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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 1934For the Quarterly Period EndedNovember 28, 2003oro
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the Transition Period From _______________ to _______________


Commission file number 33-68412



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AVONDALE INCORPORATED

(Exact name of registrant as specified in its charter)


Georgia
    
    58-0477150(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. employer
identification no.)506 South Broad Street
Monroe, Georgia
    
    30655
(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   o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). YES   NO þ

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 OutstandingClass A Common Stock
    
    January 5, 2004
    
    11,401,737 SharesClass B Common Stock
    
    January 5, 2004
    
    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 (UNAUDITED)         
|                                     |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)     
|                                     |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|                                     | 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         
|                                     | SIGNATURE                                                                                    
|SECTION 302 CERTIFICATION OF THE CEO
|SECTION 302 CERTIFICATION OF THE CFO
|SECTION 906 CERTIFICATION OF THE CEO
|SECTION 906 CERTIFICATION OF THE CFO



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INDEX TO FORM 10-Q

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AVONDALE INCORPORATED

PageReferencePART I - FINANCIAL INFORMATION (Unaudited)Item 1:
    
    Financial StatementsCondensed Consolidated Balance Sheets at August 29, 2003 and November 28, 2003
    
    2Condensed Consolidated Statements of Income for the Thirteen Weeks Ended
November 29, 2002 and November 28, 2003
    
    3Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks Ended
November 29, 2002 and November 28, 2003
    
    4Notes to Condensed Consolidated Financial Statements
    
    5Item 2:
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    15Item 3:
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    19Item 4:
    
    Controls and Procedures
    
    20PART II - OTHER INFORMATIONItem 1:
    
    Legal Proceedings
    
    21Item 2:
    
    Changes in Securities and Use of Proceeds
    
    21Item 3:
    
    Defaults upon Senior Securities
    
    21Item 4:
    
    Submission of Matters to a Vote of Security Holders
    
    21Item 5:
    
    Other Information
    
    21Item 6:
    
    Exhibits and Reports on Form 8-K
    
    22Signature
    
    23






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PART I    FINANCIAL INFORMATION

Item 1. Financial Statements




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

Nov. 28,Aug. 29,
    
    20032003
    
    (unaudited)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    13,769
    
    
    $
    6,799Accounts receivable, less allowance for doubtful accounts
of $1,867at Aug. 29, 2003 and $1,456 at Nov. 28, 2003
    
    
    29,157
    
    
    
    41,656Inventories
    
    
    82,887
    
    
    
    87,318Prepaid expenses
    
    
    1,980
    
    
    
    1,223Income taxes refundable
    
    
    2,825
    
    
    
    1,929Total current assets
    
    
    130,618
    
    
    
    138,925Assets held for sale
    
    
    2,640
    
    
    
    843Property, plant and equipment
Land
    
    
    6,484
    
    
    
    6,484Buildings
    
    
    79,647
    
    
    
    79,661Machinery and equipment
    
    
    497,213
    
    
    
    498,677583,344
    
    
    
    584,822Less accumulated depreciation
    
    
    (367,759
    )
    
    
    (377,273
    )215,585
    
    
    
    207,549Other assets
    
    
    7,712
    
    
    
    8,045Goodwill
    
    
    2,951
    
    
    
    2,951$
    359,506
    
    
    $
    358,313LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    18,724
    
    
    $
    21,352Accrued compensation, benefits and related expenses
    
    
    9,280
    
    
    
    9,689Accrued interest
    
    
    2,726
    
    
    
    6,290Other accrued expenses
    
    
    9,785
    
    
    
    9,789Long-term debt due in one year
    
    
    4,325
    
    
    
    4,325Total current liabilities
    
    
    44,840
    
    
    
    51,445Long-term debt
    
    
    163,512
    
    
    
    162,431Deferred income taxes and other long-term liabilities
    
    
    35,203
    
    
    
    33,146Shareholders
equityPreferred stock$.01 par value; 10,000 shares authorized
    
    
    
    
    
    
    Common stockClass A, $.01 par value; 100,000 sharesauthorized, 11,402 issued and outstanding
    
    
    114
    
    
    
    114Class B, $.01 par value; 5,000 sharesauthorized, 979 issued and outstanding
    
    
    10
    
    
    
    10Capital in excess of par value
    
    
    39,194
    
    
    
    39,194Accumulated other comprehensive loss
    
    
    (151
    )
    
    
    Retained earnings
    
    
    76,784
    
    
    
    71,973Total shareholders equity
    
    
    115,951
    
    
    
    111,291$
    359,506
    
    
    $
    358,313


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 EndedNov. 29,
    
    Nov. 28,2002
    
    2003Net sales
    
    $
    167,182
    
    
    $
    131,340Operating costs and expensesCost of goods sold
    
    
    141,088
    
    
    
    117,771Depreciation
    
    
    10,867
    
    
    
    9,524Selling and administrative expenses
    
    
    7,705
    
    
    
    6,462Operating income (loss)
    
    
    7,522
    
    
    
