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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-Q

x   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended February 28, 2003

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



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AVONDALE INCORPORATED

(Exact name of registrant as specified in its charter)


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

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

|                     |  |                |  |                   
|-------------------- |  | -------------- |  | ------------------
|Description          |  | As Of          |  | Shares Outstanding
|                     |  |                |  |                   
|Class A Common Stock |  | March 31, 2003 |  | 11,476,737 Shares 
|Class B Common Stock |  | March 31, 2003 |  | 978,939 Shares    



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TABLE OF CONTENTS



|                                 |                                                                                               |                                                                  |  |  |  |  |  | 
|-------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- |  |  |  |  |  | 
|PART I    FINANCIAL INFORMATION
|                                 | Item 1. Financial Statements                                                                 
|                                 |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS                           
|                                 |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)         
|                                 |                                                                                               | 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     
|                                 | Item 1. Legal Proceedings                                                                    
|                                 | Item 2. Changes in Securities and Use of Proceeds                                            
|                                 | Item 3. Defaults upon Senior Securities                                                      
|                                 | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                 | Item 5. Other Information                                                                    
|                                 | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                       
|CERTIFICATION                   
|CERTIFICATION                   



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INDEX TO FORM 10-Q




AVONDALE INCORPORATED

|                                             |                                                                                               |                                                                                                                    |  |           |   | 
|-------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ |  | --------- | - | 
|                                             |                                                                                               |                                                                                                                    |  | Page     
|                                             |                                                                                               |                                                                                                                    |  | Reference
|PART I    FINANCIAL INFORMATION (Unaudited) |                                                                                               |                                                                                                                    |  |          
|                                             | Item 1: Financial Statements                                                                  |                                                                                                                    |  |           |  
|                                             |                                                                                               | Condensed Consolidated Balance Sheets at August 30, 2002 and February 28, 2003                                     |  |           | 2 | 
|                                             |                                                                                               | Condensed Consolidated Statements of Income for the Thirteen Weeks Ended
March 1, 2002 and February 28, 2003       |  |           | 3 | 
|                                             |                                                                                               | Condensed Consolidated Statements of Income for the Twenty-Six Weeks Ended
March 1, 2002 and February 28, 2003     |  |           | 4 | 
|                                             |                                                                                               | Condensed Consolidated Statements of Cash Flows for the Twenty-Six Weeks Ended
March 1, 2002 and February 28, 2003 |  |           | 5 | 
|                                             |                                                                                               | Notes to Condensed Consolidated Financial Statements                                                               |  |           | 6 | 
|                                             | Item 2: Managements Discussion and Analysis of Financial Condition and Results of
Operations |                                                                                                                    |  | 9         |  
|                                             | Item 3: Quantitative and Qualitative Disclosures about Market Risk                            |                                                                                                                    |  | 15        |  
|                                             | Item 4: Controls and Procedures                                                               |                                                                                                                    |  | 15        |  
|PART II   OTHER INFORMATION                 |                                                                                               |                                                                                                                    |  |          
|                                             | Item 1: Legal Proceedings                                                                     |                                                                                                                    |  | 16        |  
|                                             | Item 2: Changes in Securities and Use of Proceeds                                             |                                                                                                                    |  | 16        |  
|                                             | Item 3: Defaults upon Senior Securities                                                       |                                                                                                                    |  | 16        |  
|                                             | Item 4: Submission of Matters to a Vote of Security Holders                                   |                                                                                                                    |  | 16        |  
|                                             | Item 5: Other Information                                                                     |                                                                                                                    |  | 16        |  
|                                             | Item 6: Exhibits and Reports on Form 8-K                                                      |                                                                                                                    |  | 16        |  
|                                             | Signature                                                                                     |                                                                                                                    |  | 17        |  
|                                             | Certifications                                                                                |                                                                                                                    |  | 18        |  





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PART I    FINANCIAL INFORMATION




Item 1. Financial Statements


AVONDALE INCORPORATED




CONDENSED CONSOLIDATED BALANCE SHEETS


(In thousands, except per share data)


