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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended August 26, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 33-68412
 AVONDALE INCORPORATED
  Georgia
(State of Incorporation)
    
    58-0477150
(IRS Employer Identification No.)506 South Broad Street
Monroe, Georgia
(Address of principal executive offices)
    
    30655
(Zip code)
 (770) 267-2226  None  None
 þ o
 þ
 YES
o NO
þ
 YES
o NO
þ




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INDEX TO FORM 10-K
 AVONDALE INCORPORATED
  
 PageReferencePART IItem  1.
    
    Business
    
    
    2Item  2.
    
    Properties
    
    
    10Item  3.
    
    Legal Proceedings
    
    
    10Item  4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    11PART IIItem  5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    12Item  6.
    
    Selected Financial Data
    
    
    13Item  7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    15Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item  8.
    
    Financial Statements and Supplementary Data
    
    
    37Item  9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    70Item  9A.
    
    Controls and Procedures
    
    
    70Item  9B.
    
    Other Information
    
    
    70Part IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    71Item 11.
    
    Executive Compensation
    
    
    74Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    79Item 13.
    
    Certain Relationships and Related Transactions
    
    
    82Item 14.
    
    Principal Accounting Fees and Services
    
    
    82PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    83EX-12.1 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESEX-21.1 LIST OF SUBSIDIARIESEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFO




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PART I
 Unless the context otherwise requires, references herein to the Company refer to Avondale
Incorporated and its subsidiaries and any reference to a fiscal year of the Company refers to the
Companys fiscal year ending on the last Friday in August in such year.
 
 ITEM 1. BUSINESS.
 General
    Description of the Business
  Products
 Apparel fabrics.
   2




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Yarns
 Other.
    Intersegment Sales
 Sales and Marketing
  3




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Manufacturing
  Manufacturing Processes.
   Manufacturing Facilities.
   4




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Raw Materials
       5




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6




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Seasonality
  Backlog
  Competition
   Trade Regulation
   7




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1 2
 8




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Governmental Regulation
     9




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Associates
  
 ITEM 2. PROPERTIES.
    
 ITEM 3. LEGAL PROCEEDINGS.
   10




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  11




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
  1 4
    12




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ITEM 6. SELECTED FINANCIAL DATA.
  Fiscal Year2001
    
    2002
    
    2003
    
    2004
    
    2005(In millions, except per share data and ratios)Statement of Operations Data:Net sales
    
    $
    772.8
    
    
    $
    659.7
    
    
    $
    590.9
    
    
    $
    564.8
    
    
    $
    569.2Gross profit
    
    
    60.9
    
    
    
    54.0
    
    
    
    41.2
    
    
    
    16.7
    
    
    
    35.1Restructuring charges, net
    
    
    
    
    
    
    7.0
    
    
    
    2.5
    
    
    
    1.7
    
    
    
    Operating income (loss)
    
    
    27.9
    
    
    
    18.7
    
    
    
    12.6
    
    
    
    (10.8
    )
    
    
    10.8Interest expense, net
    
    
    20.4
    
    
    
    18.4
    
    
    
    19.0
    
    
    
    17.8
    
    
    
    15.3Discount and expenses on sale of receivables
    
    
    4.9
    
    
    
    1.1
    
    
    
    2.6
    
    
    
    2.4
    
    
    
    2.3Loss (gain) on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    3.2
    
    
    
    (17.0
    )
    
    
    (.2
    )Other expense (income), net
    
    
    0.8
    
    
    
    (0.5
    )
    
    
    (0.1
    )
    
    
    (2.9
    )
    
    
    (2.3
    )Income (loss) before income taxes
    
    
    1.8
    
    
    
    (0.3
    )
    
    
    (12.2
    )
    
    
    (11.1
    )
    
    
    (4.3
    )Provision for (benefit of) income taxes
    
    
    0.5
    
    
    
    (0.2
    )
    
    
    (4.5
    )
    
    
    (4.9
    )
    
    
    (1.7
    )Net income (loss)
    
    
    1.3
    
    
    
    (0.1
    )
    
    
    (7.7
    )
    
    
    (6.2
    )
    
    
    (2.6
    )Per Share Data:Net income (loss)  basic
    
    $
    0.10
    
    
    $
    (0.01
    )
    
    $
    (0.62
    )
    
    $
    (0.50
    )
    
