##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
 For the Quarterly Period EndedNovember 25, 2005
 or
 o
    
    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
  Georgia
    
    58-0477150(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. employer
identification no.)506 South Broad Street
Monroe, Georgia
(Address of principal executive offices)
    
    30655
(Zip code)
 (770) 267-2226
 N/A
 þ o
 YES
o NO
þ
 YES
o NO
þ




---



##### 



INDEX TO FORM 10-Q
 AVONDALE INCORPORATED
 PageReferencePART I  FINANCIAL INFORMATION (Unaudited)Item 1:
    
    Financial StatementsCondensed Consolidated Balance Sheets at August 26, 2005 and November 25, 2005
    
    
    2Condensed Consolidated Statements of Operations for the Thirteen Weeks Ended November 26, 2004 and November 25, 2005
    
    
    3Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks Ended November 26, 2004 and November 25, 2005
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2:
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3:
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4:
    
    Controls and Procedures
    
    
    31PART II OTHER INFORMATIONItem 1:
    
    Legal Proceedings
    
    
    32Item 1A:
    
    Risk Factors
    
    
    32Item 2:
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3:
    
    Defaults upon Senior Securities
    
    
    32Item 4:
    
    Submission of Matters to a Vote of Security Holders
    
    
    32Item 5:
    
    Other Information
    
    
    33Item 6:
    
    Exhibits
    
    
    34Signature
    
    
    
    
    35EX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-31.2 SECTION 302, CERTIFICATION OF THE CFO




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##### Table of Contents



PART I    FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 AVONDALE INCORPORATED
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except per share data)
 Nov. 25,Aug. 26,
    
    
    20052005
    
    
    (unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    4,933
    
    
    $
    3,664Accounts receivable, less allowance for doubtful accounts
of $809 at August 26, 2005 and $851 at November 25, 2005
    
    
    65,170
    
    
    
    27,960Inventories
    
    
    83,194
    
    
    
    89,722Prepaid expenses
    
    
    535
    
    
    
    1,749Insurance claims receivable
    
    
    5,266
    
    
    
    13,409Income taxes refundable
    
    
    144
    
    
    
    76Total current assets
    
    
    159,242
    
    
    
    136,580Assets held for sale
    
    
    700
    
    
    
    2,458Property, plant and equipmentLand
    
    
    6,262
    
    
    
    6,263Buildings
    
    
    76,068
    
    
    
    76,068Machinery and equipment
    
    
    461,931
    
    
    
    418,829544,261
    
    
    
    501,160Less accumulated depreciation
    
    
    (386,646
    )
    
    
    (356,253
    )157,615
    
    
    
    144,907Goodwill
    
    
    2,951
    
    
    
    2,951Other assets
    
    
    5,374
    
    
    
    5,436$
    325,882
    
    
    $
    292,332LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    31,588
    
    
    $
    18,294Accrued compensation, benefits and related expenses
    
    
    11,825
    
    
    
    10,470Accrued interest
    
    
    2,322
    
    
    
    4,514Other accrued expenses
    
    
    8,781
    
    
    
    8,498Long-term debt due in one year
    
    
    4,325
    
    
    
    4,325Total current liabilities
    
    
    58,841
    
    
    
    46,101Long-term debt
    
    
    136,539
    
    
    
    135,458Deferred income taxes and other long-term liabilities
    
    
    25,742
    
    
    
    17,920Shareholders equityPreferred stock$.01 par value; 10,000 shares authorized
    
    
    
    
    
    
    Common stockClass A, $.01 par value; 100,000 shares authorized;
issued and outstanding  11,394 shares at
August 26, 2005 and November 25, 2005
    
    
    114
    
    
    
    114Class B, $.01 par value; 5,000 shares authorized;
issued and outstanding  979 shares at
August 26, 2005 and November 25, 2005
    
    
    10
    
    
    
    10Capital in excess of par value
    
    
    39,170
    
    
    
    39,170Retained earnings
    
    
    65,466
    
    
    
    53,559Total shareholders equity
    
    
    104,760
    
    
    
    92,853$
    325,882
    
    
    $
    292,332
   2




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AVONDALE INCORPORATED
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 (In thousands, except per share data)
 Thirteen Weeks EndedNov. 26,
    
