         |             | 5,750   |              |        |           | 76     |              |        |              | (62 | ) |         |         |      |   |         |         | 5,764   |  
|Interest expense, net                                   |                                     |                                   | 15,342  |             |         |              |       |           |        |              |       |              |     |   |        |         |       |   | 15,342  |        
|Discount and expenses on sales
of receivables           |                                     |                                   | 1,314   |             |         |              |       |           |        |              |       |              |     |   |        |         |       |   | 1,314   |        
|Other, net                                              |                                     |                                   | (382    | )           |         |              |       |           |        |              |       |              |     |   |        |         |       |   | (382    | )      
|                                                        |                                     |                                   |         |             |         |              |        |           |        |              |        |              |     |   |         |         |       |   |         |        
|                                                        |                                     | Income (loss) before income taxes |         |             | (10,524 | )            |        |           | 76     |              |        |              | (62 | ) |         |         |      |   |         |         | (10,510 | )
|Provision for (benefit of) income taxes                 |                                     |                                   | (4,685  | )           |         |              | 29     |           |        |              | (24    | )            |     |   |         |         |       |   | (4,680  | )      
|Equity in loss of subsidiary                            |                                     |                                   | (38     | )           |         |              | (5,877 | )         |        |              |       |              |     |   | 5,915   |         |       |   |        |        
|                                                        |                                     |                                   |         |             |         |              |        |           |        |              |        |              |     |   |         |         |       |   |         |        
|                                                        |                                     | Net loss                          |         | $           | (5,877  | )            |        | $         | (5,830 | )            |        | $            | (38 | ) |         | $       | 5,915 |   |         | $       | (5,830  | )
|                                                        |                                     |                                   |         |             |         |              |        |           |        |              |        |              |     |   |         |         |       |   |         |        

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AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
May 30, 2003

AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Thirty-nine weeks ended May 30, 2003
(amounts in thousands)

|                                                                                  |                                                                  |                                                             |                                           |         |         |             |       |              |        |           |     |              |   |              |        |        |       |        |        |         |         |         |   | 
|--------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ----------------------------------------------------------- | ----------------------------------------- | ------- | ------- | ----------- | ----- | ------------ | ------ | --------- | --- | ------------ | - | ------------ | ------ | ------ | ----- | ------ | ------ | ------- | ------- | ------- | - | 
|                                                                                  |                                                                  |                                                             |                                           |         |         |             |       |              |        |           |     |              |   | Non-         |        |        |       |        |        |         |         |        
|                                                                                  |                                                                  |                                                             |                                           |         |         |             |       |              |        |           |     |              |   | Guarantor    |        |        |       |        |        |         |         |        
|                                                                                  |                                                                  |                                                             |                                           |         |         |             |       |              |        |           |     |              |   | Avondale     |        |        |       |        |        |         |         |        
|                                                                                  |                                                                  |                                                             |                                           |         |         |             |       |              |        |           |     |              |   | Mills        |        |        |       |        |        |         |         |        
|                                                                                  |                                                                  |                                                             |                                           |         |         |             |       |              |        | Guarantor |     | Graniteville |   |              |        |        |       |        |        |        
|                                                                                  |                                                                  |                                                             |                                           |         |         | Avondale    |       | Avondale     |        | Fabrics,  |     |              |   |              |        |        |       |       
|                                                                                  |                                                                  |                                                             |                                           |         |         | Mills, Inc. |       | Incorporated |        | Inc.      |     | Eliminations |   | Consolidated
|                                                                                  |                                                                  |                                                             |                                           |         |         |             |       |              |        |           |     |              |   |             
|Operating activities                                                              |                                                                  |                                                             |                                           |         |         |             |       |              |        |           |     |              |   |              |        |        |       |        |        |        
|Net income                                                                        |                                                                  | $                                                           | 1,000                                     |         |         | $           | 1,057 |              |        | $         | 478 |              |   | $            | (1,478 | )      |       | $      | 1,057  |        
|Adjustments to reconcile net income
to net cash provided by operating
activities: |                                                                  |                                                             |                                           |         |         |             |       |              |        |           |     |              |   |              |        |        |       |        |        |        
|                                                                                  | Depreciation and amortization                                    |                                                             |                                           | 29,343  |         |             |       |             |        |           |     | 3,051        |   |              |        |       |       |        |        | 32,394  |        
|                                                                                  | Benefit of deferred income taxes                                 |                                                             |                                           | (934    | )       |             |       |             |        |           |     |             |   |              |        |       |       |        |        | (934    | )      
|                                                                                  | Loss on disposal of equipment and
facility restructuring charges |                                                             |                                           | 2,151   |         |             |       |             |        |           |     |             |   |              |        |       |       |        |        | 2,151   |        
|                                                                                  | Sale of accounts receivable, net                                 |                                                             |                                           | (15,516 | )       |             |       |             |        |           |     |             |   |              |        |       |       |        |        | (15,516 | )      
|                                                                                  | Changes in operating assets and liabilities                      |                                                             |                                           | 557     |         |             |       | 2,258        |        |           |     | (3,529       | ) |              |        |       |       |        |        | (714    | )      
|                                                                                  | Dividends from subsidiary                                        |                                                             |                                           |        |         |             |       | 3,752        |        |           |     |             |   |              |        | (3,752 | )     |        |        |        |        
|                                                                                  | Equity in earnings of subsidiary                                 |                                                             |                                           | (478    | )       |             |       | (1,000       | )      |           |     |             |   |              |        | 1,478  |       |        |        |        |        
|                                                                                  |                                                                  |                                                             |                                           |         |         |             |       |              |        |           |     |              |   |              |        |        |       |        |        |        
|                                                                                  |                                                                  |                                                             | Net cash provided by operating
activities |         |         | 16,123      |       |              |        | 6,067     |     |              |   |             |        |        |       | (3,752 | )      |         |         | 18,438  |  
|Investing activities                                                              |                                                                  |                                                             |                                           |         |         |             |       |              |        |           |     |              |   |              |        |        |       |        |        |        
|                                                                                  |                                                                  | Purchase of property, plant and equipment                   |                                           |         | (13,102 | )           |       |              |       |           |     |              |  |              |        |        |      |        |        |         | (13,102 | )      
|                                                                                  |                                                                  | Proceeds from sale of property, plant
and equipment         |                                           |         | 1,116   |             |       |              |       |           |     |              |  |              |        |        |      |        |        |         | 1,116   |        
|                                                                                  |                                                                  |                                                             |                                           |         |         |             |       |              |        |           |     |              |   |              |        |        |       |        |        |        
|                                                                                  |                                                                  |                                                             | Net cash used in investing activities     |         |         | (11,986     | )     |              |        |          |     |              |   |             |        |        |       |       |        |         |         | (11,986 | )
|Financing activities                                                              |                                                                  |                                                             |                                           |         |         |             |       |              |        |           |     |              |   |              |        |        |       |        |        |        
|                                                                                  |                                                                  | Net payments on revolving line of
credit and long term debt |                                           |         | (3,106  | )           |       |              |       |           |     |              |  |              |        |        |      |        |        |         | (3,106  | )      
|                                                                                  |                                                                  | Purchase and retirement of treasury stock                   |                                           |         |        |             |       |              | (2,315 | )         |     |              |  |              |        |        |      |        |        |         | (2,315  | )      
|                                                                                  |                                                                  | Dividends paid                                              |                                           |         | (3,752  | )           |       |              | (3,752 | )         |     |              |  |              |        |        | 3,752 |        |        |         | (3,752  | )      
|                                                                                  |                                                                  |                                                             |                                           |         |         |             |       |              |        |           |     |              |   |              |        |        |       |        |        |        
|                                                                                  |                                                                  |                                                             | Net cash used in financing activities     |         |         | (6,858      | )     |              |        | (6,067    | )   |              |   |             |        |        |       | 3,752  |        |         |         | (9,173  | )
|                                                                                  |                                                                  |                                                             |                                           |         |         |             |       |              |        |           |     |              |   |              |        |        |       |        |        |        
|Decrease in cash                                                                  |                                                                  |                                                             | (2,721                                    | )       |         |             |      |              |        |           |    |              |   |              |       |        |       |        | (2,721 | )      
|Cash at beginning of period                                                       |                                                                  |                                                             | 2,859                                     |         |         |             |      |              |        |           |    |              |   |              |       |        |       |        | 2,859  |        
|                                                                                  |                                                                  |                                                             |                                           |         |         |             |       |              |        |           |     |              |   |              |        |        |       |        |        |        
|Cash at end of period                                                             |                                                                  | $                                                           | 138                                       |         |         | $           |      |              |        | $         |    |              |   | $            |       |        |       | $      | 138    |        
|                                                                                  |                                                                  |                                                             |                                           |         |         |             |       |              |        |           |     |              |   |              |        |        |       |        |        |        