    $
    (0.21
    )Net income (loss)  diluted
    
    
    0.10
    
    
    
    (0.01
    )
    
    
    (0.62
    )
    
    
    (0.50
    )
    
    
    (0.21
    )Dividends declared
    
    
    0.40
    
    
    
    0.30
    
    
    
    0.40
    
    
    
    0.20
    
    
    
    Weighted average number of shares outstanding  basic
    
    
    12.5
    
    
    
    12.5
    
    
    
    12.5
    
    
    
    12.4
    
    
    
    12.4Weighted average number of shares outstanding  diluted
    
    
    12.7
    
    
    
    12.5
    
    
    
    12.5
    
    
    
    12.4
    
    
    
    12.4Balance Sheet Data (at period end):Total assets
    
    $
    453.0
    
    
    $
    397.4
    
    
    $
    359.5
    
    
    $
    328.5
    
    
    $
    325.9Long-term debt, including current portion
    
    
    230.1
    
    
    
    170.0
    
    
    
    167.8
    
    
    
    145.4
    
    
    
    140.9Shareholders equity
    
    
    130.0
    
    
    
    130.3
    
    
    
    116.0
    
    
    
    107.3
    
    
    
    104.8Other Data:Capital expenditures
    
    $
    91.1
    
    
    $
    13.1
    
    
    $
    16.7
    
    
    $
    6.3
    
    
    $
    9.0Depreciation and amortization
    
    
    46.4
    
    
    
    45.5
    
    
    
    42.2
    
    
    
    37.3
    
    
    
    33.8Adjusted EBITDA(1)
    
    
    75.5
    
    
    
    67.9
    
    
    
    60.3
    
    
    
    37.7
    
    
    
    45.3
 
 (1)
    
    EBITDA and Adjusted EBITDA are presented as management believes these measures to be widely
accepted indicators of a companys ability to service its indebtedness and are used by
investors and analysts to evaluate companies within the textile and apparel industry. EBITDA
is commonly defined as net income (loss) plus (a) interest expense, (b) provision for (benefit
of) income taxes and (c) depreciation and amortization. Adjusted EBITDA, as defined by the
Company, differs due to the further addition to net income (loss) of (a) discount and expenses
on sales of receivables, (b) gain on extinguishment of debt, (c) restructuring noncash charges
and (d) adjustment of carrying value of inventories to LIFO basis. Adjusted EBITDA is also
presented because it is a defined value used in the calculation of certain financial
covenants, including an interest coverage ratio, a fixed charge coverage ratio and minimum
Adjusted EBITDA, under the Companys revolving credit facility, accounts receivable
securitization facility, equipment note, senior notes due 2012 and subordinated notes due 2013
(the Facilities). The Company presents Adjusted EBITDA to facilitate verification, by its
lenders and noteholders, of the Companys compliance with these financial covenants. If the
Company is unable to comply with these financial covenants, incurrence of additional
indebtedness may be limited and events of default may be triggered. Under the most restrictive
of these financial covenants applicable to fiscal 2005, in
the event that combined excess availability under the revolving credit facility and the
Receivables Securitization Facility falls 13




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below $20 million for a period of four consecutive
weeks, the Company must maintain an interest coverage ratio greater than 2.0, a fixed charge
coverage ratio greater than 1.50 and minimum annual Adjusted EBITDA of greater than $45.0
million. As of August 26, 2005, the Company was in compliance with each of these financial
covenants. Failure to comply with one or more of these covenants could have a material adverse
effect on the Companys financial condition. As defined in the Facilities, discount and expenses on sales of receivables are to be treated as
interest expense in calculating the financial covenants. In addition, noncash items such as
gains or losses on extinguishment of debt, restructuring charges and equipment disposals, and
adjustments of carrying value of inventories to LIFO basis are to be excluded in the calculation
of Adjusted EBITDA.Adjusted EBITDA as calculated in accordance with the Facilities is not necessarily comparable to
similarly titled measures used by other companies. Adjusted EBITDA (a) does not represent net
income (loss) or cash flow from operations as defined by generally accepted accounting
principles; (b) is not necessarily indicative of cash available to fund cash requirements; and
(c) should not be considered an alternative to operating income, net income (loss) or net cash
provided by operating activities as determined in accordance with GAAP.The following table reconciles Adjusted EBITDA on a consolidated basis to the line on the
Companys consolidated statement of operations entitled net income (loss) for the periods
presented in the table above:
 Fiscal Year2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005Net income (loss)
    