    (2,417
    )Interest expense, net
    
    
    4,527
    
    
    
    4,830Discount and expenses on sales of receivables
    
    
    712
    
    
    
    628Other, net
    
    
    9
    
    
    
    (2,372
    )Income (loss) before income taxes
    
    
    2,274
    
    
    
    (5,503
    )Provision for (benefit of) income taxes
    
    
    865
    
    
    
    (1,930
    )Net income (loss)
    
    $
    1,409
    
    
    $
    (3,573
    )Per share data:Net income (loss)-basic
    
    $
    .11
    
    
    $
    (.29
    )Net income (loss)-diluted
    
    $
    .11
    
    
    $
    (.29
    )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 CASH FLOWS (UNAUDITED)
(In thousands)

Thirteen Weeks EndedNov. 29,
    
    Nov. 28,2002
    
    2003Operating activitiesNet income (loss)
    
    $
    1,409
    
    
    $
    (3,573
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    10,919
    
    
    
    9,633Benefit of deferred income taxes
    
    
    (393
    )
    
    
    (1,958
    )Gain on disposal of property, plant and equipment
and assets held for sale
    
    
    
    
    
    
    (2,310
    )Sale of accounts receivable, net
    
    
    (7,771
    )
    
    
    (7,448
    )Changes in operating assets and liabilities
    
    
    11,412
    
    
    
    (1,614
    )Net cash provided by (used in) operating activities
    
    
    15,576
    
    
    
    (7,270
    )Investing activitiesPurchases of property, plant and equipment
    
    
    (3,464
    )
    
    
    (1,493
    )Proceeds from sale of property, plant and equipment
and assets held for sale
    
    
    
    
    
    
    4,112Net cash provided by (used in) investing activities
    
    
    (3,464
    )
    
    
    2,619Financing activitiesNet payments on long term debt
    
    
    (12,675
    )
    
    
    (1,081
    )Dividends paid
    
    
    (1,253
    )
    
    
    (1,238
    )Net cash used in financing activities
    
    
    (13,928
    )
    
    
    (2,319
    )Decrease in cash and cash equivalents
    
    
    (1,816
    )
    
    
    (6,970
    )Cash and cash equivalents at beginning of period
    
    
    2,261
    
    
    
    13,769Cash and cash equivalents at end of period
    
    $
    445
    
    
    $
    6,799


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)
November 28, 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)
(collectively, the Company). Avondale Funding LLC (Funding), a special
purpose subsidiary of Avondale Mills, provides financing through the sale of
accounts receivable generated by the Company. The Company accounts for its
investment in Funding using the equity method of accounting. All significant
intercompany accounts and transactions have been eliminated. The August 29,
2003 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 29, 2003 audited consolidated
financial statements.

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
disclosures 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, including normal
recurring accruals, necessary for a fair presentation. Operating results for
the thirteen weeks ended November 28, 2003 are not necessarily indicative of
the results that may be expected for the fiscal year ending August 27, 2004.

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

Aug. 29,
    
    Nov. 28,2003
    
    2003Finished goods
    
    $
    26,579
    
    
    $
    30,211Work in process
    
    
    33,176
    
    
    
    32,886Raw materials
    
    
    9,072
    
    
    
    10,680Dyes and chemicals
    
    
    4,593
    
    
    
    4,632Inventories at FIFO
    
    
    73,420
    
    
    
    78,409Adjustment of carrying value to LIFO basis,
net of market adjustment
    
    
    3,565
    
    
    
    3,06576,985
    
    
    
    81,474Supplies at average cost
    
    
    5,902
    
    
    
    5,844$
    82,887
    
    
    $
    87,318


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AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
November 28, 2003

The Companys inventories at November 28, 2003 under the last-in,
first-out (LIFO) method and the related impact on the statement of income for
the thirteen weeks then ended have been recorded using estimated quantities and
costs as of August 27, 2004, the end of fiscal 2004. As actual inventory
quantities and costs at August 27, 2004 could differ significantly from these
estimates, the inventory amounts at November 28, 2003 and the operating results
for the thirteen weeks ended November 28, 2003 are not necessarily indicative
of the inventory amounts at August 27, 2004 and operating results for fiscal
2004 to be recorded using the final LIFO calculations.

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 EndedNov. 29,
    
    Nov. 28,2002
    
    2003Weighted average shares outstanding  basic
    
    
    12,531
    
    
    
    12,381Effect of employee stock options
    
    
    98
    
    
    
    Weighted average shares outstanding  diluted
    
    
    12,629
    
    
    
    12,381


The Company adopted the provisions of Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure, during fiscal 2003, electing to continue its use of the intrinsic
value method. Accordingly, no stock-based compensation has been recorded, as
the exercise price of each option granted under the existing plan equals 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 the provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, reported net income
and earnings per share would be adjusted to the pro forma amounts as shown
below (amounts in thousands, except per share data):