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AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
May 30, 2003

AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Thirty-nine weeks ended May 31, 2002
(amounts in thousands)

|                                                                                |                                                                  |                                                             |                                           |        |             |         |              |       |           |        |              |        |              |   |       |        |       |        |        |        |         |         |  
|------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ----------------------------------------------------------- | ----------------------------------------- | ------ | ----------- | ------- | ------------ | ----- | --------- | ------ | ------------ | ------ | ------------ | - | ----- | ------ | ----- | ------ | ------ | ------ | ------- | ------- | -
|                                                                                |                                                                  |                                                             |                                           |        |             |         |              |       |           |        |              |        | Non-         |   |       |        |       |        |        |        |        
|                                                                                |                                                                  |                                                             |                                           |        |             |         |              |       |           |        |              |        | Guarantor    |   |       |        |       |        |        |        |        
|                                                                                |                                                                  |                                                             |                                           |        |             |         |              |       |           |        |              |        | Avondale     |   |       |        |       |        |        |        |        
|                                                                                |                                                                  |                                                             |                                           |        |             |         |              |       |           |        |              |        | Mills        |   |       |        |       |        |        |        |        
|                                                                                |                                                                  |                                                             |                                           |        |             |         |              |       | Guarantor |        | Graniteville |        |              |   |       |        |       |        |       
|                                                                                |                                                                  |                                                             |                                           |        | Avondale    |         | Avondale     |       | Fabrics,  |        |              |        |              |   |       |        |      
|                                                                                |                                                                  |                                                             |                                           |        | Mills, Inc. |         | Incorporated |       | Inc.      |        | Eliminations |        | Consolidated
|                                                                                |                                                                  |                                                             |                                           |        |             |         |              |       |           |        |              |        |             
|Operating activities                                                            |                                                                  |                                                             |                                           |        |             |         |              |       |           |        |              |        |              |   |       |        |       |        |        |       
|Net loss                                                                        |                                                                  | $                                                           | (5,877                                    | )      |             | $       | (5,830       | )     |           | $      | (38          | )      |              | $ | 5,915 |        |       | $      | (5,830 | )     
|Adjustments to reconcile net loss
to net cash provided by operating
activities: |                                                                  |                                                             |                                           |        |             |         |              |       |           |        |              |        |              |   |       |        |       |        |        |       
|                                                                                | Depreciation and amortization                                    |                                                             |                                           | 31,348 |             |         |              |      |           |        |              | 3,089  |              |   |       |       |       |        |        | 34,437 |        
|                                                                                | Benefit of deferred income taxes                                 |                                                             |                                           | (1,807 | )           |         |              |      |           |        |              |       |              |   |       |       |       |        |        | (1,807 | )      
|                                                                                | Loss on disposal of equipment and
facility restructuring charges |                                                             |                                           | 4,652  |             |         |              |      |           |        |              |       |              |   |       |       |       |        |        | 4,652  |        
|                                                                                | Sale of accounts receivable, net                                 |                                                             |                                           | 4,000  |             |         |              |      |           |        |              |       |              |   |       |       |       |        |        | 4,000  |        
|                                                                                | Changes in operating assets and liabilities                      |                                                             |                                           | 12,240 |             |         |              | (47   | )         |        |              | (3,051 | )            |   |       |       |       |        |        | 9,142  |        
|                                                                                | Dividends from subsidiary                                        |                                                             |                                           |       |             |         |              | 2,506 |           |        |              |       |              |   |       | (2,506 | )     |        |        |       |        
|                                                                                | Equity in loss of subsidiary                                     |                                                             |                                           | 38     |             |         |              | 5,877 |           |        |              |       |              |   |       | (5,915 | )     |        |        |       |        
|                                                                                |                                                                  |                                                             |                                           |        |             |         |              |       |           |        |              |        |              |   |       |        |       |        |        |       
|                                                                                |                                                                  |                                                             | Net cash provided by operating
activities |        |             | 44,594  |              |       |           | 2,506  |              |        |              |  |       |        |       | (2,506 | )      |        |         | 44,594  |  
|Investing activities                                                            |                                                                  |                                                             |                                           |        |             |         |              |       |           |        |              |        |              |   |       |        |       |        |        |       
|                                                                                |                                                                  | Purchase of property, plant and equipment                   |                                           |        | (9,674      | )       |              |       |          |        |              |        |             |   |       |        |      |        |        |        | (9,674  | )      
|                                                                                |                                                                  | Proceeds from sale of property, plant
and equipment         |                                           |        | 1,100       |         |              |       |          |        |              |        |             |   |       |        |      |        |        |        | 1,100   |        
|                                                                                |                                                                  |                                                             |                                           |        |             |         |              |       |           |        |              |        |              |   |       |        |       |        |        |       
|                                                                                |                                                                  |                                                             | Net cash used in investing activities     |        |             | (8,574  | )            |       |           |       |              |        |              |  |       |        |       |       |        |        |         | (8,574  | )
|Financing activities                                                            |                                                                  |                                                             |                                           |        |             |         |              |       |           |        |              |        |              |   |       |        |       |        |        |       
|                                                                                |                                                                  | Net payments on revolving line of
credit and long term debt |                                           |        | (33,250     | )       |              |       |          |        |              |        |             |   |       |        |      |        |        |        | (33,250 | )      
|                                                                                |                                                                  | Dividends paid                                              |                                           |        | (2,506      | )       |              |       | (2,506    | )      |              |        |             |   |       |        | 2,506 |        |        |        | (2,506  | )      
|                                                                                |                                                                  |                                                             |                                           |        |             |         |              |       |           |        |              |        |              |   |       |        |       |        |        |       
|                                                                                |                                                                  |                                                             | Net cash used in financing activities     |        |             | (35,756 | )            |       |           | (2,506 | )            |        |              |  |       |        |       | 2,506  |        |        |         | (35,756 | )
|                                                                                |                                                                  |                                                             |                                           |        |             |         |              |       |           |        |              |        |              |   |       |        |       |        |        |       
|Increase in cash                                                                |                                                                  |                                                             | 264                                       |        |             |         |             |       |           |        |             |        |              |   |      |        |       |        | 264    |       
|Cash at beginning of period                                                     |                                                                  |                                                             | 2,969                                     |        |             |         |             |       |           |        |             |        |              |   |      |        |       |        | 2,969  |       
|                                                                                |                                                                  |                                                             |                                           |        |             |         |              |       |           |        |              |        |              |   |       |        |       |        |        |       
|Cash at end of period                                                           |                                                                  | $                                                           | 3,233                                     |        |             | $       |             |       |           | $      |             |        |              | $ |      |        |       | $      | 3,233  |       
|                                                                                |                                                                  |                                                             |                                           |        |             |         |              |       |           |        |              |        |              |   |       |        |       |        |        |       