|                                                      |                                                     |                                                                                                                  |                      |                                                                                   |          |          |         |             |          |          |         | 
|----------------------------------------------------- | --------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | -------------------- | --------------------------------------------------------------------------------- | -------- | -------- | ------- | ----------- | -------- | -------- | ------- | 
|                                                      |                                                     |                                                                                                                  |                      |                                                                                   |          |          |         |             |          | Feb. 28,
|                                                      |                                                     |                                                                                                                  |                      |                                                                                   |          | Aug. 30, |         | 2003       
|                                                      |                                                     |                                                                                                                  |                      |                                                                                   |          | 2002     |         | (unaudited)
|                                                      |                                                     |                                                                                                                  |                      |                                                                                   |          |          |         |            
|ASSETS                                               
|Current Assets                                        |                                                     |                                                                                                                  |                      |                                                                                   |          |          |         |            
|                                                      |                                                     | Cash                                                                                                             |                      | $                                                                                 | 2,859    |          |         | $           | 134      |         
|                                                      |                                                     | Accounts receivable, less allowance for doubtful accounts
of $2,199 at Aug. 30, 2002 and $2,354 at Feb. 28, 2003 |                      |                                                                                   | 43,305   |          |         |             | 34,511   |         
|                                                      |                                                     | Inventories                                                                                                      |                      |                                                                                   | 86,946   |          |         |             | 99,647   |         
|                                                      |                                                     | Prepaid expenses                                                                                                 |                      |                                                                                   | 385      |          |         |             | 1,990    |         
|                                                      |                                                     | Income taxes refundable                                                                                          |                      |                                                                                   | 6,550    |          |         |             | 6,033    |         
|                                                      |                                                     |                                                                                                                  |                      |                                                                                   |          |          |         |            
|                                                      |                                                     |                                                                                                                  | Total current assets |                                                                                   |          | 140,045  |         |             |          | 142,315  |        
|Assets held for sale                                  |                                                     |                                                                                                                  | 3,645                |                                                                                   |          |          | 2,422   |            
|Property, plant and equipment                         |                                                     |                                                                                                                  |                      |                                                                                   |          |          |         |            
|                                                      |                                                     | Land                                                                                                             |                      |                                                                                   | 6,634    |          |         |             | 6,634    |         
|                                                      |                                                     | Buildings                                                                                                        |                      |                                                                                   | 81,823   |          |         |             | 81,900   |         
|                                                      |                                                     | Machinery and equipment                                                                                          |                      |                                                                                   | 526,897  |          |         |             | 527,781  |         
|                                                      |                                                     |                                                                                                                  |                      |                                                                                   |          |          |         |            
|                                                      |                                                     |                                                                                                                  | 615,354              |                                                                                   |          |          | 616,315 |            
|                                                      |                                                     | Less accumulated depreciation                                                                                    |                      |                                                                                   | (369,728 | )        |         |             | (384,361 | )       
|                                                      |                                                     |                                                                                                                  |                      |                                                                                   |          |          |         |            
|                                                      |                                                     |                                                                                                                  | 245,626              |                                                                                   |          |          | 231,954 |            
|Other assets                                          |                                                     |                                                                                                                  | 5,146                |                                                                                   |          |          | 4,993   |            
|Goodwill                                              |                                                     |                                                                                                                  | 2,951                |                                                                                   |          |          | 2,951   |            
|                                                      |                                                     |                                                                                                                  |                      |                                                                                   |          |          |         |            
|                                                      |                                                     | $                                                                                                                | 397,413              |                                                                                   |          | $        | 384,635 |            
|                                                      |                                                     |                                                                                                                  |                      |                                                                                   |          |          |         |            
|LIABILITIES AND SHAREHOLDERS EQUITY                 
|Current liabilities                                   |                                                     |                                                                                                                  |                      |                                                                                   |          |          |         |            
|                                                      | Accounts payable                                    |                                                                                                                  | $                    | 30,591                                                                            |          |          | $       | 26,481      |         
|                                                      | Accrued compensation, benefits and related expenses |                                                                                                                  |                      | 10,369                                                                            |          |          |         | 8,834       |         
|                                                      |                                                     | Accrued interest                                                                                                 |                      | 4,576                                                                             |          |          |         | 4,466       |         
|                                                      | Other accrued expenses                              |                                                                                                                  |                      | 10,207                                                                            |          |          |         | 9,649       |         
|                                                      | Long-term debt due in one year                      |                                                                                                                  |                      | 2,523                                                                             |          |          |         | 4,325       |         
|                                                      |                                                     |                                                                                                                  |                      |                                                                                   |          |          |         |            
|                                                      |                                                     |                                                                                                                  |                      | Total current liabilities                                                         |          |          | 58,266  |             |          |          | 53,755  | 
|Long-term debt                                        |                                                     |                                                                                                                  | 167,477              |                                                                                   |          |          | 161,650 |            
|Deferred income taxes and other long-term liabilities |                                                     |                                                                                                                  | 41,415               |                                                                                   |          |          | 41,353  |            
|Shareholders equity                                  |                                                     |                                                                                                                  |                      |                                                                                   |          |          |         |            
|                                                      |                                                     | Preferred stock                                                                                                  |                      |                                                                                   |          |          |         |             |          |         
|                                                      |                                                     |                                                                                                                  |                      | $.01 par value; 10,000 shares authorized                                          |          |          |        |             |          |          |        | 
|                                                      |                                                     | Common stock                                                                                                     |                      |                                                                                   |          |          |         |             |          |         
|                                                      |                                                     |                                                                                                                  |                      | Class A, $.01 par value; 100,000 shares
authorized, 11,477 issued and outstanding |          |          | 115     |             |          |          | 115     | 
|                                                      |                                                     |                                                                                                                  |                      | Class B, $.01 par value; 5,000 shares
authorized, 979 issued and outstanding      |          |          | 10      |             |          |          | 10      | 
|                                                      |                                                     | Capital in excess of par value                                                                                   |                      |                                                                                   | 39,669   |          |         |             | 39,431   |         
|                                                      |                                                     | Accumulated other comprehensive loss                                                                             |                      |                                                                                   | (889     | )        |         |             | (647     | )       
|                                                      |                                                     | Retained earnings                                                                                                |                      |                                                                                   | 91,350   |          |         |             | 88,968   |         
|                                                      |                                                     |                                                                                                                  |                      |                                                                                   |          |          |         |            
|                                                      |                                                     |                                                                                                                  |                      | Total shareholders equity                                                        |          |          | 130,255 |             |          |          | 127,877 | 
|                                                      |                                                     |                                                                                                                  |                      |                                                                                   |          |          |         |            
|                                                      |                                                     | $                                                                                                                | 397,413              |                                                                                   |          | $        | 384,635 |            
|                                                      |                                                     |                                                                                                                  |                      |                                                                                   |          |          |         |            

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

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AVONDALE INCORPORATED




CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


(In thousands, except per share data)


|                                              |                                     |   |                      |         |          |   |         |         |  
|--------------------------------------------- | ----------------------------------- | - | -------------------- | ------- | -------- | - | ------- | ------- | -
|                                              |                                     |   | Thirteen Weeks Ended
|                                              |                                     |   |                     
|                                              |                                     |   | March 1,             |         | Feb. 28,
|                                              |                                     |   | 2002                 |         | 2003    
|                                              |                                     |   |                      |         |         
|Net sales                                     |                                     | $ | 143,564              |         |          | $ | 141,618 |        
|Operating costs and expenses                  |                                     |   |                      |         |          |   |         |        
|                                              | Cost of goods sold                  |   |                      | 123,771 |          |   |         | 119,415 |  
|                                              | Depreciation                        |   |                      | 11,200  |          |   |         | 10,851  |  
|                                              | Selling and administrative expenses |   |                      | 6,728   |          |   |         | 6,652   |  
|                                              |                                     |   |                      |         |          |   |         |        
|                                              | Operating income                    |   |                      | 1,865   |          |   |         | 4,700   |  
|Interest expense, net                         |                                     |   | 4,860                |         |          |   | 4,563   |        
|Discount and expenses on sales of receivables |                                     |   | 345                  |         |          |   | 705     |        
|Other, net                                    |                                     |   | (138                 | )       |          |   | (21     | )      
|                                              |                                     |   |                      |         |          |   |         |        
|                                              | Loss before income taxes            |   |                      | (3,202  | )        |   |         | (547    | )
|Benefit of income taxes                       |                                     |   | (1,465               | )       |          |   | (205    | )      
|                                              |                                     |   |                      |         |          |   |         |        
|                                              | Net loss                            |   | $                    | (1,737  | )        |   | $       | (342    | )
|                                              |                                     |   |                      |         |          |   |         |        
|Per share data:                               |                                     |   |                      |         |          |   |         |        
|                                              | Net loss-basic                      |   | $                    | (.14    | )        |   | $       | (.03    | )
|                                              |                                     |   |                      |         |          |   |         |        
|                                              | Net loss-diluted                    |   | $                    | (.14    | )        |   | $       | (.03    | )
|                                              |                                     |   |                      |         |          |   |         |        
|                                              | Dividends declared                  |   | $                    |        |          |   | $       | .10     |  
|                                              |                                     |   |                      |         |          |   |         |        