Thirteen Weeks EndedNov. 29,
    
    Nov. 28,2002
    
    2003Net income (loss) as reported
    
    $
    1,409
    
    
    $
    (3,573
    )Pro forma stock-based compensation, net of
income taxes
    
    
    (9
    )
    
    
    (9
    )Pro forma net income (loss)
    
    $
    1,400
    
    
    $
    (3,582
    )Per share data:Net income (loss)-basic as reported
    
    $
    .11
    
    
    $
    (.29
    )Net income (loss)-basic pro forma
    
    $
    .11
    
    
    $
    (.29
    )Net income (loss)-diluted as reported
    
    $
    .11
    
    
    $
    (.29
    )Net income (loss)-diluted pro forma
    
    $
    .11
    
    
    $
    (.29
    )


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AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
November 28, 2003

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

Thirteen Weeks EndedNov. 29,
    
    Nov. 28,2002
    
    2003Revenues:Apparel fabrics
    
    $
    142,522
    
    
    $
    107,423Yarns
    
    
    47,696
    
    
    
    41,399Other
    
    
    16,911
    
    
    
    14,724207,129
    
    
    
    163,546Less inter-segment sales
    
    
    39,947
    
    
    
    32,206Total
    
    $
    167,182
    
    
    $
    131,340Income (loss):Apparel fabrics
    
    $
    11,609
    
    
    $
    2,402Yarns
    
    
    1,551
    
    
    
    (1,318
    )Other
    
    
    593
    
    
    
    1,043Unallocated
    
    
    (6,231
    )
    
    
    (4,544
    )Total operating income (loss)
    
    
    7,522
    
    
    
    (2,417
    )Interest expense, net
    
    
    4,527
    
    
    
    4,830Discount and expenses on sale of receivables
    
    
    712
    
    
    
    628Other expense (income), net
    
    
    9
    
    
    
    (2,372
    )Income (loss) before income taxes
    
    $
    2,274
    
    
    $
    (5,503
    )


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 EndedNov. 29,
    
    Nov. 28,2002
    
    2003Net income (loss)
    
    $
    1,409
    
    
    $
    (3,573
    )Change in fair value of interest rate swaps, net of
income taxes
    
    
    98
    
    
    
    151Comprehensive income (loss)
    
    $
    1,507
    
    
    $
    (3,422
    )


6.     Gain on Disposal of Property, Plant and Equipment and Assets Held for
Sale: In November 2003, the Company sold two tracts of land unrelated to its
manufacturing facilities and not utilized in the operation of its business. The
related gain on disposal of these properties, approximately $2.3 million, is
included in Other, net on the consolidated statement of income for the thirteen
weeks ended November 28, 2003.

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AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
November 28, 2003

7.     New Accounting Pronouncements: 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 the first interim period beginning after December 15, 2003. The
Company is currently evaluating impact of Statement No. 150 on the consolidated
financial statements.

8.     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 29, 2003. 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.

9.     Consolidating guarantor and non-guarantor financial information: The
following consolidating financial information presents balance sheets,
statements of income and statements of cash flows of the Company and its
subsidiaries. Avondale Incorporated, the parent company and sole shareholder of
Avondale Mills, has fully and unconditionally guaranteed the 10-1/4% Senior
Subordinated Notes due 2013 (Notes) issued by Avondale Mills. 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.

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AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
November 28, 2003

AVONDALE INCORPORATED
CONSOLIDATING BALANCE SHEETS
November 28, 2003
(amounts in thousands)

Non-GuarantorAvondale MillsGuarantor
    
    GranitevilleAvondale
    
    Avondale
    
    Fabrics,Mills, Inc.
    
    Incorporated
    
    Inc.
    
    Eliminations
    
    ConsolidatedASSETSCurrent AssetsCash
    
    $
    6,799
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6,799Accounts receivable
    
    
    41,654
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    41,656Inventories
    
    
    87,318
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,318Prepaid expenses
    
    
    1,223
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,223Income taxes refundable
    
    
    1,929
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,929Total current assets
    
    
    138,923
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    138,925Assets held for sale
    
    
    843
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    843Property, plant and equipmentLand
    
    
    6,288
    
    
    
    
    
    
    
    196
    
    
    
    
    
    
    
    6,484Buildings
    
    
    67,911
    
    
    
    
    
    
    
    11,750
    
    
    
    
    
    
    
    79,661Machinery and equipment
    
    
    460,856
    
    
    
    
    
    
    
    37,821
    
    
    
    
    
    
    
    498,677535,055
    
    
    
    
    
    
    
    49,767
    
    
    
    
    
    
    
    584,822Less accumulated depreciation
    
    
    (350,794
    )
    
    
    
    
    
    
    (26,479
    )
    
    
    
    
    
    
    (377,273
    )184,261
    
    
    
    
    
    
    
    23,288
    
    
    
    
    
    
    
    207,549Other assets
    
    
    8,045
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,045Investment in subsidiaries
    
    
    8,126
    
    
    
    100,899
    
    
    
    
    
    
    
    (109,025
    )
    