    
    Nov. 25,2004
    
    
    2005Net sales
    
    $
    151,090
    
    
    $
    98,890Operating costs and expensesCost of goods sold
    
    
    132,404
    
    
    
    95,366Depreciation
    
    
    8,617
    
    
    
    7,447Selling and administrative expenses
    
    
    6,142
    
    
    
    5,922Facility restructuring charges
    
    
    
    
    
    
    4,800Operating income (loss)
    
    
    3,927
    
    
    
    (14,645
    )Interest expense, net
    
    
    3,757
    
    
    
    3,774Discount and expenses on sales of receivables
    
    
    581
    
    
    
    493Gain on extinguishment of debt
    
    
    (162
    )
    
    
    Other, net
    
    
    (573
    )
    
    
    130Income (loss) before income taxes
    
    
    324
    
    
    
    (19,042
    )Provision for (benefit of) income taxes
    
    
    125
    
    
    
    (7,135
    )Net income (loss)
    
    $
    199
    
    
    $
    (11,907
    )Per share data:Net income (loss)-basic
    
    $
    .02
    
    
    $
    (.96
    )Net income (loss)-diluted
    
    $
    .02
    
    
    $
    (.96
    )Dividends declared
    
    $
    
    
    
    $
    
   3




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##### Table of Contents



AVONDALE INCORPORATED
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 (In thousands)
 Thirteen Weeks EndedNov. 26,
    
    
    Nov. 25,2004
    
    
    2005Operating activitiesNet income (loss)
    
    $
    199
    
    
    $
    (11,907
    )Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activitiesDepreciation and amortization
    
    
    8,839
    
    
    
    7,628Provision for (benefit of) deferred income taxes
    
    
    131
    
    
    
    (7,209
    )Loss (gain) on disposal of property, plant and
equipment,
facility restructuring and assets held for sale
    
    
    (406
    )
    
    
    4,446Gain on extinguishment of debt
    
    
    (162
    )
    
    
    Sale of accounts receivable, net
    
    
    (8,052
    )
    
    
    13,387Changes in operating assets and liabilities
    
    
    (1,979
    )
    
    
    (5,590
    )Net cash provided by (used in) operating activities
    
    
    (1,430
    )
    
    
    755Investing activitiesPurchases of property, plant and equipment
    
    
    (1,501
    )
    
    
    (1,203
    )Proceeds from sale of property, plant and equipment
and assets held for sale
    
    
    714
    
    
    
    260Net cash used in investing activities
    
    
    (787
    )
    
    
    (943
    )Financing activitiesReduction in long-term debt
    
    
    (1,081
    )
    
    
    (1,081
    )Net cash used in financing activities
    
    
    (1,081
    )
    
    
    (1,081
    )Decrease in cash and cash equivalents
    
    
    (3,298
    )
    
    
    (1,269
    )Cash and cash equivalents at beginning of period
    
    
    5,481
    
    
    
    4,933Cash and cash equivalents at end of period
    
    $
    2,183
    
    
    $
    3,664
   4




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AVONDALE INCORPORATED
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 November 25, 2005
 Basis of Presentation:
    January 6, 2005 Train Derailment
    5




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AVONDALE INCORPORATED
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED) (CONTINUED)
 November 25, 2005
     Inventories:
 Aug. 26,
    
    
    Nov. 25,2005
    
    
    2005Finished goods
    
    $
    34,891
    
    
    $
    38,115Work in process
    
    
    31,855
    
    
    
    33,910Raw materials
    
    
    6,702
    
    
    
    8,138Dyes and chemicals
    
    
    4,147
    
    
    
    4,035Inventories at FIFO
    
    
    77,595
    
    
    
    84,198Adjustment of carrying value to LIFO basis,
net of market adjustment
    
    
    
    
    
    
    77,595
    
    
    
    84,198Supplies at average cost
    
    
    5,599
    
    
    
    5,524$
    83,194
    
    
    $
    89,722
 6




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##### Table of Contents



AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
 November 25, 2005
  Earnings Per Share
 Thirteen Weeks EndedNov. 26,
    
    
    Nov. 25,2004
    
    
    2005Weighted
average shares outstanding  basic
    
    
    12,373
    
    
    
    12,373Effect of employee stock options
    
    
    
    
    
    
    Weighted
average shares outstanding  diluted
    
    
    12,373
    
    
    