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

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AVONDALE INCORPORATED




CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


(In thousands, except per share data)


|                                              |                                     |   |                        |         |          |   |         |         | 
|--------------------------------------------- | ----------------------------------- | - | ---------------------- | ------- | -------- | - | ------- | ------- | 
|                                              |                                     |   | Twenty-Six Weeks Ended
|                                              |                                     |   |                       
|                                              |                                     |   | March 1,               |         | Feb. 28,
|                                              |                                     |   | 2002                   |         | 2003    
|                                              |                                     |   |                        |         |         
|Net sales                                     |                                     | $ | 292,638                |         |          | $ | 308,800 |        
|Operating costs and expenses                  |                                     |   |                        |         |          |   |         |        
|                                              | Cost of goods sold                  |   |                        | 254,686 |          |   |         | 260,503 | 
|                                              | Depreciation                        |   |                        | 22,990  |          |   |         | 21,718  | 
|                                              | Selling and administrative expenses |   |                        | 14,177  |          |   |         | 14,357  | 
|                                              | Facility restructuring charges      |   |                        | 6,500   |          |   |         |        | 
|                                              |                                     |   |                        |         |          |   |         |        
|                                              | Operating income (loss)             |   |                        | (5,715  | )        |   |         | 12,222  | 
|Interest expense, net                         |                                     |   | 10,174                 |         |          |   | 9,090   |        
|Discount and expenses on sales of receivables |                                     |   | 916                    |         |          |   | 1,417   |        
|Other, net                                    |                                     |   | (139                   | )       |          |   | (12     | )      
|                                              |                                     |   |                        |         |          |   |         |        
|                                              | Income (loss) before income taxes   |   |                        | (16,666 | )        |   |         | 1,727   | 
|Provision for (benefit of) income taxes       |                                     |   | (6,530                 | )       |          |   | 660     |        
|                                              |                                     |   |                        |         |          |   |         |        
|                                              | Net income (loss)                   |   | $                      | (10,136 | )        |   | $       | 1,067   | 
|                                              |                                     |   |                        |         |          |   |         |        
|Per share data:                               |                                     |   |                        |         |          |   |         |        
|                                              | Net income (loss)-basic             |   | $                      | (.81    | )        |   | $       | .09     | 
|                                              |                                     |   |                        |         |          |   |         |        
|                                              | Net income (loss)-diluted           |   | $                      | (.81    | )        |   | $       | .08     | 
|                                              |                                     |   |                        |         |          |   |         |        
|                                              | Dividends declared                  |   | $                      | .10     |          |   | $       | .20     | 
|                                              |                                     |   |                        |         |          |   |         |        

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)


|                            |                                                                                          |                                                                 |        |                        |         |          |        |        |         |  
|--------------------------- | ---------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ------ | ---------------------- | ------- | -------- | ------ | ------ | ------- | -
|                            |                                                                                          |                                                                 |        | Twenty-Six Weeks Ended
|                            |                                                                                          |                                                                 |        |                       
|                            |                                                                                          |                                                                 |        | March 1,               |         | Feb. 28,
|                            |                                                                                          |                                                                 |        | 2002                   |         | 2003    
|                            |                                                                                          |                                                                 |        |                        |         |         
|Operating activities        |                                                                                          |                                                                 |        |                        |         |          |        |       
|                            | Net income (loss)                                                                        |                                                                 | $      | (10,136                | )       |          | $      | 1,067  |        
|                            | Adjustments to reconcile net income (loss) to net
cash provided by operating activities: |                                                                 |        |                        |         |          |        |        |        
|                            |                                                                                          | Depreciation and amortization                                   |        |                        | 23,291  |          |        |        | 21,958  |  
|                            |                                                                                          | Provision for (benefit of) deferred income taxes                |        |                        | (2,276  | )        |        |        | 112     |  
|                            |                                                                                          | (Gain) loss on disposal of equipment and                        |        |                        | 4,709   |          |        |        | (12     | )
|                            |                                                                                          | facility restructuring charges
Sale of accounts receivable, net |        |                        | (10,500 | )        |        |        | (14,950 | )
|                            |                                                                                          | Changes in operating assets and liabilities                     |        |                        | 18,505  |          |        |        | 3,623   |  
|                            |                                                                                          |                                                                 |        |                        |         |          |        |       
|                            |                                                                                          | Net cash provided by operating activities                       |        |                        | 23,593  |          |        |        | 11,798  |  
|Investing activities        |                                                                                          |                                                                 |        |                        |         |          |        |       
|                            | Purchases of property, plant and equipment                                               |                                                                 |        | (7,708                 | )       |          |        | (8,049 | )      
|                            | Proceeds from sale of property, plant and equipment, and
assets held for sale            |                                                                 |        | 210                    |         |          |        | 1,238  |        
|                            |                                                                                          |                                                                 |        |                        |         |          |        |       
|                            |                                                                                          | Net cash used in investing activities                           |        |                        | (7,498  | )        |        |        | (6,811  | )
|Financing activities        |                                                                                          |                                                                 |        |                        |         |          |        |       
|                            | Net payments on revolving line of credit                                                 |                                                                 |        | (16,125                | )       |          |        | (4,025 | )      
|                            | Purchase and retirement of treasury stock                                                |                                                                 |        |                       |         |          |        | (1,181 | )      
|                            | Dividends paid                                                                           |                                                                 |        | (1,253                 | )       |          |        | (2,506 | )      
|                            |                                                                                          |                                                                 |        |                        |         |          |        |       
|                            |                                                                                          | Net cash used in financing activities                           |        |                        | (17,378 | )        |        |        | (7,712  | )
|                            |                                                                                          |                                                                 |        |                        |         |          |        |       
|Decrease in cash            |                                                                                          |                                                                 | (1,283 | )                      |         |          | (2,725 | )     
|Cash at beginning of period |                                                                                          |                                                                 | 2,969  |                        |         |          | 2,859  |       
|                            |                                                                                          |                                                                 |        |                        |         |          |        |       
|Cash at end of period       |                                                                                          | $                                                               | 1,686  |                        |         | $        | 134    |       
|                            |                                                                                          |                                                                 |        |                        |         |          |        |       