    $
    1.3
    
    
    $
    (0.1
    )
    
    $
    (7.7
    )
    
    $
    (6.2
    )
    
    $
    (2.6
    )Interest expense, net
    
    
    20.4
    
    
    
    18.5
    
    
    
    19.0
    
    
    
    17.8
    
    
    
    15.3Provision for (benefit of) income taxes
    
    
    0.5
    
    
    
    (0.2
    )
    
    
    (4.5
    )
    
    
    (4.9
    )
    
    
    (1.7
    )Depreciation and amortization
    
    
    46.4
    
    
    
    45.5
    
    
    
    42.2
    
    
    
    37.3
    
    
    
    33.8EBITDA
    
    
    68.6
    
    
    
    63.7
    
    
    
    49.0
    
    
    
    44.0
    
    
    
    44.8Discount and expenses on sales of
receivables
    
    
    4.9
    
    
    
    1.1
    
    
    
    2.6
    
    
    
    2.4
    
    
    
    2.3Loss (gain) on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    3.2
    
    
    
    (17.0
    )
    
    
    (.2
    )Restructuring charges , net and other
equipment disposals (non-cash portion).
    
    
    
    
    
    
    5.3
    
    
    
    4.2
    
    
    
    3.1
    
    
    
    Adjustment of carrying value of
inventories to LIFO basis, net of
market adjustment
    
    
    2.0
    
    
    
    (2.2
    )
    
    
    1.3
    
    
    
    5.2
    
    
    
    (1.6
    )Adjusted EBITDA
    
    $
    75.5
    
    
    $
    67.9
    
    
    $
    60.3
    
    
    $
    37.7
    
    
    $
    45.3Net cash provided by (used in)
operating activities
    
    $
    48.1
    
    
    $
    71.7
    
    
    $
    35.3
    
    
    $
    (2.0
    )
    
    $
    10.0Net cash provided by (used in)
investing activities
    
    $
    (90.3
    )
    
    $
    (12.3
    )
    
    $
    (12.8
    )
    
    $
    1.0
    
    
    $
    (6.3
    )Net cash provided by (used in)
financing activities
    
    $
    37.3
    
    
    $
    (59.4
    )
    
    $
    (11.6
    )
    
    $
    (6.9
    )
    
    $
    (4.3
    )
 14




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
  Overview
     15




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Results of Operations
   Fiscal Year2003
    
    2004
    
    2005Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Apparel fabric sales
    
    
    79.6
    
    
    
    74.4
    
    
    
    74.0Yarn sales
    
    
    28.4
    
    
    
    31.6
    
    
    
    31.5Other sales
    
    
    11.2
    
    
    
    10.6
    
    
    
    5.8Intersegment sales
    
    
    (19.2
    )
    
    
    (16.6
    )
    
    
    (11.3
    )Cost of goods sold:Raw materials
    
    
    30.7
    
    
    
    40.4
    
    
    
    37.1Conversion costs
    
    
    55.3
    
    
    
    50.1
    
    
    
    56.3Total
    
    
    86.0
    
    
    
    90.5
    
    
    
    88.0Depreciation
    
    
    7.1
    
    
    
    6.5
    
    
    
    5.8Selling and administrative expenses
    
    
    4.4
    
    
    
    4.6
    
    
    
    4.3Restructuring charges, net
    
    
    0.4
    
    
    
    0.3
    
    
    
    Operating income
    
    
    2.1
    
    
    
    (1.9
    )
    
    
    1.9Interest expense, net
    
    
    3.2
    
    
    
    3.2
    
    
    
    2.7Discount and expenses on sales of receivables
    
    
    0.4
    
    
    
    0.4
    
    
    
    0.4Loss (gain) on extinguishment of debt
    
    
    0.6
    
    
    
    (3.0
    )
    
    
    Provision for income taxes
    
    
    (0.8
    )
    
    
    (0.9
    )
    
    
    (0.3
    )Net income
    
    
    (1.3
    )
    
    
    (1.1
    )
    
    
    (0.5
    )
 Fiscal 2005 Compared to Fiscal 2004
 Net Sales.
 Operating Income
 16




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Results of Operations (continued)
   Segment Performance
     17