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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

CRITICAL ACCOUNTING POLICIES

The Companys analysis and discussion of its financial condition and
results of operations are based upon its consolidated financial statements that
have been prepared in accordance with generally accepted accounting principles
for interim financial information in the United States (GAAP). The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities as of the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.

The Company evaluates these estimates and assumptions on an ongoing basis,
including but not limited to those affecting inventories, allowances for
doubtful accounts, assets held for sale, long-lived assets, income taxes
payable and deferred income taxes, deferred compensation, associate and post
retirement benefits, and contingencies. Estimates and assumptions are based on
historical and other factors believed to be reasonable under the circumstances.
The results of these estimates and assumptions may form the basis of the
carrying value of certain assets and liabilities. Actual results, under
conditions and circumstances different from those assumed, may differ from
these estimates and assumptions.

The Company believes the following accounting policies are critical to the
presentation and understanding of its financial condition and the results of
its operations and involve the more significant judgments and estimates
utilized in the preparation of its consolidated financial statements:

Accounts Receivable and Credit Risks:The Company extends credit lines to
its customers in the normal course of business and performs ongoing evaluations
of the financial condition of its customers. In general, collateral is not
required to support such credit lines and the related receivables. The Company
establishes allowances for doubtful accounts based upon factors surrounding the
financial condition and credit risk of specific customers, historical payment
trends and other information.

The Company generates funds through the sale of accounts receivable, at a
discount and without recourse, to a special purpose subsidiary established to
facilitate the acquisition and subsequent resale of certain accounts receivable
to an independent issuer of receivables-backed commercial paper. The discount
rate on the accounts receivable purchased from the Company is established
periodically by the subsidiary based on the fair market value of the
receivables. The Company includes in accounts receivable in its consolidated
balance sheets the portion of accounts receivable sold to the subsidiary which
have not been resold to the commercial paper issuer.

Inventories:Inventories are stated at the lower of cost or market value.
Except for certain supply inventories valued on an average cost basis, the
costs of the Companys inventories are determined on a last-in, first-out
(LIFO) basis. Under LIFO, current material and conversion costs are charged
to cost of goods sold while inventories are valued using costs incurred in the
initial and subsequent fiscal years following election of the LIFO method. In
periods of declining prices, LIFO values may exceed current replacement market
values and require downward adjustment. Estimates, including the estimated
costs to complete work in process inventories and the estimated realizable
values of all inventories, are used in determining the lower of LIFO cost and
market. During periods when current costs or inventory quantities fluctuate
significantly, use of the LIFO method may yield cost of goods sold that differs
significantly from that which would result under other inventory methods.

Long-Lived Assets:The Company periodically reviews the values assigned to
long-lived assets, such as property, plant and equipment, assets held for sale
and goodwill. The associated depreciation and amortization periods, where
appropriate, are reviewed on an annual basis. Estimated recoverability of
long-lived asset values is based on anticipated undiscounted cash flows from
operations, or in the case of assets held for sale, the lower of historical
carrying amount or estimated net realizable value. Management periodically
reviews the values assigned to these assets and if additional information
becomes available which indicates a decline in value, makes adjustments in that
period.

Revenue Recognition:The Company records revenues principally when
products are shipped to customers. Consistent with recognized practice in the
textile industry, the Company also records revenues to a lesser extent
throughout the fiscal year on a bill and hold basis, invoicing goods that have
been produced, packaged and made ready for shipment. These goods are
effectively segregated from inventory which is available for sale, the risks of
ownership of the goods have passed to the customer, and the remittance terms
and collection experience on the related invoicing is consistent with other
sales by the Company.