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)


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

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

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

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

In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation. Operating results for
the twenty-six weeks ended February 28, 2003 are not necessarily indicative of
the results that may be expected for the fiscal year ending August 29, 2003.

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

|                                                                     |  |          |        |          |  |   |        | 
|-------------------------------------------------------------------- |  | -------- | ------ | -------- |  | - | ------ | 
|                                                                     |  | Aug. 30, |        | Feb. 28,
|                                                                     |  | 2002     |        | 2003    
|                                                                     |  |          |        |         
|Finished goods                                                       |  | $        | 27,013 |          |  | $ | 34,312 | 
|Work in process                                                      |  |          | 33,586 |          |  |   | 37,176 | 
|Raw materials                                                        |  |          | 9,042  |          |  |   | 11,087 | 
|Dyes and chemicals                                                   |  |          | 6,163  |          |  |   | 5,632  | 
|                                                                     |  |          |        |          |  |   |        | 
|Inventories at FIFO                                                  |  |          | 75,804 |          |  |   | 88,207 | 
|Adjustment of carrying value to LIFO basis,
net of market adjustment |  |          | 4,900  |          |  |   | 4,600  | 
|                                                                     |  |          |        |          |  |   |        | 
|                                                                     |  |          | 80,704 |          |  |   | 92,807 | 
|Supplies at average cost                                             |  |          | 6,242  |          |  |   | 6,840  | 
|                                                                     |  |          |        |          |  |   |        | 
|                                                                     |  | $        | 86,946 |          |  | $ | 99,647 | 
|                                                                     |  |          |        |          |  |   |        | 

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

The Companys inventories at February 28, 2003 under the last-in,
first-out (LIFO) method and the related impact on the statement of income for
the twenty-six weeks then ended have been recorded using estimated quantities
and costs as of August 29, 2003, the end of fiscal 2003. As a result, these
interim amounts are subject to the final LIFO calculations for fiscal 2003.

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

|                                              |  |                      |        |                        |  |          |        |          |  |  |        |  |  |  |        | 
|--------------------------------------------- |  | -------------------- | ------ | ---------------------- |  | -------- | ------ | -------- |  |  | ------ |  |  |  | ------ | 
|                                              |  | Thirteen Weeks Ended |        | Twenty-Six Weeks Ended
|                                              |  |                      |        |                       
|                                              |  | March 1,             |        | Feb. 28,               |  | March 1, |        | Feb. 28,
|                                              |  | 2002                 |        | 2003                   |  | 2002     |        | 2003    
|                                              |  |                      |        |                        |  |          |        |         
|Weighted average shares outstanding  basic   |  |                      | 12,531 |                        |  |          | 12,493 |          |  |  | 12,531 |  |  |  | 12,512 | 
|Effect of employee stock options              |  |                      |       |                        |  |          |       |          |  |  |       |  |  |  | 94     | 
|                                              |  |                      |        |                        |  |          |        |          |  |  |        |  |  |  |        | 
|Weighted average shares outstanding  diluted |  |                      | 12,531 |                        |  |          | 12,493 |          |  |  | 12,531 |  |  |  | 12,606 | 
|                                              |  |                      |        |                        |  |          |        |          |  |  |        |  |  |  |        | 