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Results of Operations (continued)
 Interest Expense, Net.
 Discount and Expenses on Sale of Receivables.
 Gain on extinguishment of debt.
 Provision for Income Taxes.
 Fiscal 2004 Compared to Fiscal 2003
 Net Sales.
 Operating Income
  Segment Performance
 18




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Results of Operations (continued)
      Interest Expense, Net.
 Discount and Expenses on Sale of Receivables.
 Gain on Extinguishment of Debt
 Provision for Income Taxes.
 19




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Results of Operations (continued)
 Restructuring Charges, net.
    20




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Liquidity and Capital Resources
 General
  Revolving Credit Facility
     21




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Liquidity and Capital Resources (continued)
 Equipment Note
  Receivables Securitization Facility
      22




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Liquidity and Capital Resources (continued)
 Senior Notes
     Senior Subordinated Notes
   23




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Liquidity and Capital Resources (continued)
  Covenant Compliance
  Capital Expenditures and Cash Flows Analysis
   24




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Liquidity and Capital Resources (continued)
    Payments Due by PeriodLess than 1
    
    
    1 - 3
    
    
    3 - 5
    
    
    AfterContractual Obligations
    
    Total
    
    
    year
    
    
    years
    
    
    years
    
    
    5 yearsLong-term debt
    
    $
    140,864
    
    
    $
    4,325
    
    
    $
    4,862
    
    
    $
    
    
    
    $
    131,677Interest on Long-term debt
    
    
    102,166
    
    
    
    14,486
    
    
    
    28,154
    
    
    
    27,972
    
    
    
    31,554Operating leases
    
    
    5,875
    
    
    
    2,216
    
    
    
    2,929
    
    
    
    730
    
    
    
    Purchase orders issued:Machinery and equipment
    
    
    1,502
    
    
    
    1,502
    
    
    
    
    
    
    
    
    
    
    
    Train derailment remediation
    
    
    6,097
    
    
    
    6,097
    
    
    
    
    
    
    
    
    
    
    
    Raw materials
    
    
    26,195
    
    
    
    26,195
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    282,699
    
    
    $
    54,821
    
    
    $
    35,945
    
    
    $
    28,702
    
    
    $
    163,231
 25




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Liquidity and Capital Resources (continued)
   Off-Balance Sheet Financing Arrangements
  26




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January 6, 2005 Train Derailment
         27




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Critical Accounting Policies
  Significant estimates:
  Accounts Receivable and Credit Risks:
  Derailment related expenditures and insurance claims receivable:
 28




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Inventories:
 Government Cotton Support Programs:
  Long-Lived Assets: :
 Revenue Recognition:
 Contingencies:
 29




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New Accounting Standards
     31




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Forward Looking Statements
   
    
    cyclical and competitive nature of the textile industry;
    
    pressures on selling prices due to competitive and economic conditions;
    
    deterioration of relationships with, or loss of, significant customers;
    
    strength of the U.S. dollar versus the currencies of other textile producing countries;
    
    changes in trade policies, including textile quotas and tariffs, and the
elimination of import quotas under the World Trade Organization effective December 31,
2004;
    
    ability to identify and respond to fashion trends;
    
    availability and pricing of cotton and other raw materials;
    
    changes in government policies affecting raw material costs, including the
impact of World Trade Organization rulings against the U.S. agricultural support
programs;
    
    availability and desirability of technological advancements;
    
    retention of key management personnel;
    
    continued availability of financial resources;
    
    changes in environmental, health and safety regulations;
    
    political or military responses to terrorist activities; and
    
    our ability to recover claims from insurance and third parties related to
the January 6, 2005 train derailment.
  32




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Other Data
    33




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Fiscal Year2003
    
    
    2004
    
    
    2005Net income (loss)
    
    $
    (7,738
    )
    
    $
    (6,237
    )
    
    $
    (2,569
    )Interest expense, net
    
    
    19,034
    
    
    
    17,788
    
    
    
    15,307Benefit of income taxes
    
    
    (4,495
    )
    
    
    (4,915
    )
    
    
    (1,725
    )Depreciation and amortization
    
    
    42,204
    
    
    
    37,268
    
    
    
    33,789EBITDA
    
    
    49,005
    
    
    
    43,904
    
    
    
    44,802Discount and expenses on
sale of receivables
    
    
    2,596
    
    
    
    2,419
    
    
    
    2,254Loss (gain) on extinguishment of debt
    
    
    3,236
    
    
    
    (17,000
    )
    