    12,373
  Thirteen Weeks EndedNov. 26,
    
    
    Nov. 25,2004
    
    
    2005Net income (loss) as reported
    
    $
    199
    
    
    $
    (11,907
    )Pro forma stock-based compensation, net of
income taxes
    
    
    (9
    )
    
    
    Pro forma net income (loss)
    
    $
    190
    
    
    $
    (11,907
    )Per share data:Net income (loss)-basic as reported
    
    $
    .02
    
    
    $
    (.96
    )Net income (loss)-basic pro forma
    
    $
    .02
    
    
    $
    (.96
    )Net income (loss)-diluted as reported
    
    $
    .02
    
    
    $
    (.96
    )Net income (loss)-diluted pro forma
    
    $
    .02
    
    
    $
    (.96
    )
 7




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##### Table of Contents



AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
 November 25, 2005
 Segment Information
 Thirteen Weeks EndedNov. 26,
    
    
    Nov. 25,2004
    
    
    2005Revenues:Apparel fabrics
    
    $
    118,584
    
    
    $
    81,939Yarns
    
    
    46,909
    
    
    
    30,538Other
    
    
    8,428
    
    
    
    9,273173,921
    
    
    
    121,750Less inter-segment sales
    
    
    22,831
    
    
    
    22,860Total
    
    $
    151,090
    
    
    $
    98,890Income (loss):Apparel fabrics
    
    $
    2,848
    
    
    $
    (5,733
    )Yarns
    
    
    2,980
    
    
    
    (448
    )Other
    
    
    1,215
    
    
    
    638Facility restructuring charges
    
    
    
    
    
    
    (4,800
    )Unallocated
    
    
    (3,116
    )
    
    
    (4,302
    )Total operating income (loss)
    
    
    3,927
    
    
    
    (14,645
    )Interest expense, net
    
    
    3,757
    
    
    
    3,774Discount and expenses on sale of receivables
    
    
    581
    
    
    
    493Gain on extinguishment of debt
    
    
    (162
    )
    
    
    Other, net
    
    
    (573
    )
    
    
    130Income (loss) before income taxes
    
    $
    324
    
    
    $
    (19,042
    )
 Post Retirement Benefits
 Thirteen Weeks EndedNov. 26,
    
    
    Nov. 25,2004
    
    
    2005Components of net periodic benefit:Service cost
    
    $
    
    
    
    $
    Interest cost
    
    
    53
    
    
    
    45Amortization of prior service cost
    
    
    (127
    )
    
    
    (127
    )Amortization of loss
    
    
    
    
    
    
    10Net periodic benefit
    
    $
    (74
    )
    
    $
    (72
    )
  8




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AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
 November 25, 2005
 New Accounting Pronouncements
    9




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AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
 November 25, 2005
 Facility Restructuring:
   Contingencies
  Subsequent Events
 10




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##### Table of Contents



Consolidating Guarantor and Nonguarantor Financial Information
 11




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##### Table of Contents



AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
 November 25, 2005
 AVONDALE INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEETS
 November 25, 2005
 (In thousands)
 Non-GuarantorAvondaleMillsGuarantor
    
    
    GranitevilleAvondale
    
    
    Avondale
    
    
    Fabrics,Mills, Inc.
    
    
    Incorporated
    
    
    Inc.
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assetsCash and cash equivalents
    
    $
    3,664
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,664Accounts receivable
    
    
    27,957
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    27,960Inventories
    
    
    89,722
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89,722Prepaid expenses
    
    
    1,749
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,749Insurance claims receivable
    
    
    13,409
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,409Income taxes refundable
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76Total current assets
    
    
    136,577
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    136,580Assets held for sale
    
    
    2,458
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,458Property, plant and equipmentLand
    
    
    6,067
    
    
    
    
    
    
    
    196
    
    
    
    
    
    
    
    6,263Buildings
    
    
    64,318
    
    
    
    
    
    
    
    11,750
    
    
    
    
    
    
    
    76,068Machinery and equipment
    
    
    380,919
    
    
    
    
    
    
    
    37,910
    
    
    
    
    
    
    
    418,829451,304
    
    
    
    
    
    
    
    49,856
    
    
    
    
    
    
    
    501,160Less accumulated depreciation
    
    
    (322,429
    )
    
    
    
    
    
    
    (33,824
    )
    