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

|               |                                              |                                   |         |                      |         |                        |         |          |         |          |         |         |         |   |         |         |         | 
|-------------- | -------------------------------------------- | --------------------------------- | ------- | -------------------- | ------- | ---------------------- | ------- | -------- | ------- | -------- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|               |                                              |                                   |         | Thirteen Weeks Ended |         | Twenty-Six Weeks Ended
|               |                                              |                                   |         |                      |         |                       
|               |                                              |                                   |         | March 1,             |         | Feb. 28,               |         | March 1, |         | Feb. 28,
|               |                                              |                                   |         | 2002                 |         | 2003                   |         | 2002     |         | 2003    
|               |                                              |                                   |         |                      |         |                        |         |          |         |         
|Revenues:      |                                              |                                   |         |                      |         |                        |         |          |         |          |         |         |         |   |         |        
|               | Apparel fabrics                              |                                   | $       | 122,606              |         |                        | $       | 123,698  |         |          | $       | 243,512 |         |   | $       | 266,220 |        
|               | Yarns                                        |                                   |         | 41,791               |         |                        |         | 41,833   |         |          |         | 87,033  |         |   |         | 89,529  |        
|               | Other                                        |                                   |         | 16,103               |         |                        |         | 17,050   |         |          |         | 31,899  |         |   |         | 33,961  |        
|               |                                              |                                   |         |                      |         |                        |         |          |         |          |         |         |         |   |         |        
|               |                                              |                                   | 180,500 |                      |         |                        | 182,581 |          |         |          | 362,444 |         |         |   | 389,710 |        
|               | Less intersegment sales                      |                                   |         | 36,936               |         |                        |         | 40,963   |         |          |         | 69,806  |         |   |         | 80,910  |        
|               |                                              |                                   |         |                      |         |                        |         |          |         |          |         |         |         |   |         |        
|               |                                              | Total                             |         | $                    | 143,564 |                        |         | $        | 141,618 |          |         | $       | 292,638 |   |         | $       | 308,800 | 
|               |                                              |                                   |         |                      |         |                        |         |          |         |          |         |         |         |   |         |        
|Income (loss): |                                              |                                   |         |                      |         |                        |         |          |         |          |         |         |         |   |         |        
|               | Apparel fabrics                              |                                   | $       | 7,106                |         |                        | $       | 6,149    |         |          | $       | 12,755  |         |   | $       | 17,758  |        
|               | Yarns                                        |                                   |         | (2,410               | )       |                        |         | 561      |         |          |         | (5,116  | )       |   |         | 2,112   |        
|               | Other                                        |                                   |         | 490                  |         |                        |         | 1,541    |         |          |         | 685     |         |   |         | 2,134   |        
|               | Facility restructuring charges               |                                   |         |                     |         |                        |         |         |         |          |         | (6,500  | )       |   |         |        |        
|               | Unallocated                                  |                                   |         | (3,321               | )       |                        |         | (3,551   | )       |          |         | (7,539  | )       |   |         | (9,782  | )      
|               |                                              |                                   |         |                      |         |                        |         |          |         |          |         |         |         |   |         |        
|               |                                              | Total operating income (loss)     |         |                      | 1,865   |                        |         |          | 4,700   |          |         |         | (5,715  | ) |         |         | 12,222  | 
|               | Interest expense, net                        |                                   |         | 4,860                |         |                        |         | 4,563    |         |          |         | 10,174  |         |   |         | 9,090   |        
|               | Discount and expenses on sale of receivables |                                   |         | 345                  |         |                        |         | 705      |         |          |         | 916     |         |   |         | 1,417   |        
|               | Other expense (income), net                  |                                   |         | (138                 | )       |                        |         | (21      | )       |          |         | (139    | )       |   |         | (12     | )      
|               |                                              |                                   |         |                      |         |                        |         |          |         |          |         |         |         |   |         |        
|               |                                              | Income (loss) before income taxes |         | $                    | (3,202  | )                      |         | $        | (547    | )        |         | $       | (16,666 | ) |         | $       | 1,727   | 
|               |                                              |                                   |         |                      |         |                        |         |          |         |          |         |         |         |   |         |        

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

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

|                                                                 |  |                      |        |                        |  |          |      |          |  |   |         |   |  |   |       | 
|---------------------------------------------------------------- |  | -------------------- | ------ | ---------------------- |  | -------- | ---- | -------- |  | - | ------- | - |  | - | ----- | 
|                                                                 |  | Thirteen Weeks Ended |        | Twenty-Six Weeks Ended
|                                                                 |  |                      |        |                       
|                                                                 |  | March 1,             |        | Feb. 28,               |  | March 1, |      | Feb. 28,
|                                                                 |  | 2002                 |        | 2003                   |  | 2002     |      | 2003    
|                                                                 |  |                      |        |                        |  |          |      |         
|Net income (loss)                                                |  | $                    | (1,737 | )                      |  | $        | (342 | )        |  | $ | (10,136 | ) |  | $ | 1,067 | 
|Change in fair value of
interest rate swaps, net
of income taxes |  |                      | 116    |                        |  |          | 144  |          |  |   | (237    | ) |  |   | 242   | 
|                                                                 |  |                      |        |                        |  |          |      |          |  |   |         |   |  |   |       | 
|Comprehensive income (loss)                                      |  | $                    | (1,621 | )                      |  | $        | (198 | )        |  | $ | (10,373 | ) |  | $ | 1,309 | 
|                                                                 |  |                      |        |                        |  |          |      |          |  |   |         |   |  |   |       | 

6.     New Accounting Pronouncements: The Company adopted the provisions of
Statement of Financial Accounting Standard No. 142, Goodwill and Other
Intangible Assets, effective August 31, 2002, and ceased amortization of
goodwill on that date. The Company completed the transitional goodwill
impairment test as required by Statement No. 142 during the thirteen weeks
ended November 29, 2002 and determined that no impairment of goodwill should be
recorded. In accordance with the provisions of Statement No. 142, the adoption
of this accounting policy is reflected prospectively. Had the Company accounted
for goodwill in accordance with this policy in fiscal 2002, the net loss for
the twenty-six weeks ended March 1, 2002 would have been ($10.0) million or
($.80) per share-basic and ($.80) per share-diluted.

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

In December 2002, Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure,
established the accounting and disclosure requirements associated with
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation, and changed
certain disclosure requirements for companies electing to apply the intrinsic
value method. The Company plans to continue its use of the intrinsic value
method and does not believe the adoption of this statement will have a
significant effect on the consolidated financial statements of the Company.

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

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

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

8.     Purchase and retirement of treasury stock: During the thirteen weeks
ended February 28, 2003, the Company repurchased 75,000 shares of its Class A
Common Stock for an aggregate purchase price of approximately $1.2 million,
pursuant to an offer to sell made by the Avondale Mills, Inc. Associate Profit
Sharing and Savings Plan.

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

10.     Subsequent events: In response to the deterioration of domestic and
regional demand for heather and stock-dyed open-end yarns over the past several
years, the Company announced on March 12, 2003 the closing of an open-end yarn
manufacturing facility located in Alabama. Continued operation of this facility
could not be justified given the diminished volume and pricing for these
products. Production of stock-dyed yarns for internal consumption by the
apparel fabric operation will be shifted to other manufacturing facilities
within the Company. In connection with this action, the Company anticipates
recording facility restructuring charges and other non-operating costs of
approximately $2.7 million during the third quarter of fiscal 2003.