    
    Goodwill
    
    
    2,951
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,951$
    343,149
    
    
    $
    100,899
    
    
    $
    23,290
    
    
    $
    (109,025
    )
    
    $
    358,313LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    20,185
    
    
    $
    
    
    
    $
    1,167
    
    
    $
    
    
    
    $
    21,352Accrued compensation, benefits
    
    
    9,551
    
    
    
    
    
    
    
    138
    
    
    
    
    
    
    
    9,689Accrued interest
    
    
    6,290
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,290Other accrued expenses
    
    
    9,787
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    9,789Long- term debt due in one year
    
    
    4,325
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,325Total current liabilities
    
    
    50,138
    
    
    
    
    
    
    
    1,307
    
    
    
    
    
    
    
    51,445Long-term debt
    
    
    162,431
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162,431Deferred income taxes
and other long term liabilities
    
    
    33,146
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,146Due to (from) subsidiaries
    
    
    (3,465
    )
    
    
    (10,392
    )
    
    
    13,857
    
    
    
    
    
    
    
    Shareholders equity
    
    
    100,899
    
    
    
    111,291
    
    
    
    8,126
    
    
    
    (109,025
    )
    
    
    111,291$
    343,149
    
    
    $
    100,899
    
    
    $
    23,290
    
    
    $
    (109,025
    )
    
    $
    358,313


9



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##### Table of Contents



AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
November 28, 2003

AVONDALE INCORPORATED
CONSOLIDATING BALANCE SHEETS
August 29, 2003
(amounts in thousands)

Non-GuarantorAvondale MillsGuarantor
    
    GranitevilleAvondale
    
    Avondale
    
    Fabrics,Mills, Inc.
    
    Incorporated
    
    Inc.
    
    Eliminations
    
    ConsolidatedASSETSCurrent AssetsCash
    
    $
    13,769
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    13,769Accounts receivable
    
    
    29,155
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    29,157Inventories
    
    
    82,887
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,887Prepaid expenses
    
    
    1,980
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,980Income taxes refundable
    
    
    2,825
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,825Total current assets
    
    
    130,616
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    130,618Assets held for sale
    
    
    2,640
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,640Property, plant and equipmentLand
    
    
    6,288
    
    
    
    
    
    
    
    196
    
    
    
    
    
    
    
    6,484Buildings
    
    
    67,897
    
    
    
    
    
    
    
    11,750
    
    
    
    
    
    
    
    79,647Machinery and equipment
    
    
    459,401
    
    
    
    
    
    
    
    37,812
    
    
    
    
    
    
    
    497,213533,586
    
    
    
    
    
    
    
    49,758
    
    
    
    
    
    
    
    583,344Less accumulated depreciation
    
    
    (342,217
    )
    
    
    
    
    
    
    (25,542
    )
    
    
    
    
    
    
    (367,759
    )191,369
    
    
    
    
    
    
    
    24,216
    
    
    
    
    
    
    
    215,585Other assets
    
    
    7,712
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,712Investment in subsidiaries
    
    
    8,202
    
    
    
    105,726
    
    
    
    
    
    
    
    (113,928
    )
    
    
    Goodwill
    
    
    2,951
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,951$
    343,490
    
    
    $
    105,726
    
    
    $
    24,218
    
    
    $
    (113,928
    )
    
    $
    359,506LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    17,675
    
    
    $
    
    
    
    $
    1,049
    
    
    $
    
    
    
    $
    18,724Accrued compensation, benefits
    
    
    9,203
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    9,280Accrued interest
    
    
    2,726
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,726Other accrued expenses
    
    
    9,784
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    9,785Long-term debt due in one year
    
    
    4,325
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,325Total current liabilities
    
    
    43,713
    
    
    
    
    
    
    
    1,127
    
    
    
    
    
    
    
    44,840Long-term debt
    
    
    163,512
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    163,512Deferred income taxes
and other long term liabilities
    
    
    35,203
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,203Due to (from) subsidiaries
    
    
    (4,664
    )
    
    
    (10,225
    )
    
    
    14,889
    
    
    
    
    
    
    
    Shareholders equity
    
    
    105,726
    
    
    
    115,951
    
    
    
    8,202
    
    
    
    (113,928
    )
    
    
    115,951$
    343,490
    
    
    $
    105,726
    
    
    $
    24,218
    
    
    $
    (113,928
    )
    
    $
    359,506


10



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##### Table of Contents



AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
November 28, 2003

AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF INCOME
For the Thirteen weeks ended November 28, 2003
(amounts in thousands)

Non-GuarantorAvondale MillsGuarantor
    
    GranitevilleAvondale
    
    Avondale
    
    Fabrics,Mills, Inc.
    
    Incorporated
    
    Inc.
    