    
    (162
    )Restructuring charges, net and other equipment disposals (non-cash portion)
    
    
    4,140
    
    
    
    3,140
    
    
    
    Adjustment of carrying value of inventories
to LIFO basis, net of market adjustment
    
    
    1,335
    
    
    
    5,210
    
    
    
    (1,645
    )Adjusted EBITDA
    
    $
    60,312
    
    
    $
    37,673
    
    
    $
    45,249Net cash provided by (used in) operating
activities
    
    $
    35,278
    
    
    $
    (1,994
    )
    
    $
    10,031Net cash provided by (used in) investing
activities
    
    $
    (12,765
    )
    
    $
    567
    
    
    $
    (6,254
    )Net cash used in financing activities
    
    $
    (11,603
    )
    
    $
    (6,861
    )
    
    $
    (4,325
    )
 34




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Subsequent events
     35




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
   36




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 AVONDALE INCORPORATED
 CONSOLIDATED FINANCIAL STATEMENTS
 Years Ended August 29, 2003, August 27, 2004
and August 26, 2005
 PageReport of Independent Registered Public Accounting Firm
    
    
    38Consolidated Balance Sheets
    
    
    39Consolidated Statements of Operations
    
    
    40Consolidated Statements of Shareholders Equity
    
    
    41Consolidated Statements of Cash Flows
    
    
    42Notes to Consolidated Financial Statements
    
    
    43
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
       
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AVONDALE INCORPORATED
 
 CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
 August 27,
    
    
    August 26,2004
    
    
    2005ASSETSCurrent assetsCash and cash equivalents
    
    $
    5,481
    
    
    $
    4,933Accounts receivable, less allowance for doubtful accounts of
$1,015 in 2004 and $809 in 2005
    
    
    50,975
    
    
    
    65,170Inventories
    
    
    78,282
    
    
    
    83,194Prepaid expenses
    
    
    1,275
    
    
    
    535Insurance claims receivable
    
    
    
    
    
    
    5,266Income taxes refundable
    
    
    506
    
    
    
    144Total current assets
    
    
    136,519
    
    
    
    159,242Assets held for sale
    
    
    1,037
    
    
    
    700Property, plant and equipmentLand
    
    
    6,289
    
    
    
    6,262Buildings
    
    
    75,771
    
    
    
    76,068Machinery and equipment
    
    
    465,647
    
    
    
    461,931547,707
    
    
    
    544,261Less accumulated depreciation
    
    
    (365,755
    )
    
    
    (386,646
    )181,952
    
    
    
    157,615Goodwill
    
    
    2,951
    
    
    
    2,951Other assets
    
    
    6,023
    
    
    
    5,374$
    328,482
    
    
    $
    325,882LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    24,167
    
    
    $
    31,588Accrued compensation, benefits and related expenses
    
    
    10,440
    
    
    
    11,825Accrued interest
    
    
    2,403
    
    
    
    2,322Other accrued expenses
    
    
    9,340
    
    
    
    8,781Long-term debt due in one year
    
    
    4,325
    
    
    
    4,325Total current liabilities
    
    
    50,675
    
    
    
    58,841Long-term debt
    
    
    141,039
    
    
    
    136,539Deferred income taxes and other long-term liabilities
    
    
    29,439
    
    
    
    25,742Commitments and contingenciesShareholders equityPreferred stock$.01 par value; 10,000 shares authorized
    
    
    
    
    
    
    Common stockClass A, $.01 par value; 100,000 shares authorized; issued and
outstanding  11,394 shares in 2004 and 2005
    
    
    114
    
    
    
    114Class B, $.01 par value; 5,000 shares authorized; issued and
outstanding  979 shares in 2004 and 2005
    
    
    10
    
    
    
    10Capital in excess of par value
    
    
    39,170
    
    
    
    39,170Retained earnings
    
    
    68,035
    
    
    
    65,466Total shareholders equity
    
    
    107,329
    
    
    
    104,760$
    328,482
    
    
    $
    325,882
  39




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##### Table of Contents



AVONDALE INCORPORATED
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 Fiscal Year EndedAugust 29,
    
    
    August 27,
    
    
    August 26,2003
    
    
    2004
    
    
    2005Net sales
    
    $
    590,862
    
    
    $
    564,777
    
    
    $
    569,207Operating costs and expensesCost of goods sold
    
    
    507,846
    
    
    