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




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

CRITICAL ACCOUNTING POLICIES

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

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

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

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

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

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

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

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

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

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

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RESULTS OF OPERATIONS

Thirteen Weeks Ended February 28, 2003 Compared to Thirteen Weeks Ended March 1, 2002

Net Sales.Net sales decreased 1.4% to $141.6 million for the thirteen
weeks ended February 28, 2003 from $143.6 million for the thirteen weeks ended
March 1, 2002. The decline in net sales primarily reflected reductions in yarn
and greige fabric sales and the corresponding increase in consumption of
internally produced yarns and greige fabrics within the Companys apparel
fabrics operation. Selling prices remained very competitive as domestic retail
sales of apparel continued to reflect weak consumer demand and a general
decline in consumer confidence reflective of the uncertainties presented by the
current economic and political environment. In addition, the strength of the
U.S. dollar in comparison to the currencies of many Asian countries continues
to promote the importation of goods from those countries by U.S. retailers,
exacerbating the already highly competitive market conditions resulting from
the imbalance of global supply and demand for textile and apparel products. The
Company expects these conditions to continue into the third quarter of fiscal
2003.

Operating Income.Operating income increased 147.4% to $4.7 million for
the thirteen weeks ended February 28, 2003, reflecting improved unit cost
absorption and operating efficiencies resulting from the increase in unit
production volume, as well as lower raw material costs, compared to $1.9
million for the thirteen weeks ended March 1, 2002. The Company continued to
benefit from its ability to produce and internally consume yarns and greige
fabrics in the production of its finished apparel fabrics, thereby maintaining
higher overall capacity utilization. Cost of goods sold decreased 3.6% to
$119.4 million for the thirteen weeks ended February 28, 2003 from $123.8
million for the thirteen weeks ended March 1, 2002. Cost of goods sold as a
percentage of net sales decreased to 84.3% for the thirteen weeks ended
February 28, 2003 from 86.2% for the thirteen weeks ended March 1, 2002.

Selling and administrative expenses were $6.7 million for the thirteen
weeks ended February 28, 2003 and March 1, 2002. Selling and administrative
expenses as a percentage of net sales were 4.7% for the thirteen weeks ended
February 28, 2003 and March 1, 2002.

Segment Performance.Apparel fabric sales increased 0.9% to $123.7
million for the thirteen weeks ended February 28, 2003 from $122.6 million for
the thirteen weeks ended March 1, 2002. The modest improvement in apparel
fabric sales reflected a 1.3% increase in yards sold, while average selling
price declined 0.4% for the respective periods. Operating income for apparel
fabrics decreased 14.1% to $6.1 million for the thirteen weeks ended February
28, 2003 from $7.1 million for the thirteen weeks ended March 1, 2002,
primarily due to a shift in product mix requiring higher unit conversion costs,
partially offset by improved unit volume and lower raw material costs.

Yarn sales, including increased intracompany sales to the apparel and
greige fabric operations, were $41.8 million for the thirteen weeks ended
February 28, 2003 and March 1, 2002, reflecting a 3.5% increase in pounds sold
offset by a 3.3% decrease in average selling price. Market pricing for sales
yarns remained very competitive, reflecting continued excess production
capacity within the domestic industry and continued imports of yarns and
knitted apparel from Asia. The yarn operations produced an operating income of
$0.6 million for the thirteen weeks ended February 28, 2003 compared to an
operating loss of ($2.4) million for the thirteen weeks ended March 1, 2002,
primarily as a result of the improved unit volume and lower raw material and
conversion costs.

Other sales, which include sales of greige and specialty fabrics and
revenues from the Companys trucking operation, increased 6.2% to $17.1 million
for the thirteen weeks ended February 28, 2003 from $16.1 million for the
thirteen weeks ended March 1, 2002. The increase in other sales was primarily
attributable to increased intracompany sales of greige fabrics to the apparel
fabric operation. Operating income from other sales increased 200.0% to $1.5
million for the thirteen weeks ended February 28, 2003 from $0.5 million for
the thirteen weeks ended March 1, 2002, primarily due to improved unit volume
and lower raw material costs.

Inter-segment sales increased 11.1% to $41.0 million for the thirteen
weeks ended February 28, 2003 from $36.9 million for the thirteen weeks ended
March 1, 2002, primarily reflecting the increase 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.

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Interest Expense, Net.Net interest expense decreased 6.1% to $4.6
million for the thirteen weeks ended February 28, 2003 from $4.9 million for
the thirteen weeks ended March 1, 2002. The decrease was primarily the result
of a lower average balance of borrowings outstanding during the thirteen weeks
ended February 28, 2003.

Discount and Expenses on Sale of Receivables.Discount and expenses on
sales of receivables were $0.7 million for the thirteen weeks ended February
28, 2003 compared to $0.3 million for the thirteen weeks ended March 1, 2002.
This increase was attributable to higher interest rates and enhanced
eligibility of receivables under the current securitization facility.

Benefit of Income Taxes.A benefit of income taxes of ($0.2) million was
recorded for the thirteen weeks ended February 28, 2003 compared to a benefit
of income taxes of ($1.5) million for the thirteen weeks ended March 1, 2002.

Twenty-six Weeks Ended February 28, 2003 Compared to Twenty-Six Weeks Ended March 1, 2002

Net Sales.Net sales increased 5.5% to $308.8 million for the twenty-six
weeks ended February 28, 2003 from $292.6 million for the twenty-six weeks
ended March 1, 2002. The increase in net sales primarily reflected improvement
in apparel fabric unit volume as the production curtailments experienced in the
twenty-six weeks ended March 1, 2002 were avoided and inventory levels were
tightly controlled. However, selling prices remained very competitive as
domestic retail sales of apparel continued to reflect weak consumer demand and
a general decline in consumer confidence reflective of the uncertainties
presented by the current economic and political environment. In addition, the
strength of the U.S. dollar in comparison to the currencies of many Asian
countries continues to promote the importation of goods from those countries by
U.S. retailers, exacerbating the already highly competitive market conditions
resulting from the imbalance of global supply and demand for textile and
apparel products. The Company expects these conditions to continue into the
third quarter of fiscal 2003.

Operating Income.Operating income increased to $12.2 million for the
twenty-six weeks ended February 28, 2003, reflecting improved unit cost
absorption and operating efficiencies resulting from the increase in unit
volume as well as lower raw material costs, compared to an operating loss of
($5.7) million for the twenty-six weeks ended March 1, 2002, which included
facility restructuring charges of $6.5 million. The Company continued to
benefit from its ability to produce and internally consume yarns and greige
fabrics in the production of its finished apparel fabrics, thereby maintaining
higher overall capacity utilization. Cost of goods sold increased 2.3% to
$260.5 million for the twenty-six weeks ended February 28, 2003 from $254.7
million for the twenty-six weeks ended March 1, 2002. Cost of goods sold as a
percentage of net sales decreased to 84.4% for the twenty-six weeks ended
February 28, 2003 from 87.0% for the twenty-six weeks ended March 1, 2002.