    Eliminations
    
    ConsolidatedNet sales, including intercompany
transfers and charges
    
    $
    131,340
    
    
    $
    26
    
    
    $
    22,012
    
    
    $
    (22,038
    )
    
    $
    131,340Operating
costs and expensesCost of goods sold
    
    
    118,587
    
    
    
    
    
    
    
    21,197
    
    
    
    (22,013
    )
    
    
    117,771Depreciation
    
    
    8,586
    
    
    
    
    
    
    
    938
    
    
    
    
    
    
    
    9,524Selling and administrative expenses
    
    
    6,487
    
    
    
    
    
    
    
    
    
    
    
    (25
    )
    
    
    6,462Operating income (loss)
    
    
    (2,320
    )
    
    
    26
    
    
    
    (123
    )
    
    
    
    
    
    
    (2,417
    )Interest expense, net
    
    
    4,830
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,830Discount and expenses on sales
of receivables
    
    
    628
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    628Other, net
    
    
    (2,372
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,372
    )Income (loss) before income taxes
    
    
    (5,406
    )
    
    
    26
    
    
    
    (123
    )
    
    
    
    
    
    
    (5,503
    )Provision for (benefit of) income taxes
    
    
    (1,893
    )
    
    
    10
    
    
    
    (47
    )
    
    
    
    
    
    
    (1,930
    )Equity in loss of subsidiary
    
    
    (76
    )
    
    
    (3,589
    )
    
    
    
    
    
    
    3,665
    
    
    
    Net loss
    
    $
    (3,589
    )
    
    $
    (3,573
    )
    
    $
    (76
    )
    
    $
    3,665
    
    
    $
    (3,573
    )


11



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##### Table of Contents



AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
November 28, 2003

AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF INCOME
For the Thirteen weeks ended November 29, 2002
(amounts in thousands)

Non-GuarantorAvondale MillsGuarantor
    
    GranitevilleAvondale
    
    Avondale
    
    Fabrics,Mills, Inc.
    
    Incorporated
    
    Inc.
    
    Eliminations
    
    ConsolidatedNet sales, including intercompany
transfers and charges
    
    $
    167,182
    
    
    $
    25
    
    
    $
    25,585
    
    
    $
    (25,610
    )
    
    $
    167,182Operating
costs and expensesCost of goods sold
    
    
    142,313
    
    
    
    
    
    
    
    24,360
    
    
    
    (25,585
    )
    
    
    141,088Depreciation
    
    
    9,839
    
    
    
    
    
    
    
    1,028
    
    
    
    
    
    
    
    10,867Selling and administrative expenses
    
    
    7,730
    
    
    
    
    
    
    
    
    
    
    
    (25
    )
    
    
    7,705Operating income
    
    
    7,300
    
    
    
    25
    
    
    
    197
    
    
    
    
    
    
    
    7,522Interest expense, net
    
    
    4,527
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,527Discount and expenses on sales
of receivables
    
    
    712
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    712Other, net
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9Income before income taxes
    
    
    2,052
    
    
    
    25
    
    
    
    197
    
    
    
    
    
    
    
    2,274Provision for income taxes
    
    
    780
    
    
    
    10
    
    
    
    75
    
    
    
    
    
    
    
    865Equity in earnings of subsidiary
    
    
    122
    
    
    
    1,394
    
    
    
    
    
    
    
    (1,516
    )
    
    
    Net income
    
    $
    1,394
    
    
    $
    1,409
    
    
    $
    122
    
    
    $
    (1,516
    )
    
    $
    1,409


12



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##### Table of Contents



AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
November 28, 2003

AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Thirteen weeks ended November 28, 2003
(amounts in thousands)

Non-GuarantorAvondale MillsGuarantor
    
    GranitevilleAvondale
    
    Avondale
    
    Fabrics,Mills, Inc.
    
    Incorporated
    
    Inc.
    
    Eliminations
    
    ConsolidatedOperating activitiesNet loss
    
    $
    (3,589
    )
    
    $
    (3,573
    )
    
    $
    (76
    )
    
    $
    3,665
    
    
    $
    (3,573
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    8,695
    
    
    
    
    
    
    
    938
    
    
    
    
    
    
    
    9,633Benefit of deferred income taxes
    
    
    (1,958
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,958
    )Gain on disposal of property, plant
and equipment and assets held
for sale
    
    
    (2,310
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,310
    )Sale of accounts receivable, net
    
    
    (7,449
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,449
    )Changes in operating assets and liabilities
    
    
    (744
    )
    
    
    (16
    )
    
    
    (853
    )
    
    
    
    
    
    
    (1,613
    )Dividends from subsidiary
    
    
    
    
    
    
    1,238
    
    
    
    
    
    
    
    (1,238
    )
    
    
    Equity in loss of subsidiary
    
    
    76
    
    
    
    3,589
    
    
    
    
    
    
    
    (3,665
    )
    
    
    Net cash provided by (used in)
operating activities
    
    
    (7,279
    )
    
    
    1,238
    
    
    
    9
    
    
    
    (1,238
    )
    
    
    (7,270
    )Investing activitiesPurchase of property, plant and equipment
    
    
    (1,484
    )
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (1,493
    )Proceeds from sale of property, plant
and equipment and assets held for sale
    