    
    
    
    
    
    (356,253
    )128,875
    
    
    
    
    
    
    
    16,032
    
    
    
    
    
    
    
    144,907Goodwill
    
    
    2,951
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,951Investment in subsidiaries
    
    
    5,012
    
    
    
    82,374
    
    
    
    
    
    
    
    (87,386
    )
    
    
    Other assets
    
    
    5,436
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,436$
    281,309
    
    
    $
    82,374
    
    
    $
    16,035
    
    
    $
    (87,386
    )
    
    $
    292,332LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    17,334
    
    
    $
    
    
    
    $
    960
    
    
    $
    
    
    
    $
    18,294Accrued compensation, benefits
and related
expenses
    
    
    10,289
    
    
    
    
    
    
    
    181
    
    
    
    
    
    
    
    10,470Accrued interest
    
    
    4,514
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,514Other accrued expenses
    
    
    8,495
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    8,498Long-term debt due in one year
    
    
    4,325
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,325Total current liabilities
    
    
    44,957
    
    
    
    
    
    
    
    1,144
    
    
    
    
    
    
    
    46,101Long-term debt
    
    
    135,458
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135,458Deferred income taxes
and other long term liabilities
    
    
    17,920
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,920Due to (from) subsidiaries
    
    
    600
    
    
    
    (10,479
    )
    
    
    9,879
    
    
    
    
    
    
    
    Shareholders equity
    
    
    82,374
    
    
    
    92,853
    
    
    
    5,012
    
    
    
    (87,386
    )
    
    
    92,853$
    281,309
    
    
    $
    82,374
    
    
    $
    16,035
    
    
    $
    (87,386
    )
    
    $
    292,332
 12




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##### Table of Contents



AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
November 25, 2005
 AVONDALE INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEETS
 August 26,
2005
(In thousands)
 Non-GuarantorAvondaleMillsGuarantor
    
    
    GranitevilleAvondale
    
    
    Avondale
    
    
    Fabrics,Mills, Inc.
    
    
    Incorporated
    
    
    Inc.
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assetsCash and cash equivalents
    
    $
    4,933
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    4,933Accounts receivable
    
    
    65,167
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    65,170Inventories
    
    
    83,194
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,194Prepaid expenses
    
    
    535
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    535Insurance claims receivable
    
    
    5,266
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,266Income taxes refundable
    
    
    144
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    144Total current assets
    
    
    159,239
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    159,242Assets held for sale
    
    
    700
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    700Property, plant and equipmentLand
    
    
    6,067
    
    
    
    
    
    
    
    195
    
    
    
    
    
    
    
    6,262Buildings
    
    
    64,318
    
    
    
    
    
    
    
    11,750
    
    
    
    
    
    
    
    76,068Machinery and equipment
    
    
    424,036
    
    
    
    
    
    
    
    37,895
    
    
    
    
    
    
    
    461,931494,421
    
    
    
    
    
    
    
    49,840
    
    
    
    
    
    
    
    544,261Less accumulated depreciation
    
    
    (353,727
    )
    
    
    
    
    
    
    (32,919
    )
    
    
    
    
    
    
    (386,646
    )140,694
    
    
    
    
    
    
    
    16,921
    
    
    
    
    
    
    
    157,615Goodwill
    
    
    2,951
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,951Investment in subsidiaries
    
    
    5,668
    
    
    
    94,299
    
    
    
    
    
    
    
    (99,967
    )
    
    
    Other assets
    
    
    5,374
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,374$
    314,626
    
    
    $
    94,299
    
    
    $
    16,924
    
    
    $
    (99,967
    )
    
    $
    325,882LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    30,662
    
    
    $
    
    
    
    $
    926
    
    
    $
    
    
    
    $
    31,588Accrued compensation, benefits and
related expenses
    
    
    11,720
    
    
    
    
    
    
    
    105
    
    
    
    
    
    
    
    11,825Accrued interest
    
    
    2,322
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,322Other accrued expenses
    
    
    8,779
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    8,781Long-term debt due in one year
    
    
    4,325
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,325Total current liabilities
    
    
    57,808
    
    
    
    
    
    
    
    1,033
    
    
    
    
    
    
    
    58,841Long-term debt
    
    
    136,539
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    136,539Deferred income taxes
and other long term liabilities
    