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Contingencies:The Company is involved in certain environmental matters
and claims. The Company has provided reserves to cover managements estimates
of the cost of investigating, monitoring and remediating these and other
environmental conditions. If more costly remediation measures are necessary
than those believed to be probable based on current facts and circumstances,
actual costs may exceed the reserves provided. However, based on the
information currently available, management does not believe that the outcome
of these matters will have a material adverse effect on the Companys future
results of operations or financial condition.

For discussion of certain legal proceedings to which the Company is a
party, see Item 3 Legal Proceedings in the Companys Annual Report on Form
10-K for the fiscal year ended August 30, 2002. The Company is not currently a
party to litigation that management, in consultation with legal counsel,
believes would have a material adverse effect on the Companys future results
of operations or financial condition.

RESULTS OF OPERATIONS

Thirteen Weeks Ended May 30, 2003 Compared to Thirteen Weeks Ended May 31, 2002

Net Sales.Net sales decreased 16.5% to $152.3 million for the thirteen
weeks ended May 30, 2003 from $182.5 million for the thirteen weeks ended May
31, 2002. The decline in net sales primarily reflected lower unit volume in
all segments, as domestic retail sales of apparel continued to reflect weak
consumer demand in the thirteen weeks ended May 30, 2003. In comparison, a
modest rebound in unit volume was experienced in the thirteen weeks ended May
31, 2002 when inventories throughout the supply chain were replenished.
Selling prices remain very competitive reflecting the significant uncertainties
presented by the current economic and political environment and the imbalance
of global supply and demand for textile and apparel products. In addition, the
strength of the U.S. dollar in comparison to the Chinese yuan and the
currencies of other Asian countries continues to promote the importation of
goods from those countries by U.S. retailers, exacerbating the already highly
competitive market conditions. The Company expects these conditions to
continue into the fourth quarter of fiscal 2003.

Operating Income.Operating income decreased 57.4% to $4.9 million for
the thirteen weeks ended May 30, 2003, compared to $11.5 million for the
thirteen weeks ended May 31, 2002. The decrease in operating income primarily
reflected the decline in unit volume and corresponding reductions in unit cost
absorption and operating efficiencies, as well as the $2.5 million facility
restructuring charge recorded in the thirteen weeks ended May 30, 2003.
Production of yarn and greige fabrics for internal consumption by the apparel
fabrics operation in lieu of outside purchases continued to provide better
overall capacity utilization. Cost of goods sold decreased 15.8% to $128.0
million for the thirteen weeks ended May 30, 2003 from $152.1 million for the
thirteen weeks ended May 31, 2002, primarily reflecting the decline in unit
volume. Cost of goods sold as a percentage of net sales increased to 84.0% for
the thirteen weeks ended May 30, 2003 from 83.3% for the thirteen weeks ended
May 31, 2002, primarily reflecting the lower unit cost absorption.

Selling and administrative expenses decreased 10.8% to $6.6 million for
the thirteen weeks ended May 30, 2003 from $7.4 million for the thirteen weeks
ended May 31, 2002 reflecting a decrease in certain associate benefits and
performance based incentives. Selling and administrative expenses as a
percentage of net sales increased to 4.4% for the thirteen weeks ended May 30,
2003 from 4.1% for the thirteen weeks ended May 31, 2002, reflecting the
decline in net sales.

Segment Performance.Apparel fabrics sales decreased 17.7% to $127.5
million for the thirteen weeks ended May 30, 2003 from $155.0 million for the
thirteen weeks ended May 31, 2002, primarily due to the comparative decline in
unit volume as domestic retail sales continue to reflect weak consumer demand.
Yards invoiced decreased 18.2% while average invoice price improved 0.5% for
the respective periods. Operating income for apparel fabrics decreased 35.3%
to $9.9 million for the thirteen weeks ended May 30, 2003 from $15.3 million
for the thirteen weeks ended May 31, 2002.

Yarn sales decreased 15.2% to $42.4 million for the thirteen weeks ended
May 30, 2003 from $50.0 million for the thirteen weeks ended May 31, 2002,
reflecting a 13.4% decrease in pounds invoiced and a 2.1% decrease in average
invoice price. Market pricing for sales yarns remains very competitive, with
continued excess production capacity within the domestic industry and continued
imports of yarns and knitted apparel from China and other Asian countries. The
yarn operations produced an operating income of $0.3 million for the thirteen
weeks ended May 30, 2003 compared to an operating loss of ($0.6) million for
the thirteen weeks ended May 31, 2002, primarily due to lower raw material
costs.

Other sales, which include sales of greige and specialty fabrics and
revenues from the Companys trucking operation, decreased 13.7% to $17.0
million for the thirteen weeks ended May 30, 2003 from $19.7 million for the
thirteen weeks ended May 31, 2002. The decrease in other sales was primarily
attributable to reduced intra-company sales of greige fabrics, corresponding to
the reduced unit volume of the apparel fabrics operation. Operating income
from other
21Table of Contents

sales decreased 15.8% to $1.6 million for the thirteen weeks ended May 30, 2003
from $1.9 million for the thirteen weeks ended May 31, 2002, primarily due to
the lower unit volume.

Inter-segment sales decreased 18.0% to $34.6 million for the thirteen
weeks ended May 30, 2003 from $42.2 million for the thirteen weeks ended May
31, 2002, primarily reflecting the decrease in consumption of internally
produced yarns and greige fabrics corresponding to the decline in sales of the
apparel fabrics operation.

Unallocated amounts included in operating income reflect general and
administrative expenses, certain associate benefits and performance based
incentives, and adjustments of the carrying value of inventories to LIFO basis,
net of market adjustments. These amounts were nearly flat for the respective
thirteen week periods.

Interest Expense, Net.Net interest expense decreased 17.3% to $4.3
million for the thirteen weeks ended May 30, 2003 from $5.2 million for the
thirteen weeks ended May 31, 2002. The decrease was primarily the result of a
lower average balance of borrowings outstanding during the thirteen weeks ended
May 30, 2003, partially offset by higher interest rates applicable to those
borrowings.

Discount and Expenses on Sale of Receivables.Discount and expenses on
sales of receivables were $0.7 million for the thirteen weeks ended May 30,
2003 compared to $0.4 million for the thirteen weeks ended May 31, 2002. This
increase was attributable to higher interest rates and enhanced eligibility of
receivables under the current securitization facility.