    
    4,112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,112Net cash provided by (used in)
investing activities
    
    
    2,628
    
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    2,619Financing activitiesNet payments on long term debt
    
    
    (1,081
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,081
    )Dividends paid
    
    
    (1,238
    )
    
    
    (1,238
    )
    
    
    
    
    
    
    1,238
    
    
    
    (1,238
    )Net cash used in financing activities
    
    
    (2,319
    )
    
    
    (1,238
    )
    
    
    
    
    
    
    1,238
    
    
    
    (2,319
    )Decrease in cash and cash equivalents
    
    
    (6,970
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,970
    )Cash and cash equivalents
at beginning of period
    
    
    13,769
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,769Cash and cash equivalents
at end of period
    
    $
    6,799
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6,799


13



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##### Table of Contents



AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
November 28, 2003

AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Thirteen weeks ended November 29, 2002
(amounts in thousands)

Non-GuarantorAvondale MillsGuarantor
    
    GranitevilleAvondale
    
    Avondale
    
    Fabrics,Mills, Inc.
    
    Incorporated
    
    Inc.
    
    Eliminations
    
    ConsolidatedOperating activitiesNet income
    
    $
    1,394
    
    
    $
    1,409
    
    
    $
    122
    
    
    $
    (1,516
    )
    
    $
    1,409Adjustments to reconcile net income
to net cash provided by operating
activities:Depreciation and amortization
    
    
    9,891
    
    
    
    
    
    
    
    1,028
    
    
    
    
    
    
    
    10,919Benefit of deferred income taxes
    
    
    (393
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (393
    )Sale of accounts receivable, net
    
    
    (7,771
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,771
    )Changes in operating assets and liabilities
    
    
    12,543
    
    
    
    (15
    )
    
    
    (1,116
    )
    
    
    
    
    
    
    11,412Dividends from subsidiary
    
    
    
    
    
    
    1,253
    
    
    
    
    
    
    
    (1,253
    )
    
    
    Equity in income of subsidiary
    
    
    (122
    )
    
    
    (1,394
    )
    
    
    
    
    
    
    1,516
    
    
    
    Net cash provided by operating
activities
    
    
    15,542
    
    
    
    1,253
    
    
    
    34
    
    
    
    (1,253
    )
    
    
    15,576Investing activitiesPurchase of property, plant and equipment
    
    
    (3,430
    )
    
    
    
    
    
    
    (34
    )
    
    
    
    
    
    
    (3,464
    )Net cash used in investing activities
    
    
    (3,430
    )
    
    
    
    
    
    
    (34
    )
    
    
    
    
    
    
    (3,464
    )Financing activitiesNet payments on revolving line of credit
    
    
    (12,675
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,675
    )Dividends paid
    
    
    (1,253
    )
    
    
    (1,253
    )
    
    
    
    
    
    
    1,253
    
    
    
    (1,253
    )Net cash used in financing activities
    
    
    (13,928
    )
    
    
    (1,253
    )
    
    
    
    
    
    
    1,253
    
    
    
    (13,928
    )Decrease in cash
    
    
    (1,816
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,816
    )Cash at beginning of period
    
    
    2,261
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,261Cash at end of period
    
    $
    445
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    445


14



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##### Table of Contents






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 of America (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 General Electric Capital Corporation (GECC). 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
GECC.

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 or
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 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 all other
sales by the Company.

15



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##### Table of Contents



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 29, 2003. 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 November 28, 2003 Compared to Thirteen Weeks Ended
November 29, 2002

Net Sales. Net sales decreased 21.5% to $131.3 million for the thirteen
weeks ended November 28, 2003 from $167.2 million for the thirteen weeks ended
November 29, 2002. The decline in net sales in the thirteen weeks ended
November 28, 2003 primarily reflected lower unit volume in all segments, as
domestic retail sales of apparel continued to reflect weak consumer demand.
Selling prices remained very competitive reflecting the significant
uncertainties presented by the economic and political environment, the
imbalance of global supply and demand for textile and apparel products and the
financial duress experienced by many of the Companys domestic competitors. In
addition, the manipulation of the Chinese yuan and currencies of other Asian
countries relative to the U.S. dollar and other trade distorting practices
employed by those countries create competitive advantages which continue 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 second quarter of fiscal 2004.

Operating Income. Company operations produced an operating loss of
($2.4) million for the thirteen weeks ended November 28, 2003 compared to an
operating income of $7.5 million for the thirteen weeks ended November 29,
2002. The operating loss reflected a significant increase in raw material costs
and reduced unit cost absorption and operating efficiencies resulting from the
lower unit volume. Consumption of internally produced yarns and greige fabrics
in the production of finished apparel fabrics in lieu of outside purchases
continued to provide higher overall capacity utilization. Cost of goods sold
decreased 16.5% to $117.8 million for the thirteen weeks ended November 28,
2003 from $141.1 million for the thirteen weeks ended November 29, 2002,
reflecting the overall decrease in unit volume. Cost of goods sold as a
percentage of net sales increased to 89.7% for the thirteen weeks ended
November 28, 2003 from 84.4% for the thirteen weeks ended November 29, 2002.