Selling and administrative expenses increased 1.4% to $14.4 million for
the twenty-six weeks ended February 28, 2003 from $14.2 million for the
twenty-six weeks ended March 1, 2002, reflecting an increase in the cost of
general liability and casualty insurance and certain associate benefits
programs. Selling and administrative expenses as a percentage of net sales
declined to 4.7% for the twenty-six weeks ended February 28, 2003 from 4.8% for
the twenty-six weeks ended March 1, 2002.

Segment Performance.Apparel fabric sales increased 9.3% to $266.2
million for the twenty-six weeks ended February 28, 2003 from $243.5 million
for the twenty-six weeks ended March 1, 2002. The improvement in apparel
fabric sales reflected a 10.2% increase in yards sold, while average selling
prices declined 0.8% for the respective periods. Operating income for apparel
fabrics increased 39.1% to $17.8 million for the twenty-six weeks ended
February 28, 2003 from $12.8 million for the twenty-six weeks ended March 1,
2002, primarily due to the improved unit volume and lower raw material costs.

Yarn sales, including increased intracompany sales to the apparel and
greige fabric operations, rose 2.9% to $89.5 million for the twenty-six weeks
ended February 28, 2003 from $87.0 million for the twenty-six weeks ended March
1, 2002, reflecting a 7.1% increase in pounds sold and a 4.0% decrease in
average selling price. Market pricing for sales yarns remained very
competitive, reflecting continued excess production capacity within the
domestic industry and continued imports of yarns and knitted apparel from Asia.
The yarn operations produced an operating income of $2.1 million for the
twenty-six weeks ended February 28, 2003 compared to an operating loss of
($5.1) million for the twenty-six weeks ended March 1, 2002, primarily as a
result of the improved unit volume and lower raw material and conversion costs.

Other sales, which include sales of greige and specialty fabrics and
revenues from the Companys trucking operation, increased 6.6% to $34.0 million
for the twenty-six weeks ended February 28, 2003 from $31.9 million for the
twenty-six weeks ended March 1, 2002. The increase in other sales was
primarily attributable to increased

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intracompany sales of greige fabrics to the apparel fabric operation.
Operating income from other sales increased 200.0% to $2.1 million for the
twenty-six weeks ended February 28, 2003 from $0.7 million for the twenty-six
weeks ended March 1, 2002, primarily due to improved unit volume and lower raw
material costs.

Inter-segment sales increased 15.9% to $80.9 million for the twenty-six
weeks ended February 28, 2003 from $69.8 million for the twenty-six weeks ended
March 1, 2002, primarily reflecting the increase 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 decreased 10.8% to $9.1
million for the twenty-six weeks ended February 28, 2003 from $10.2 million for
the twenty-six weeks ended March 1, 2002. The decrease was primarily the
result of a lower average balance of borrowings outstanding during the
twenty-six weeks ended February 28, 2003.

Discount and Expenses on Sale of Receivables.Discount and expenses on
sales of receivables were $1.4 million for the twenty-six weeks ended February
28, 2003 compared to $0.9 million for the twenty-six weeks ended March 1, 2002.
This increase was attributable to higher interest rates and enhanced
eligibility of receivables under the current securitization facility.

Provision for (Benefit of) Income Taxes.An income tax provision of $0.7
million was recorded for the twenty-six weeks ended February 28, 2003,
reflecting the Companys return to profitability, compared to a benefit of
income taxes of ($6.5) million for the twenty-six weeks ended March 1, 2002.

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

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $11.8 million for the
twenty-six weeks ended February 28, 2003. Principal working capital changes
included a $23.7 million decrease in accounts receivable, a $14.9 million
decrease in accounts receivable sold under the securitization facility, a $12.7
million increase in inventories, and a $6.3 million decrease in accounts
payable and accrued expenses. Investing activities were predominantly equipment
purchases and related costs of $8.0 million made in connection with the ongoing
modernization and maintenance of the Companys manufacturing facilities.
Financing activities included a $4.0 million net decrease in borrowings under
the revolving credit facility, payment of $2.5 million in dividends on
outstanding common stock and the purchase and retirement of treasury stock of
$1.2 million.

At February 28, 2003, the Company had borrowings of $21.0 million
outstanding under its revolving line of credit and $77.6 million of borrowing
availability thereunder.

The Companys capital expenditures, aggregating $8.0 million for the
twenty-six weeks ended February 28, 2003, were used primarily to initiate the
installation of an automated dye mixing and dispensing system at a fabric
finishing facility in South Carolina, purchase new roving equipment for a ring
spinning facility in Alabama and complete routine maintenance projects.
Management estimates that capital expenditures for the balance of fiscal 2003
will be approximately $9 million.

The receivables securitization facility is the Companys only off-balance
sheet financing arrangement. The Company generates funds through the sale of
accounts receivable to Funding, whose sole business purpose is the ongoing
acquisition and resale of specified trade receivables generated by the Company.
Funding retains no interest in the investment in the accounts receivable sold
to an independent issuer of receivables-backed commercial paper, and

13



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has not experienced any gains or losses on the sale of the investment in
accounts receivable. The Company believes minimal counter party risk exists due
to the financial strength of the independent issuer of the commercial paper.

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

SUBSEQUENT EVENTS

In response to the deterioration of domestic and regional demand for
heather and stock-dyed open-end yarns over the past several years, the Company
announced on March 12, 2003 the closing of an open-end yarn manufacturing
facility located in Alabama. Continued operation of this facility could not be
justified given the diminished volume and pricing for these products.
Production of stock-dyed yarns for internal consumption by the apparel fabric
operation will be shifted to other manufacturing facilities within the Company.
In connection with this action, the Company anticipates recording facility
restructuring charges and other non-operating costs of approximately $2.7
million during the third quarter of fiscal 2003.