Provision for Income Taxes.Although there was a $5,000 loss before
income taxes, a provision for income taxes of $5,000 was recorded for the
thirteen weeks ended May 30, 2003 due to minor permanent differences between
book and tax accounting. A provision for income taxes of $1.9 million was
recorded for the thirteen weeks ended May 31, 2002.

Facility Restructuring.In response to the highly competitive market
conditions and continued oversupply of open-end yarns, in January 2002, the
Company completed the closing of two separate open-end yarn manufacturing
facilities located in North Carolina. In connection with these closings, the
Company recorded facility restructuring charges and other non-operating costs
of approximately $5.3 million during the thirteen weeks ended November 30, 2001
and approximately $0.5 million during the thirteen weeks ended May 31, 2002.
Additionally, the Company implemented reductions in certain manufacturing
overhead costs and selling, general and administrative expenses in September
2001. In conjunction with these actions and the two plant closings, the Company
recorded expense of approximately $1.2 million related to the termination of
approximately 70 associates holding manufacturing, marketing and administrative
positions.

In response to the deterioration of domestic and regional demand for
heather and stock-dyed open-end yarns over the past several years, in May 2003,
the Company completed the closing of an open-end yarn manufacturing facility
located in Alabama. Continued operation of this facility could not be justified
given the diminished volume and pricing for these products. Production of
stock-dyed yarns for internal consumption by the apparel fabrics operation will
be shifted to other manufacturing facilities within the Company. In connection
with this action, the Company recorded facility restructuring charges and other
non-operating costs of approximately $2.5 million during the thirty-nine weeks
ended May 30, 2003.

Thirty-Nine Weeks Ended May 30, 2003 Compared to Thirty-Nine Weeks Ended May
31, 2002

Net Sales.Net sales decreased 3.0% to $461.1 million for the
thirty-nine weeks ended May 30, 2003 from $475.2 million for the thirty-nine
weeks ended May 31, 2002. Volume invoiced was nearly flat for the respective
periods while average invoice prices were down slightly. Selling prices remain
very competitive reflecting the significant uncertainties presented by the
current economic and political environment and the imbalance of global supply
and demand for textile and apparel products. In addition, the strength of the
U.S. dollar in comparison to the Chinese yuan and the currencies of other Asian
countries continues to promote the importation of goods from those countries by
U.S. retailers, exacerbating the already highly competitive market conditions.
The Company expects these conditions to continue into the fourth quarter of
fiscal 2003.

Operating Income.Operating income increased 194.8% to $17.1 million for
the thirty-nine weeks ended May 30, 2003, compared to $5.8 million for the
thirty-nine weeks ended May 31, 2002. The substantial improvement in operating
income primarily reflected lower raw material costs, significantly enhanced by
the continued consumption of internally produced yarns and greige fabrics in
lieu of outside purchases, and lower conversion costs resulting from the
Companys ongoing cost reduction efforts and previous capital expenditure
projects. In addition, restructuring charges were $2.5 million in the
thirty-nine weeks ended May 30, 2003 compared to $7.0 million in the
thirty-nine weeks ended May 31, 2002. Cost of goods sold decreased 4.5% to
$388.5 million for the thirty-nine weeks ended May 30, 2003 from
22Table of Contents

$406.8 million for the thirty-nine weeks ended May 31, 2002. Cost of goods
sold as a percentage of net sales decreased to 84.3% for the thirty-nine weeks
ended May 30, 2003 from 85.6% for the thirty-nine weeks ended May 31, 2002.

Selling and administrative expenses decreased 2.8% to $21.0 million for
the thirty-nine weeks ended May 30, 2003 from $21.6 million for the thirty-nine
weeks ended May 31, 2002, reflecting the Companys efforts to control expenses
in response to declining sales. Selling and administrative expenses as a
percentage of net sales increased to 4.6% for the thirty-nine weeks ended May
30, 2003 from 4.5% for the thirty-nine weeks ended May 31, 2002, reflecting the
decline in net sales.

Segment Performance.Apparel fabrics sales decreased 1.2% to $393.7
million for the thirty-nine weeks ended May 30, 2003 from $398.5 million for
the thirty-nine weeks ended May 31, 2002. The decline in apparel fabrics sales
reflected a 0.7% decrease in yards invoiced and a 0.5% decline in average
invoice price for the respective periods. Operating income for apparel fabrics
decreased 1.1% to $27.7 million for the thirty-nine weeks ended May 30, 2003
from $28.0 million for the thirty-nine weeks ended May 31, 2002, reflecting the
decline in sales.

Yarn sales declined 3.8% to $131.9 million for the thirty-nine weeks ended
May 30, 2003 from $137.1 million for the thirty-nine weeks ended May 31, 2002,
primarily reflecting a lower average invoice price on the increase in
intra-company sales to the apparel fabrics operation. Market pricing for sales
yarns remains very competitive, with continued excess production capacity
within the domestic industry and continued imports of yarns and knitted apparel
from China and other Asian countries. The yarn operations produced an
operating income of $2.4 million for the thirty-nine weeks ended May 30, 2003
compared to an operating loss of ($5.7) million for the thirty-nine weeks ended
May 31, 2002, primarily as a result of lower raw material costs and increased
intra-company sales to the apparel fabrics operation.

Other sales, which include sales of greige and specialty fabrics and
revenues from the Companys trucking operation, decreased 1.2% to $51.0 million
for the thirty-nine weeks ended May 30, 2003 from $51.6 million for the
thirty-nine weeks ended May 31, 2002. The decrease in other sales was
primarily attributable to a slight decline in greige sales to outside customers
partially offset by increased intra-company sales of greige fabrics to the
apparel fabrics operation. Operating income from other sales increased 46.2%
to $3.8 million for the thirty-nine weeks ended May 30, 2003 from $2.6 million
for the thirty-nine weeks ended May 31, 2002, primarily due to lower raw
material costs and increased intra-company sales to the apparel fabrics
operation.

Inter-segment sales increased 3.1% to $115.5 million for the thirty-nine
weeks ended May 30, 2003 from $112.0 million for the thirty-nine weeks ended
May 31, 2002, primarily reflecting the increase in consumption of internally
produced yarns and greige fabrics within the apparel fabrics operation.