    
    25,742
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,742Due to (from) subsidiaries
    
    
    238
    
    
    
    (10,461
    )
    
    
    10,223
    
    
    
    
    
    
    
    Shareholders equity
    
    
    94,299
    
    
    
    104,760
    
    
    
    5,668
    
    
    
    (99,967
    )
    
    
    104,760$
    314,626
    
    
    $
    94,299
    
    
    $
    16,924
    
    
    $
    (99,967
    )
    
    $
    325,882
 13




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##### Table of Contents



AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
November 25, 2005
 AVONDALE INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
 For the Thirteen Weeks Ended November 25, 2005
 (In thousands)
 Non-GuarantorAvondaleMillsGuarantor
    
    
    GranitevilleAvondale
    
    
    Avondale
    
    
    Fabrics,Mills, Inc.
    
    
    Incorporated
    
    
    Inc.
    
    
    Eliminations
    
    
    ConsolidatedNet sales,
including intercompany transfers and charges
    
    $
    98,890
    
    
    $
    29
    
    
    $
    15,830
    
    
    $
    (15,859
    )
    
    $
    98,890Operating costs and expensesCost of goods sold
    
    
    95,216
    
    
    
    
    
    
    
    15,976
    
    
    
    (15,826
    )
    
    
    95,366Depreciation
    
    
    6,542
    
    
    
    
    
    
    
    905
    
    
    
    
    
    
    
    7,447Selling and administrative expenses
    
    
    5,955
    
    
    
    
    
    
    
    
    
    
    
    (33
    )
    
    
    5,922Facility restructuring charges
    
    
    4,800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,800Operating income (loss)
    
    
    (13,623
    )
    
    
    29
    
    
    
    (1,051
    )
    
    
    
    
    
    
    (14,645
    )Interest expense, net
    
    
    3,774
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,774Discount and expenses on sales
of receivables
    
    
    493
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    493Other, net
    
    
    130
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    130Income (loss) before income taxes
    
    
    (18,020
    )
    
    
    29
    
    
    
    (1,051
    )
    
    
    
    
    
    
    (19,042
    )Provision for (benefit of) income taxes
    
    
    (6,751
    )
    
    
    11
    
    
    
    (395
    )
    
    
    
    
    
    
    (7,135
    )Equity in loss of subsidiary
    
    
    (656
    )
    
    
    (11,925
    )
    
    
    
    
    
    
    12,581
    
    
    
    Net loss
    
    $
    (11,925
    )
    
    $
    (11,907
    )
    
    $
    (656
    )
    
    $
    12,581
    
    
    $
    (11,907
    )
 14




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##### Table of Contents



AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
November 25, 2005
 AVONDALE INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
 For the Thirteen Weeks Ended November 26, 2004
 (In thousands)
 Non-GuarantorAvondaleMillsGuarantor
    
    
    GranitevilleAvondale
    
    
    Avondale
    
    
    Fabrics,Mills, Inc.
    
    
    Incorporated
    
    
    Inc.
    
    
    Eliminations
    
    
    ConsolidatedNet sales, including intercompany
transfers and charges
    
    $
    151,090
    
    
    $
    31
    
    
    $
    27,436
    
    
    $
    (27,467
    )
    
    $
    151,090Operating costs and expenses
Cost of goods sold
    
    
    132,749
    
    
    
    
    
    
    
    27,089
    
    
    
    (27,434
    )
    
    
    132,404Depreciation
    
    
    7,686
    
    
    
    
    
    
    
    931
    
    
    
    
    
    
    
    8,617Selling and administrative expenses
    
    
    6,175
    
    
    
    
    
    
    
    
    
    
    
    (33
    )
    
    
    6,142Operating income (loss)
    
    
    4,480
    
    
    
    31
    
    
    
    (584
    )
    
    
    
    
    
    
    3,927Interest expense, net
    
    
    3,757
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,757Discount and expenses on sales
of receivables
    
    
    581
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    581Gain on extinguishment of debt
    
    
    (162
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (162
    )Other, net
    
    
    (573
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (573
    )Income (loss) before income taxes
    
    
    877
    
    
    
    31
    
    
    
    (584
    )
    
    
    
    
    
    
    324Provision for (benefit of) income taxes
    
    
    332
    
    
    
    12
    
    
    
    (219
    )
    
    
    