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

FORWARD LOOKING STATEMENTS

Statements herein regarding anticipated capital expenditures and
anticipated performance in future periods constitute forward looking statements
within the meaning of the Securities Act of 1933 and Securities Exchange Act of
1934. In addition, the Companys management may from time to time make forward
looking statements in reports and other documents the Company files with the
Securities and Exchange Commission, or in connection with oral statements made
to the press, potential investors and others. Forward looking statements are
only predictions and are not guarantees of financial performance. Such
statements are subject to certain risks and uncertainties that could cause
actual amounts to differ materially from those projected. With respect to
anticipated capital expenditures, management has made certain assumptions
regarding, among other things, maintenance of existing facilities and
equipment, availability and desirability of new, technologically advanced
equipment, installation and start up times, cost estimates and continued
availability of financial resources. The estimated amount of capital
expenditures is subject to certain risks, including, among other things, the
risk that unexpected capital expenditures will be required and unexpected costs
and expenses will be incurred. Statements herein regarding the Companys
performance in future periods are subject to risks relating to, among other
things, the cyclical and competitive nature of the textile industry in general,
pressures on selling prices due to competitive and economic conditions,
deterioration of relationships with, or loss of, significant customers,
availability, sourcing and pricing of cotton and other raw materials,
technological advancements, employee relations, continued availability of
financial resources, difficulties integrating acquired businesses and possible
changes in governmental policies affecting international trade and raw material
costs. Management believes these forward-looking statements are reasonable;
however, undue reliance should not be placed on such 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.

14



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OTHER DATA    NON-GAAP FINANCIAL MEASURE

The following table sets forth EBITDA, which is a non-GAAP financial
measure, as well as a reconciliation of EBITDA to net income (loss). The
Company computes EBITDA by adding net income (loss), interest expense, net,
discount and expenses on sale of receivables, provision for (benefit of) income
taxes, depreciation and amortization, facility restructuring non cash charges
and adjustment of carrying value of inventories to LIFO basis, net of market
adjustments. EBITDA should be considered in addition to, not as a substitute
for or superior to, net income (loss), cash flows, and other measures of
financial performance prepared in accordance with GAAP. As EBITDA is not a
measure of performance calculated in accordance with GAAP, this measure may not
be comparable to similarly titled measures employed by other companies (amounts
in thousands):

|                                                                                    |  |                        |         |          |  |   |        | 
|----------------------------------------------------------------------------------- |  | ---------------------- | ------- | -------- |  | - | ------ | 
|                                                                                    |  | Twenty-Six Weeks Ended
|                                                                                    |  |                       
|                                                                                    |  | March 1,               |         | Feb. 28,
|                                                                                    |  | 2002                   |         | 2003    
|                                                                                    |  |                        |         |         
|Net income (loss)                                                                   |  | $                      | (10,136 | )        |  | $ | 1,067  | 
|Interest expense, net                                                               |  |                        | 10,174  |          |  |   | 9,090  | 
|Discount and expenses on sale of receivables                                        |  |                        | 916     |          |  |   | 1,417  | 
|Provision for (benefit of) income taxes                                             |  |                        | (6,530  | )        |  |   | 660    | 
|Depreciation and amortization                                                       |  |                        | 23,291  |          |  |   | 21,958 | 
|Facility restructuring non cash charges                                             |  |                        | 4,838   |          |  |   |       | 
|Adjustment of carrying value of inventories
to LIFO basis, net of market adjustment |  |                        | (1,200  | )        |  |   | 300    | 
|                                                                                    |  |                        |         |          |  |   |        | 
|EBITDA                                                                              |  | $                      | 21,353  |          |  | $ | 34,492 | 
|                                                                                    |  |                        |         |          |  |   |        | 




Item 3. Quantitative and Qualitative Disclosures about Market Risk.

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




Item 4. Controls and Procedures.

As required by the Securities and Exchange Commission, the Company has
performed an evaluation under the supervision and with the participation of the
Companys management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Companys
disclosure controls and procedures and internal controls. Based on that
evaluation, the Companys management, including the Chief Executive Officer and
Chief Financial Officer, conclude that the Companys disclosure controls and
procedures and internal controls were effective as of February 28, 2003. There
have been no significant changes in the Companys internal controls or in other
factors that could significantly affect internal controls subsequent to
February 28, 2003.

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

15



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##### Table of Contents



AVONDALE INCORPORATED




PART II  OTHER INFORMATION




Item 1. Legal Proceedings

None




Item 2. Changes in Securities and Use of Proceeds

None




Item 3. Defaults upon Senior Securities

None




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

None




Item 5. Other Information

None




Item 6. Exhibits and Reports on Form 8-K

|    |  |                    
|--- |  | -------------------
|(a) |  | Exhibits           
|    |  |                    
|    |  | None               
|    |  |                    
|(b) |  | Reports on Form 8-K
|    |  |                    
|    |  | None               

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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 INCORPORATED
|                    |  |  |                       |  |                                                               
|                    |  |  | By:                   |  | /s/ JACK R. ALTHERR, JR.                                      
|                    |  |  |                       |  |                                                               
|                    |  |  |                       |  | Jack R. Altherr, Jr.
Vice Chairman and Chief Financial Officer
|                    |  |  |                       |  |                                                               
|Date: April 9, 2003 |  |  |                       |  |                                                               

17



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##### Table of Contents






CERTIFICATION

I, G. Stephen Felker, certify that:



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



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



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



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



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

|                       |  |                                                                  
|---------------------- |  | -----------------------------------------------------------------
|Date:    April 9, 2003 |  | /s/ G. STEPHEN FELKER                                            
|                       |  |                                                                  
|                       |  | G. Stephen Felker
Chairman, President and Chief Executive Officer

18



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##### Table of Contents






CERTIFICATION

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



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



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



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



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



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

|                       |  |                                                               
|---------------------- |  | --------------------------------------------------------------
|Date:    April 9, 2003 |  | /s/ JACK R. ALTHERR, JR.                                      
|                       |  |                                                               
|                       |  | Jack R. Altherr, Jr.
Vice Chairman and Chief Financial Officer

19