    511,305
    
    
    
    501,136Depreciation
    
    
    41,842
    
    
    
    36,732
    
    
    
    32,925Selling and administrative expenses
    
    
    26,143
    
    
    
    25,909
    
    
    
    24,356Restructuring charges, net
    
    
    2,450
    
    
    
    1,680
    
    
    
    Operating income (loss)
    
    
    12,581
    
    
    
    (10,849
    )
    
    
    10,790Interest expense, net
    
    
    19,034
    
    
    
    17,788
    
    
    
    15,307Discounts and expenses on sales of receivables
    
    
    2,596
    
    
    
    2,419
    
    
    
    2,254Loss (gain) on extinguishment of debt
    
    
    3,236
    
    
    
    (17,000
    )
    
    
    (162
    )Other income, net
    
    
    (52
    )
    
    
    (2,904
    )
    
    
    (2,315
    )Loss before income taxes
    
    
    (12,233
    )
    
    
    (11,152
    )
    
    
    (4,294
    )Benefit of income taxes
    
    
    (4,495
    )
    
    
    (4,915
    )
    
    
    (1,725
    )Net loss
    
    $
    (7,738
    )
    
    $
    (6,237
    )
    
    $
    (2,569
    )Per share dataNet loss  basic
    
    $
    (.62
    )
    
    $
    (.50
    )
    
    $
    (.21
    )Net loss  diluted
    
    $
    (.62
    )
    
    $
    (.50
    )
    
    $
    (.21
    )Dividends declared
    
    $
    .40
    
    
    $
    .20
    
    
    $
    
  40




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##### Table of Contents



AVONDALE INCORPORATED
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(In thousands, except per share data)
 AccumulatedCommon Stock
    
    
    Capital in
    
    
    Other
    
    
    
    
    
    
    TotalIssued
    
    
    Excess of
    
    
    Comprehensive
    
    
    Retained
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Par Value
    
    
    Loss
    
    
    Earnings
    
    
    EquityBalance at August 30, 2002
    
    
    12,531
    
    
    $
    125
    
    
    $
    39,669
    
    
    $
    (889
    )
    
    $
    91,350
    
    
    $
    130,255Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,738
    )
    
    
    (7,738
    )Change in fair value of interest rate
swaps, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    738
    
    
    
    
    
    
    
    738Cash dividends ($0.40 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,990
    )
    
    
    (4,990
    )Purchase and retirement of treasury stock
    
    
    (150
    )
    
    
    (1
    )
    
    
    (475
    )
    
    
    
    
    
    
    (1,838
    )
    
    
    (2,314
    )Balance at August 29, 2003
    
    
    12,381
    
    
    
    124
    
    
    
    39,194
    
    
    
    (151
    )
    
    
    76,784
    
    
    
    115,951Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,237
    )
    
    
    (6,237
    )Change in fair value of interest rate
swaps, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    151
    
    
    
    
    
    
    
    151Cash dividends ($0.20 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,476
    )
    
    
    (2,476
    )Purchase and retirement of treasury stock
    
    
    (8
    )
    
    
    
    
    
    
    (24
    )
    
    
    
    
    
    
    (36
    )
    
    
    (60
    )Balance at August 27, 2004
    
    
    12,373
    
    
    
    124
    
    
    
    39,170
    
    
    
    
    
    
    
    68,035
    
    
    
    107,329Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,569
    )
    
    
    (2,569
    )Balance at August 26, 2005
    
    
    12,373
    
    
    $
    124
    
    
    $
    39,170
    
    
    $
    
    
    
    $
    65,466
    
    
    $
    104,760
  41




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##### Table of Contents



AVONDALE INCORPORATED
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Fiscal Year EndedAugust 29,
    
    
    August 27,
    
    
    August 26,2003
    
    
    2004
    
    
    2005Operating activitiesNet loss
    
    $
    (7,738
    )
    
    $
    (6,237
    )
    
    $
    (2,569
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activitiesDepreciation and amortization
    
    
    42,204
    
    
    
    37,268
    
    
    
    33,789Benefit of deferred income taxes
    
    
    (4,913
    )
    
    
    (5,036
    )
    
    
    (1,429
    )Loss (gain) on disposal of equipment and
restructuring charges, net
    
    
    2,175
    
    
    
    (2,127
    )
    
    
    (1,997
    )Loss (gain) on extinguishment of debt
    
    
    3,236
    
    
    