Unallocated amounts included in operating income reflect general and
administrative expenses, certain associate benefits and performance based
incentives, and adjustments of the carrying value of inventories to LIFO basis,
net of market adjustments. These amounts increased to $14.3 million for the
thirty-nine weeks ended May 30, 2003 from $12.0 million for the thirty-nine
weeks ended May 31, 2002 primarily due to the LIFO inventory adjustment
recorded in the respective periods.

Interest Expense, Net.Net interest expense decreased 12.4% to $13.4
million for the thirty-nine weeks ended May 30, 2003 from $15.3 million for the
thirty-nine weeks ended May 31, 2002. The decrease was primarily the result of
a lower average balance of borrowings outstanding during the thirty-nine weeks
ended May 30, 2003, partially offset by higher interest rates applicable to
those borrowings.

Discount and Expenses on Sale of Receivables.Discount and expenses on
sales of receivables were $2.1 million for the thirty-nine weeks ended May 30,
2003 compared to $1.3 million for the thirty-nine weeks ended May 31, 2002.
This increase was attributable to higher interest rates and enhanced
eligibility of receivables under the current securitization facility.

Provision for (Benefit of) Income Taxes.An income tax provision of $0.7
million was recorded for the thirty-nine weeks ended May 30, 2003, reflecting
the Companys return to profitability, compared to a benefit of income taxes of
($4.7) million for the thirty-nine weeks ended May 31, 2002.

Facility Restructuring.In response to the highly competitive market
conditions and continued oversupply of open-end yarns, in January 2002, the
Company completed the closing of two separate open-end yarn manufacturing
facilities located in North Carolina. In connection with these closings, the
Company recorded facility restructuring charges and other non-operating costs
of approximately $5.8 million during fiscal 2002. Additionally, the Company
implemented reductions in certain manufacturing overhead costs and selling,
general and administrative expenses in September 2001. In
23Table of Contents

conjunction with these actions and the two plant closings, the Company recorded
expense of approximately $1.2 million related to the termination of
approximately 70 associates holding manufacturing, marketing and administrative
positions.

In response to the deterioration of domestic and regional demand for
heather and stock-dyed open-end yarns over the past several years, in May 2003,
the Company completed the closing of an open-end yarn manufacturing facility
located in Alabama. Continued operation of this facility could not be justified
given the diminished volume and pricing for these products. Production of
stock-dyed yarns for internal consumption by the apparel fabrics operation will
be shifted to other manufacturing facilities within the Company. In connection
with this action, the Company recorded facility restructuring charges and other
non-operating costs of approximately $2.5 million during the thirty-nine weeks
ended May 30, 2003.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $18.4 million for the
thirty-nine weeks ended May 30, 2003. Principal working capital changes
included a $21.7 million decrease in accounts receivable, a $15.5 million
decrease in accounts receivable sold under the securitization facility, a $12.1
million increase in inventories, and a $10.4 million decrease in accounts
payable and accrued expenses. Investing activities were predominantly equipment
purchases and related costs of $13.1 million made in connection with the
ongoing modernization and maintenance of the Companys manufacturing
facilities. Financing activities included a $3.1 million net decrease in
borrowings under the revolving credit facility and long-term debt, payment of
$3.8 million in dividends on outstanding common stock and the purchase and
retirement of treasury stock of $2.3 million.

At May 30, 2003, the Company had borrowings of $23.0 million outstanding
under its revolving line of credit and $37.6 million of borrowing availability
thereunder.

The Companys capital expenditures, aggregating $13.1 million for the
thirty-nine weeks ended May 30, 2003, were used primarily to initiate the
installation of an automated dye mixing and dispensing system at a fabric
finishing facility in South Carolina, purchase new roving equipment for a ring
spinning facility in Alabama and complete routine maintenance projects.
Management estimates that capital expenditures for the balance of fiscal 2003
will be approximately $4 million.

The receivables securitization facility is the Companys only off-balance
sheet financing arrangement. The Company generates funds through the sale of
accounts receivable to Funding, whose sole business purpose is the ongoing
acquisition and resale of specified trade receivables generated by the Company.
Funding retains no interest in the investment in the accounts receivable sold
to an independent issuer of receivables-backed commercial paper, and has not
experienced any gains or losses on the sale of the investment in accounts
receivable. The Company believes minimal counter party risk exists due to the
financial strength of the independent issuer of the commercial paper.

On March 28, 2003, the Company completed a restructuring of its senior
secured revolving credit facility with a group of lenders, which provides
aggregate borrowing availability of a maximum of $62 million through March 27,
2006, or November 1, 2005 if the Companys 10.25% Senior Subordinated Notes
have not been refinanced by that date. Borrowings under the revolving credit
facility include revolving loans provided by the lenders and up to $10 million
of revolving swing loans provided by Wachovia Bank, N.A. (Wachovia). With
respect to revolving loans, the Company can designate an interest rate tied to
the Eurodollar rate (adjusted for any reserves) plus a specified number of
basis points or the base rate (which is the higher of Wachovias prime rate or
one-half of one percent over the overnight federal funds rate) plus a specified
number of basis points. Interest accrues on revolving swing loans at the
Companys option at either the base rate plus a specified number of basis
points or at an interest rate to be mutually determined by the Company and
Wachovia at the time such loan is made. A commitment fee is payable quarterly
on the average daily unused portion of the revolving credit commitment. The
revolving credit facility is secured by substantially all of the Companys
assets. Covenants of the credit agreement, among other things, require that the
Company maintain a minimum cash flow and certain financial ratios, and contain
restrictions on payment of dividends.

Management believes that cash generated from operations, together with the
borrowings available under its revolving line of credit and proceeds from sales
of trade receivables, will be sufficient to meet the Companys working capital
and capital expenditure needs in the foreseeable future.

SUBSEQUENT EVENTS

On June 30, 2003, Avondale Mills issued at par $150 million of 10.25%
Senior Subordinated Notes (the Notes) in a private placement to qualified
institutional buyers. The Notes, which mature on July 1, 2013, are unsecured
and subordinated to all existing and future senior indebtedness of Avondale
Mills. Interest on the Notes is due semiannually, on January 1 and July 1,
commencing January 1, 2004. Proceeds from the sale of the Notes will be used to
redeem Avondale
24Table of Contents

Mills 10.25% Senior Subordinated Notes Due 2006, to repay indebtedness
outstanding under the revolving credit facility and for general corporate
purposes.