    
    
    
    125Equity in earnings (loss) of subsidiary
    
    
    (365
    )
    
    
    180
    
    
    
    
    
    
    
    185
    
    
    
    Net income (loss)
    
    $
    180
    
    
    $
    199
    
    
    $
    (365
    )
    
    $
    185
    
    
    $
    199
 15




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##### Table of Contents



AVONDALE INCORPORATED
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
November 25, 2005
 AVONDALE INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
 For the Thirteen Weeks Ended November 25, 2005
 (In thousands)
 Non-GuarantorAvondaleMillsGuarantor
    
    
    GranitevilleAvondale
    
    
    Avondale
    
    
    Fabrics,Mills, Inc.
    
    
    Incorporated
    
    
    Inc.
    
    
    Eliminations
    
    
    ConsolidatedOperating activitiesNet loss
    
    $
    (11,925
    )
    
    $
    (11,907
    )
    
    $
    (656
    )
    
    $
    12,581
    
    
    $
    (11,907
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation and amortization
    
    
    6,723
    
    
    
    
    
    
    
    905
    
    
    
    
    
    
    
    7,628Benefit of deferred income taxes
    
    
    (7,209
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,209
    )Loss on disposal of property, plant and equipment,
facility restructuring and assets held for sale
    
    
    4,446
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,446Sale of accounts receivable, net
    
    
    13,387
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,387Changes in operating assets and liabilities
    
    
    (5,339
    )
    
    
    (18
    )
    
    
    (233
    )
    
    
    
    
    
    
    (5,590
    )Equity in loss of subsidiary
    
    
    656
    
    
    
    11,925
    
    
    
    
    
    
    
    (12,581
    )
    
    
    Net cash provided by operating activities
    
    
    739
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    755Investing activitiesPurchase of property, plant and equipment
    
    
    (1,187
    )
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (1,203
    )Proceeds from sale of property, plant and
equipment and assets held for sale
    
    
    260
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260Net cash used in investing activities
    
    
    (927
    )
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (943
    )Financing activitiesReductions in long term debt
    
    
    (1,081
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,081
    )Net cash used in financing activities
    
    
    (1,081
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,081
    )Decrease in cash and cash equivalents
    
    
    (1,269
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,269
    )Cash and cash equivalents at beginning of period
    
    
    4,933
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,933Cash and cash equivalents at end of period
    
    $
    3,664
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,664
 16




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##### Table of Contents



AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
November 25, 2005
 AVONDALE INCORPORATED
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
 For the Thirteen Weeks
Ended November 26, 2004
(In thousands)
 Non-GuarantorAvondaleMillsGuarantor
    
    
    GranitevilleAvondale
    
    
    Avondale
    
    
    Fabrics,Mills, Inc.
    
    
    Incorporated
    
    
    Inc.
    
    
    Eliminations
    
    
    ConsolidatedOperating activitiesNet income (loss)
    
    $
    180
    
    
    $
    199
    
    
    $
    (365
    )
    
    $
    185
    
    
    $
    199Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    7,908
    
    
    
    
    
    
    
    931
    
    
    
    
    
    
    
    8,839Benefit of deferred income taxes
    
    
    131
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    131Gain on disposal of property, plant and
equipment and assets held for sale
    
    
    (406
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (406
    )Gain on extinguishment of debt
    
    
    (162
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (162
    )Sale of accounts receivable, net
    
    
    (8,052
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,052
    )Changes in operating assets and liabilities
    
    
    (1,460
    )
    
    
    (19
    )
    
    
    (500
    )
    
    
    
    
    
    
    (1,979
    )Equity in earnings of subsidiary
    
    
    365
    
    
    
    (180
    )
    
    
    
    
    
    
    (185
    )
    
    
    Net cash provided by (used in) operating
activities
    
    
    (1,496
    )
    
    
    
    
    
    
    66
    
    
    
    
    
    
    
    (1,430
    )Investing activitiesPurchase of property, plant and equipment
    
    
    (1,435
    )
    
    
    
    
    
    
    (66
    )
    
    
    
    
    
    
    (1,501
    )Proceeds from sale of property, plant and
equipment and assets held for sale
    
    
    714
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    714Net cash used in investing activities
    
    
    (721
    )
    
    
    
    
    
    
    (66
    )
    
    
    
    
    