Selling and administrative expenses decreased 15.6% to $6.5 million for
the thirteen weeks ended November 28, 2003 from $7.7 million for the thirteen
weeks ended November 29, 2002, reflecting staffing reductions and a decrease in
certain associate benefits and performance based incentives corresponding to
the decline in operating income. Selling and administrative expenses as a
percentage of net sales increased to 4.9% for the thirteen weeks ended November
28, 2003 from 4.6% for the thirteen weeks ended November 29, 2002.

Segment Performance. Apparel fabric sales decreased 24.6% to $107.4
million for the thirteen weeks ended November 28, 2003 from $142.5 million for
the thirteen weeks ended November 29, 2002, reflecting a 24.6% decrease in
yards sold, while average selling price remained flat for the respective
periods. Operating income for apparel fabrics decreased 79.3% to $2.4 million
for the thirteen weeks ended November 28, 2003 from $11.6 million for the
thirteen weeks ended November 29, 2002, primarily due to higher raw material
costs and the reduced unit volume.

Yarn sales, including intra-company sales to the fabric operations,
decreased 13.2% to $41.4 million for the thirteen weeks ended November 28, 2003
from $47.7 million for the thirteen weeks ended November 29, 2002. Pounds sold
declined 19.4% primarily reflecting the reduced yarn requirements of the
apparel fabric operations. Average selling price increased 7.7% as higher raw
material costs were reflected in both outside invoice prices and intra-company
transfer prices. However, market pricing for sales yarns remained very
competitive, reflecting continued excess productive capacity within the
domestic industry and continued importation of yarns and knitted apparel into
the domestic market from Asia. The yarn operations produced an operating loss
of ($1.3) million for the thirteen weeks ended November 28, 2003 compared to an
operating income of $1.6 million for the thirteen weeks ended November 29,
2002, primarily as a result of higher raw material costs and the reduced unit
volume.

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Other sales, which include sales of greige and specialty fabrics and
revenues from the Companys trucking operation, decreased 13.0% to $14.7
million for the thirteen weeks ended November 28, 2003 from $16.9 million for
the thirteen weeks ended November 29, 2002. The decrease in other sales was
primarily attributable to decreased intra-company sales of greige fabrics to
the apparel fabric operations. Operating income from other sales increased
66.7% to $1.0 million for the thirteen weeks ended November 28, 2003 from $0.6
million for the thirteen weeks ended November 29, 2002, primarily due to
reduced production costs within the specialty fabric operation and improved
operating revenues within the trucking operation.

Inter-segment sales decreased 19.5% to $32.2 million for the thirteen
weeks ended November 28, 2003 from $40.0 million for the thirteen weeks ended
November 29, 2002, primarily reflecting the decrease in consumption of
internally produced yarns and greige fabrics within the Companys 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.

Interest Expense, Net. Net interest expense increased 6.7% to $4.8
million for the thirteen weeks ended November 28, 2003 from $4.5 million for
the thirteen weeks ended November 29, 2002. Following execution of a new
senior secured revolving credit facility with GECC on November 7, 2003, the
Company wrote off approximately $400,000 of unamortized debt issue costs
related to the previous revolving credit facility, causing the increase in net
interest expense for the thirteen weeks ended November 28, 2003. See Note 14.
Subsequent Event in the Consolidated Financial Statements in Item 8 of the
Companys Annual Report on Form 10-K for the fiscal year ended August 29, 2003
for further discussion of the new revolving credit facility.

Discount and Expenses on Sale of Receivables. Discount and expenses on
sales of receivables were $0.6 million for the thirteen weeks ended November
28, 2003 compared to $0.7 million for the thirteen weeks ended November 29,
2002.

Other, Net. In November 2003, the Company sold two tracts of land
unrelated to its manufacturing facilities and not utilized in the operation of
its business. The related gain on disposal of these properties, approximately
$2.3 million, is included in Other, net for the thirteen weeks ended November
28, 2003.

Provision for (Benefit of) Income Taxes. An income tax benefit of $1.9
million was recorded for the thirteen weeks ended November 28, 2003, reflecting
the Companys loss before income taxes, compared to a provision for income
taxes of $0.9 million for the thirteen weeks ended November 29, 2002.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was $7.3 million for the thirteen
weeks ended November 28, 2003. Principal working capital changes included a
$5.1 million increase in accounts receivable, a $7.4 million decrease in
accounts receivable sold under the securitization facility, a $4.4 million
increase in inventories, and a $6.6 million increase in accounts payable and
accrued expenses. Investing activities were predominantly equipment purchases
and related costs of $1.5 million made in connection with the ongoing
maintenance of the Companys manufacturing facilities and proceeds from the
sale of property, plant and equipment and assets held for sale of $4.1 million.
Financing activities included repayment of $1.1 million of long term debt and
payment of $1.3 million in dividends on outstanding common stock.