The Company has entered into an agreement with Wachovia Securities, LLC,
the original purchaser of the Notes, to use reasonable best efforts to file a
registration statement with the Securities and Exchange Commission within 90
days after June 30, 2003, with respect to an offer to exchange the unregistered
notes for freely tradable notes that have substantially identical terms. In the
event of a registration default, the annual interest rate on the Notes will
increase by .25%.

The Notes contain a redemption feature allowing the Company, at any time
prior to July 1, 2006, to redeem up to an aggregate of $52.5 million of the
principal amount of the Notes with the proceeds of one or more public equity
offerings, at a redemption price of 110.25% plus accrued interest to the
redemption date, provided that at least $97.5 million aggregate principal
amount of the Notes remains outstanding after such redemption. On or after July
1, 2008, the Notes are redeemable at the Companys option, in whole or in part,
at a redemption price of 105.125%, which declines in intervals to 100% in 2011
and thereafter.

The indenture under which the Notes were issued contains, among other
things, certain restrictive covenants applicable to issuance of additional
debt, payment of dividends, retirement of capital stock or indebtedness,
purchase of investments, sales or transfers of assets, certain consolidations
or mergers and certain transactions with affiliates.

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FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of the federal securities laws. In addition, management may
from time to time make forward looking statements in reports and other
documents we file with the Securities and Exchange Commission, or in connection
with oral statements made to the press, potential investors and others.
Statements that are not historical facts, including statements about our
beliefs and expectations, are forward-looking statements. Forward-looking
statements include statements generally preceded by, followed by or that
include the words believe, expect, anticipate, plan, estimate or
similar expressions. These statements include, among others, statements
regarding our business outlook, anticipated financial and operating results,
strategies, contingencies, working capital requirements, expected sources of
liquidity, estimated amounts and timing of capital expenditures, estimated
environmental compliance costs and other expenditures, and expected outcomes of
litigation.

Forward-looking statements reflect our current expectations and are not
guarantees of performance. These statements are based on our managements
beliefs and assumptions, which in turn are based on currently available
information. Important assumptions relating to these forward-looking statements
include, among others, assumptions regarding product demand, selling prices,
raw material costs, timing and cost of capital expenditures, cost of
environmental compliance, outcomes of pending litigation, competitive
conditions and general economic conditions. These assumptions could prove
inaccurate. Forward-looking statements also involve risks and uncertainties,
which could cause actual results to differ materially from those contained in
any forward-looking statement. Many of these factors are beyond our ability to
control or predict. Such factors include, but are not limited to, all of the
risks discussed under Risk Factors in our Current Report on Form 8-K dated
June 20, 2003 and the following:



| |  |  | cyclical and competitive nature of the textile industry;                               
| | - |  | ---------------------------------------------------------------------------------------
|
| |  |  | pressures on selling prices due to competitive and economic conditions;                
|
| |  |  | deterioration of relationships with, or loss of, significant customers;                
|
| |  |  | strength of the U.S. dollar versus the currencies of other textile producing countries;
|
| |  |  | changes in trade policies, including textile quotas and tariffs;                       
|
| |  |  | ability to identify and respond to fashion trends;                                     
|
| |  |  | availability and pricing of cotton and other raw materials;                            
|
| |  |  | changes in government policies affecting raw material costs;                           
|
| |  |  | availability and desirability of technological advancements;                           
|
| |  |  | retention of key management personnel;                                                 
|
| |  |  | continued availability of financial resources;                                         
|
| |  |  | changes in environmental, health and safety regulations; and                           
|
| |  |  | political or military responses to terrorist activities.                               

You should not place undue reliance on any forward-looking statements,
which are based on current expectations. Further, forward-looking statements
speak only as of the date they are made, and we undertake no obligation to
update publicly any of them in light of new information or future events.

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OTHER DATA   NON-GAAP FINANCIAL MEASURE

The table below reconciles EBITDA, a supplemental non-GAAP financial
measure, on a consolidated basis to the line on the Companys consolidated
statement of income entitled net income (loss) for the thirty-nine weeks ended
May 31, 2002 and May 30, 2003 The Company computes EBITDA by adding to net
income (loss) (a) interest expense, net, (b) discount and expenses on sales of
receivables, (c) provision for (benefit of) income taxes, (d) depreciation and
amortization, (e) non-cash portion of facility restructuring charges and (f)
plus or minus, as the case may be, adjustments to cost of goods sold made under
the LIFO inventory valuation method. The Company has presented EBITDA because
management believes that it is a widely accepted financial indicator of a
companys ability to service indebtedness and is used by investors and analysts
to evaluate companies in the Companys industry. EBITDA is also used as a
measure for certain covenants under the Companys revolving credit facility,
its equipment note and the indentures governing its outstanding senior
subordinated notes.

EBITDA (a) does not represent net income or cash flow from operations as
defined by generally accepted accounting principles; (b) is not necessarily
indicative of cash available to fund the Companys cash flow needs; (c) should
not be considered as an alternative to operating income, net income or cash
flows from operating activities as determined in accordance with generally
accepted accounting principles; and (d) should not be construed as a measure of
the Companys operating performance, profitability or liquidity. EBITDA as
calculated by the Company is not necessarily comparable to similarly titled
measures reported by other companies (amounts in thousands):

|                                                                                    |  |                         |        |         |  |   |        | 
|----------------------------------------------------------------------------------- |  | ----------------------- | ------ | ------- |  | - | ------ | 
|                                                                                    |  | Thirty-Nine Weeks Ended
|                                                                                    |  |                        
|                                                                                    |  | May 31,                 |        | May 30,
|                                                                                    |  | 2002                    |        | 2003   
|                                                                                    |  |                         |        |        
|Net income (loss)                                                                   |  | $                       | (5,830 | )       |  | $ | 1,057  | 
|Interest expense, net                                                               |  |                         | 15,342 |         |  |   | 13,418 | 
|Discount and expenses on sale of receivables                                        |  |                         | 1,314  |         |  |   | 2,096  | 
|Provision for (benefit of) income taxes                                             |  |                         | (4,680 | )       |  |   | 665    | 
|Depreciation and amortization                                                       |  |                         | 34,437 |         |  |   | 32,394 | 
|Facility restructuring non cash charges                                             |  |                         | 5,338  |         |  |   | 2,205  | 
|Adjustment of carrying value of inventories
to LIFO basis, net of market adjustment |  |                         | (1,800 | )       |  |   | 650    | 
|                                                                                    |  |                         |        |         |  |   |        | 
|EBITDA                                                                              |  | $                       | 44,121 |         |  | $ | 52,485 | 
|                                                                                    |  |                         |        |         |  |   |        | 

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

For discussion of certain market risks related to the Company, see Part
II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk in
the Companys Annual Report on Form 10-K for fiscal year ended August 30, 2002.