    
    (787
    )Financing activitiesNet payments on long-term debt
    
    
    (1,081
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,081
    )Net cash used in financing activities
    
    
    (1,081
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,081
    )Decrease in cash and cash equivalents
    
    
    (3,298
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,298
    )Cash and cash equivalents at beginning of period
    
    
    5,481
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,481Cash and cash equivalents at end of period
    
    $
    2,183
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,183
 17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 CRITICAL ACCOUNTING POLICIES
  Significant estimates:
  Accounts Receivable and Credit Risks:
  Derailment related expenditures and insurance claims receivable:
 18




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##### Table of Contents



Inventories:
 Government Cotton Support Programs:
  Long-Lived Assets:
 Revenue Recognition:
 Income Taxes:
 19




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##### Table of Contents



Contingencies:
  20




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##### Table of Contents



RESULTS OF OPERATIONS
 Thirteen Weeks Ended November 25, 2005 Compared to Thirteen Weeks Ended November 26, 2004
 Net Sales.
   Operating Income (Loss).
   21




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##### Table of Contents



Segment Performance.
     Facility Restructuring:
   Interest Expense, Net.
 22




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##### Table of Contents



Discount and Expenses on Sale of Receivables.
 Provision for (benefit of) Income Taxes.
 23




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
       24




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##### Table of Contents



25




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##### Table of Contents



JANUARY 6, 2005 TRAIN DERAILMENT
        26




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##### Table of Contents



27




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##### Table of Contents



FORWARD LOOKING STATEMENTS
   
    
    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, and the
elimination of import quotas under the World Trade Organization effective December 31,
2004;
    
    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, including the
impact of World Trade Organization rulings against the U.S. agricultural support
programs;
    
    availability and desirability of technological advancements;
    
    retention of key management personnel;
    
    continued availability of financial resources;
    
    changes in environmental, health and safety regulations;
    
    political or military responses to terrorist activities; and
    
    our ability to recover claims from insurance and third parties related to
the January 6, 2005 train derailment in amounts sufficient to compensate our losses and
to timely reimburse our clean up, restoration and replacement expenditures without
negatively impacting our liquidity; and
    
    our ability to obtain requested amendments to our revolving credit facility
and receivables securitization facility.
  28




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##### Table of Contents



OTHER DATA    NON-GAAP FINANCIAL MEASURE
    29




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##### Table of Contents



Thirteen Weeks EndedNov. 26,
    
    
    Nov. 25,2004
    
    
    2005Net income (loss)
    
    $
    199
    
    
    $
    (11,907
    )Interest expense, net
    
    
    3,757
    
    
    
    3,774Provision for (benefit of) income taxes
    
    
    125
    
    
    
    (7,135
    )Depreciation and amortization
    
    
    8,839
    
    
    
    7,628EBITDA
    
    
    12,920
    
    
    
    (7,640
    )Discount and expenses on sale of receivables
    
    
    581
    
    
    
    493Gain on extinguishment of debt
    
    
    (162
    )
    
    
    Facility restructuring non cash charges
    
    
    
    
    
    
    4,525Adjustment of carrying value of inventories
to LIFO basis, net of market adjustment
    
    
    (500
    )
    
    
    Adjusted EBITDA
    
    $
    12,839
    
    
    $
    (2,622
    )Net cash provided by (used in) operating activities
    
    $
    (1,430
    )
    
    $
    755Net cash used in investing activities
    
    $
    (787
    )
    
    $
    (943
    )Net cash used in financing activities
    
    $
    (1,081
    )
    
    $
    (1,081
    )
 
 30




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
   31




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##### Table of Contents



AVONDALE INCORPORATED
 
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
 (a)
    
    The Company held its Annual Meeting of Shareholders on November
17, 2005.(b)
    
    Nine directors were elected at the Annual Meeting to serve until
the Annual Meeting of Shareholders in 2006. The names of these Directors are as
follows:
 
 32




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##### Table of Contents



(c)
    
    The Company had outstanding shares of Class A Common Stock and
Class B Common Stock having an aggregate of 30,972,940 votes entitled to be cast
at the Annual Meeting. Of such aggregate outstanding votes, 583,681 votes were
not represented at the Annual Meeting, in person or by proxy. The remaining
30,389,259 outstanding votes were represented at the Annual Meeting, in person
or by proxy, with all votes cast for all nine directors that were
elected at the Annual Meeting. There were no broker non-votes and no votes were
withheld.
 