    (17,000
    )
    
    
    (162
    )Sales of accounts receivable, net
    
    
    (21,313
    )
    
    
    (10,971
    )
    
    
    (25,164
    )Changes in operating assets and liabilitiesAccounts receivable
    
    
    35,461
    
    
    
    (10,847
    )
    
    
    10,969Inventories
    
    
    4,059
    
    
    
    4,605
    
    
    
    (4,912
    )Insurance claims receivable
    
    
    
    
    
    
    
    
    
    
    (5,266
    )Other assets and liabilities, net
    
    
    (2,664
    )
    
    
    2,516
    
    
    
    (1,394
    )Accounts payable and accrued expenses
    
    
    (15,229
    )
    
    
    5,835
    
    
    
    8,166Net cash provided by (used in) operating activities
    
    
    35,278
    
    
    
    (1,994
    )
    
    
    10,031Investing activitiesPurchase of property, plant and equipment
    
    
    (16,703
    )
    
    
    (6,298
    )
    
    
    (8,970
    )Proceeds from sale of property, plant and equipment
and assets held for sale
    
    
    3,938
    
    
    
    6,865
    
    
    
    2,716Net cash provided by (used in) investing activities
    
    
    (12,765
    )
    
    
    567
    
    
    
    (6,254
    )Financing activitiesPayments on long-term debt
    
    
    (129,299
    )
    
    
    (4,325
    )
    
    
    (4,325
    )Payments on revolving line of credit, net
    
    
    (25,000
    )
    
    
    
    
    
    
    Issuance of long-term debt
    
    
    150,000
    
    
    
    
    
    
    
    Purchase and retirement of treasury stock
    
    
    (2,314
    )
    
    
    (60
    )
    
    
    Dividends paid
    
    
    (4,990
    )
    
    
    (2,476
    )
    
    
    Net cash used in financing activities
    
    
    (11,603
    )
    
    
    (6,861
    )
    
    
    (4,325
    )Increase (decrease) in cash and cash equivalents
    
    
    10,910
    
    
    
    (8,288
    )
    
    
    (548
    )Cash and cash equivalents at beginning of year
    
    
    2,859
    
    
    
    13,769
    
    
    
    5,481Cash and cash equivalents at end of year
    
    $
    13,769
    
    
    $
    5,481
    
    
    $
    4,933
  42




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##### Table of Contents



AVONDALE INCORPORATED
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 26, 2005
 Basis of Presentation:
    Significant estimates:
 Cash and Cash Equivalents:
 Accounts Receivable and Credit Risks:
 Derailment related expenditures and insurance claims receivable:
 43




---



##### Table of Contents



Inventories:
 Government Cotton Support Programs:
  Property, Plant and Equipment:
 Long-Lived Assets:
 Associate Benefit Plans:
 44




---



##### Table of Contents



Self-insurance Programs:
   Other Assets and Other Long-Term Liabilities:
 Fair Value of Financial Instruments:
 Earnings Per Share:
 2003
    
    2004
    
    2005Weighted average shares outstanding -
Basic
    
    
    12,458
    
    
    
    12,378
    
    
    
    12,373Effect of employee and director stock options
    
    
    
    
    
    
    
    
    
    
    Weighted average shares outstanding -
Diluted
    
    
    12,458
    
    
    
    12,378
    
    
    
    12,373
 Stock Based Compensation:
 Revenue Recognition:
 45




---



##### Table of Contents



Recent Accounting Pronouncements:
    46




---



##### Table of Contents



January 6, 2005 Train Derailment:
        47




---



##### Table of Contents



Restructuring Charges, net
   Loss (Gain) on Extinguishment of Debt 1 4
   Segment Information
 48




---



##### Table of Contents



2003
    
    
    2004
    
    
    2005Revenues:Apparel fabrics
    
    $
    470,159
    
    
    $
    420,302
    
    
    $
    421,054Yarns
    
    
    167,541
    
    
    
    178,588
    
    
    
    179,131Other
    
    
    66,056
    
    
    
    59,826
    
    
    
    33,206703,756
    
    
    
    658,716
    
    
    
    633,391Less intersegment sales
    
    
    112,894
    
    
    
    93,939
    
    
    
    64,184Total
    
    $
    590,862
    
    
    $
    564,777
    
    
    $
    569,207Income (loss):Apparel fabrics
    
    $
    28,514
    
    
    $
    4,651
    
    
    $
    4,844Yarns
    
    
    46
    
    
    