Item 4. Controls and Procedures.

As required by the Securities and Exchange Commission, the Company has
performed an evaluation under the supervision and with the participation of the
Companys management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Companys
disclosure controls and procedures and internal controls. Based on that
evaluation, the Companys management, including the Chief Executive Officer and
Chief Financial Officer, conclude that the Companys disclosure controls and
procedures and internal controls were effective as of May 30, 2003. There have
been no significant changes in the Companys internal controls or in other
factors that could significantly affect internal controls subsequent to May 30,
2003.

The Companys disclosure controls and procedures are designed to ensure
that information required to be disclosed by the Company in reports filed or
submitted under the Exchange Act is recorded, processed and reported within the
time periods specified in the Securities and Exchange Commissions rules and
forms. Further, these disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that such information is
accumulated and communicated to the Companys management, including its
principal executive officer and principal financial officer, as appropriate, to
allow timely decisions regarding disclosure.

28



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##### Table of Contents



AVONDALE INCORPORATED




PART II - OTHER INFORMATION




|        |  |                  
|------- |  | -----------------
|Item 1. |  | Legal Proceedings
|        |  |                  
|        |  | None             




|        |  |                                          
|------- |  | -----------------------------------------
|Item 2. |  | Changes in Securities and Use of Proceeds
|        |  |                                          
|        |  | None                                     




|        |  |                                
|------- |  | -------------------------------
|Item 3. |  | Defaults upon Senior Securities
|        |  |                                
|        |  | None                           




|        |  |                                                    
|------- |  | ---------------------------------------------------
|Item 4. |  | Submission of Matters to a Vote of Security Holders
|        |  |                                                    
|        |  | None                                               




|        |  |                  
|------- |  | -----------------
|Item 5. |  | Other Information
|        |  |                  
|        |  | None             




|        |  |                                 
|------- |  | --------------------------------
|Item 6. |  | Exhibits and Reports on Form 8-K

| |     |  |                                                                                                                                                                                                                                                                               
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) |  | Exhibits                                                                                                                                                                                                                                                                      
| |     |  |                                                                                                                                                                                                                                                                               
| |     |  | 10.40 - Third Amended and Restated Credit Agreement dated, as
of March 28, 2003, among Avondale Mills, Inc., various listed
banks and Wachovia Bank, N.A., as agent.                                                                                                          
| |     |  |                                                                                                                                                                                                                                                                               
| |     |  | 10.41 - Amendment No. 1 to Receivables Purchase and Servicing
Agreement, and Sale and Contribution Agreement, dated as of
March 28, 2003, by and among Avondale Funding, LLC, Redwood
Receivables Corporation, Avondale Mills, Inc., and General
Electric Capital Corporation.
| |     |  |                                                                                                                                                                                                                                                                               
| | (b) |  | Reports on Form 8-K                                                                                                                                                                                                                                                           

| |  |  |    |  |  |                                                                                                                                                                                                             
| |  |  | -- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 1. |  |  | On June 20, 2003, the Company filed a
current report on Form 8-K regarding the launching of a
private offering of $150 million aggregate principal
amount of senior subordinated notes due 2013.            
| |  |  |    |  |  |                                                                                                                                                                                                             
| |  |  | 2. |  |  | On June 20, 2003, the Company filed a
current report on Form 8-K regarding an update of certain
key business issues, including recent developments and
risk factors.                                        
| |  |  |    |  |  |                                                                                                                                                                                                             
| |  |  | 3. |  |  | On June 25, 2003, the Company filed a
current report on Form 8-K regarding the pricing at par
of a private offering of $150 million aggregate principal
amount of 10.25% Senior Subordinated Notes Due 2013.

29



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##### Table of Contents






SIGNATURE

Pursuant to the requirements 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.

| |  |     |  |                                                                   
| |  | --- |  | ------------------------------------------------------------------
| |  |     |  | AVONDALE INCORPORATED                                             
| |  |     |  |                                                                   
| |  | By: |  | /S/ JACK R. ALTHERR, JR.                                          
| |  |     |  |                                                                   
| |  |     |  | Jack R. Altherr, Jr.     Vice
Chairman and Chief Financial Officer

Date: July 10, 2003

30



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##### Table of Contents






CERTIFICATION

I, G. Stephen Felker, certify that:



| | 1. |  | I have reviewed this Quarterly Report on Form 10-Q of Avondale
Incorporated;                                                                                                                                                                                                                                                  
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this Quarterly Report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this Quarterly Report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this Quarterly Report;                   
|
| | 4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                        
|

| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Quarterly
Report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this Quarterly Report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        
|

| | 5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of the registrants board of directors (or persons
performing the equivalent functions):
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|

| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        
|

| | 6. |  | The registrants other certifying officers and I have indicated in
this Quarterly Report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|      |               |  |                       |                                                                       
|----- | ------------- |  | --------------------- | ----------------------------------------------------------------------
|Date: | July 10, 2003 |  | /s/ G. STEPHEN FELKER
|      |               |  |                       |                                                                       
|      |               |  |                       | G. Stephen Felker     
Chairman, President and Chief Executive Officer

31



---



##### Table of Contents



CERTIFICATION

I, Jack R. Altherr, Jr., certify that:



| | 1. |  | I have reviewed this Quarterly Report on Form 10-Q of Avondale
Incorporated;                                                                                                                                                                                                                                                  
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this Quarterly Report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this Quarterly Report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this Quarterly Report;                   
|
| | 4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                        
|

| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Quarterly
Report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this Quarterly Report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        
|

| | 5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of the registrants board of directors (or persons
performing the equivalent functions):
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|

| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        
|

| | 6. |  | The registrants other certifying officers and I have indicated in
this Quarterly Report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|      |               |  |                          |                                                                   
|----- | ------------- |  | ------------------------ | ------------------------------------------------------------------
|Date: | July 10, 2003 |  | /s/ JACK R. ALTHERR, JR.
|      |               |  |                          |                                                                   
|      |               |  |                          | Jack R. Altherr, Jr.     Vice
Chairman and Chief Financial Officer

32