At November 28, 2003, the Company had no borrowings outstanding under its
revolving line of credit and $31.1 million of borrowing availability
thereunder.

The Companys capital expenditures, aggregating $1.5 million for the
thirteen weeks ended November 28, 2003, were used primarily to complete routine
maintenance projects. Management estimates that capital expenditures for the
balance of fiscal 2004 will be approximately $7.0 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 GECC, and has not experienced any gains or losses on the sale of the

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investment in accounts receivable. The Company believes minimal counter
party risk exists due to the financial strength of GECC.

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.

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 described under the heading Risk Factors in the Companys 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

EBITDA is a supplemental non-GAAP financial measure. EBITDA is presented
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 this industry. EBITDA is also used as a
measure for certain covenants under the Companys receivables securitization
facility, revolving credit facility, equipment note and the indenture governing
the notes, and is calculated by the Company as follows (amounts in thousands):

Thirteen Weeks EndedNov. 29,
    
    Nov. 28,2002
    
    2003Net income (loss)
    
    $
    1,409
    
    
    $
    (3,573
    )Interest expense, net
    
    
    4,527
    
    
    
    4,830Discount and expenses on sale of receivables
    
    
    712
    
    
    
    628Provision for (benefit of) income taxes
    
    
    865
    
    
    
    (1,930
    )Depreciation and amortization
    
    
    10,919
    
    
    
    9,633Adjustment of carrying value of inventories
to LIFO basis, net of market adjustment
    
    
    150
    
    
    
    500EBITDA
    
    $
    18,582
    
    
    $
    10,088


However, 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 with
similarly titled measures presented by other companies.




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 the fiscal year ended August 29,
2003.

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Item 4. Controls and Procedures.

As required by Securities and Exchange Commission rules, we have evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report. This evaluation
was carried out under the supervision and with the participation of our
management, including our principal executive officer and principal financial
officer. Based on this evaluation, these officers have concluded that the
design and operation of our disclosure controls and procedures are effective.
There were no changes to our internal controls during the period covered by
this quarterly report that materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.

Disclosure controls and procedures are our controls and other procedures
designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act of 1934, as
amended, (the Exchange Act) is recorded, processed, summarized and reported,
within the time periods specified in the Securities and Exchange Commissions
rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act are accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate, to
allow timely decisions regarding required disclosure.

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AVONDALE INCORPORATED




PART II  OTHER INFORMATION

Item 1.
    
    Legal ProceedingsThere have been no significant changes in the matters reported
under Part I, Item 3 Legal Proceedings in the Companys Annual
Report on Form 10-K for the fiscal year ended August 29, 2003Item 2.
    
    Changes in Securities and Use of ProceedsNoneItem 3.
    
    Defaults upon Senior SecuritiesNoneItem 4.
    
    Submission of Matters to a Vote of Security Holders(a)
    
    The Company held its Annual Meeting of
Shareholders on November 13, 2003.(b)
    
    Nine directors were elected at the Annual Meeting
to serve until the Annual Meeting of Shareholders in 2003. The
names of these Directors are as follows:G. Stephen FelkerJack R. Altherr, Jr.Dale J. BodenRobert B. CalhounKenneth H. CallawayHarry C. HowardC. Linden Longino, Jr.James A. RubrightJohn P. Stevens(c)
    
    The Company had outstanding shares of Class A
Common Stock and Class B Common Stock having an aggregate of
30,980,517 votes entitled to be cast at the Annual Meeting. Of
such aggregate outstanding votes, 290,916 votes were not
represented at the Annual Meeting in person or by proxy. The
remaining 30,689,601 outstanding votes were represented at the
Annual Meeting in person or by proxy, with 27,191,861 votes
cast for all nine directors that were elected at the Annual
Meeting and 3,497,740 votes abstaining. There were no broker
non-votes and no votes were withheld.Item 5.
    
    Other InformationNone


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Item 6.
    
    Exhibits and Reports on Form 8-K(a)
    
    
    Exhibits3.1
    
    
    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, File No.
333-5455-01)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. 333-5455-01)4.3
    
    
    Indenture for the 10-1/4 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, File No. 333-108353)4.5
    
    
    Registration Rights Agreement, dated
as of June 30, 2003, among Avondale Mills, Inc.,
Avondale Incorporated and Wachovia Securities, LLC.
Trustee (incorporated by reference to Exhibit 4.3 to
Avondale Incorporateds Registration Statement on Form
S-4, File No. 333-108353)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
2002.32.1
    
    
    Certificate of Chief Executive
Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.32.2
    
    
    Certificate of Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.(b)
    
    Reports on Form 8-K1.
    
    
    On October 16, 2003, the Company
furnished a current report on Form 8-K regarding its
press release announcing sales and earnings for the
fiscal year ended August 29, 2003.


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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 INCORPORATEDBy:
    
    /s/ JACK R. ALTHERR, JR.Jack R. Altherr,
Jr.Vice Chairman and Chief Financial OfficerDate: January 9, 2004


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