 Item 5. Other Information.
  33




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##### Table of Contents



Exhibits.
 3.1
    
    Restated and Amended Articles of Incorporation of Avondale
Incorporated (incorporated by reference to Exhibit 3.1 to Avondale
Incorporateds Registration Statement on Form S-4, filed June 7, 1996, File No.
333-05455-01).3.3
    
    Amended and Restated Bylaws of Avondale Incorporated, adopted as
of January 17, 2000 (incorporated by reference to Exhibit 3.3 to Avondale
Incorporateds Quarterly Report on Form 10-Q for the period ended February 25,
2000, File No. 33-68412).4.3
    
    Indenture dated as of June 30, 2003 for the 101/4% Senior
Subordinated Notes due 2013 among Avondale Incorporated, Avondale Mills, Inc.
and Wachovia Bank, National Association, as Trustee (incorporated by reference
to Exhibit 4.3 to Avondale Incorporateds Registration Statement on Form S-4,
filed August 29, 2003, File No. 333-108353-01).4.10
    
    Exchange Agreement, dated as of May 27, 2004, by and among
Avondale Mills, Inc., Avondale Incorporated and Cohanzick Management, L.L.C., as
agent for Cohanzick Credit Opportunities Master Fund, Ltd., Gabriel Capital,
L.P. and Ariel Fund Limited (incorporated by reference to Exhibit 4.10 to
Avondale Incorporateds Current Report on Form 8-K, dated August 26, 2004, File
No. 33-68412).4.11
    
    Exchange Agreement, dated as of July 1, 2004, by and among
Avondale Mills, Inc., Avondale Incorporated and Allstate Life Insurance Company,
Allstate Insurance Company, Allstate Plans Master Trust and Allstate
Investments, LLC (incorporated by reference to Exhibit 4.11 to Avondale
Incorporateds Current Report on Form 8-K, dated August 26, 2004, File No.
33-68412).4.12
    
    Exchange Agreement, dated as of July 30, 2004, by and among
Avondale Mills, Inc., Avondale Incorporated and Cohanzick Management, L.L.C., as
agent for Cohanzick Credit Opportunities Master Fund, Ltd., and Gabriel Capital,
L.P. (incorporated by reference to Exhibit 4.12 to Avondale Incorporateds
Current Report on Form 8-K, dated August 26, 2004, File No. 33-68412).4.13
    
    Exchange Agreement, dated as of August 26, 2004, by and among
Avondale Mills, Inc., Avondale Incorporated and 3V Capital Master Fund Ltd.
(incorporated by reference to Exhibit 4.13 to Avondale Incorporateds Current
Report on Form 8-K, dated August 26, 2004, File No. 33-68412).4.14
    
    Exchange Agreement, dated as of August 26, 2004, by and among
Avondale Mills, Inc., Avondale Incorporated and Deutsche Asset Management Inc.
and Deutsche Investment Management Americas, Inc. (incorporated by reference to
Exhibit 4.14 to Avondale Incorporateds Current Report on Form 8-K, dated August
26, 2004, File No. 33-68412).4.15
    
    Exchange Agreement, dated as of August 26, 2004, by and among
Avondale Mills, Inc., Avondale Incorporated and T. Rowe Price Associates, Inc.
(incorporated by reference to Exhibit 4.15 to Avondale Incorporateds Current
Report on Form 8-K, dated August 26, 2004, File No. 33-68412).4.18
    
    Form of Registration Rights Agreement among Avondale Mills, Inc.,
Avondale Incorporated and each of the holders from time to time of the Senior
Floating Rate Notes due 2012 (incorporated by reference to Exhibit 4.18 to
Avondale Incorporateds Quarterly Report on Form 10-Q for the period ended
November 26, 2004, File No. 33-68412).31.1
    
    Certificate of Chief Executive Officer, pursuant to
Rule 13a 
14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certificate of Chief Financial Officer, pursuant to
Rule 13a 
14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 34




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##### Table of Contents



SIGNATURE
  AVONDALE INCORPORATEDBy:
    /S/   JACK R. ALTHERR, JR.Jack R. Altherr, Jr.Vice Chairman and Chief Financial Officer January 9, 2006
 35