    1,136
    
    
    
    15,083Other
    
    
    4,432
    
    
    
    4,893
    
    
    
    4,553Unallocated
    
    
    (20,411
    )
    
    
    (21,529
    )
    
    
    (13,690
    )Total operating income (loss)
    
    
    12,581
    
    
    
    (10,849
    )
    
    
    10,790Interest expense
    
    
    19,034
    
    
    
    17,788
    
    
    
    15,307Discounts and expenses on sales of
receivables
    
    
    2,596
    
    
    
    2,419
    
    
    
    2,254Loss (gain) on extinguishment of debt
    
    
    3,236
    
    
    
    (17,000
    )
    
    
    (162
    )Other income, net
    
    
    (52
    )
    
    
    (2,904
    )
    
    
    (2,315
    )Loss before income taxes
    
    $
    (12,233
    )
    
    $
    (11,152
    )
    
    $
    (4,294
    )Identifiable assets:Apparel fabrics
    
    $
    226,777
    
    
    $
    221,664
    
    
    $
    222,917Yarns
    
    
    67,177
    
    
    
    61,144
    
    
    
    59,432Other
    
    
    13,088
    
    
    
    11,776
    
    
    
    9,934Unallocated
    
    
    52,464
    
    
    
    33,898
    
    
    
    33,599Total
    
    $
    359,506
    
    
    $
    328,482
    
    
    $
    325,882Depreciation and amortization:Apparel fabrics
    
    $
    26,689
    
    
    $
    23,842
    
    
    $
    23,111Yarns
    
    
    10,133
    
    
    
    9,326
    
    
    
    8,226Other
    
    
    2,282
    
    
    
    1,316
    
    
    
    293Unallocated
    
    
    3,100
    
    
    
    2,784
    
    
    
    2,159Total
    
    $
    42,204
    
    
    $
    37,268
    
    
    $
    33,789
 49




---



##### Table of Contents



2003
    
    
    2004
    
    
    2005Capital expenditures:Apparel fabrics
    
    $
    9,930
    
    
    $
    3,679
    
    
    $
    4,423Yarns
    
    
    5,440
    
    
    
    1,401
    
    
    
    1,785Other
    
    
    371
    
    
    
    484
    
    
    
    600Unallocated
    
    
    962
    
    
    
    734
    
    
    
    2,162Total
    
    $
    16,703
    
    
    $
    6,298
    
    
    $
    8,970Geographic sales information:United States
    
    $
    542,192
    
    
    $
    475,351
    
    
    $
    471,349All other
    
    
    48,670
    
    
    
    89,426
    
    
    
    97,858Total
    
    $
    590,862
    
    
    $
    564,777
    
    
    $
    569,207
 Comprehensive Loss:
 2003
    
    
    2004
    
    
    2005Net loss
    
    $
    (7,738
    )
    
    $
    (6,237
    )
    
    $
    (2,569
    )Change in fair value of interest rate swaps,
net of income taxes
    
    
    738
    
    
    
    151
    
    
    
    Comprehensive loss
    
    $
    (7,000
    )
    
    $
    (6,086
    )
    
    $
    (2,569
    )
 . Derivatives
 Receivables Securitization Facilities:
  50




---



##### Table of Contents



August 29,
    
    
    August 27,
    
    
    August 26,2003
    
    
    2004
    
    
    2005Balance of accounts receivable sold
    
    $
    74,479
    
    
    $
    76,774
    
    
    $
    67,677Retained interest
    
    
    21,233
    
    
    
    34,499
    
    
    
    50,566Balance of net accounts receivable sold
    
    $
    53,246
    
    
    $
    42,275
    
    
    $
    17,111
 2003
    
    
    2004
    
    
    2005Proceeds from securitization of receivables
    
    $
    549,973
    
    
    $
    482,649
    
    
    $
    480,423Discount on sales of receivables
    
    $
    3,524
    
    
    $
    3,181
    
    
    $
    2,969Service and other fees
    
    
    (928
    )
    
    
    (762
    )
    
    
    (715
    )Discount and expenses on sales of receivables
    
    $
    2,596
    
    
    $
    2,419
    
    
    $
    2,254Credit losses on receivables sold
    
    $
    218
    
    
    $
    276
    
    
    $
    745
 51




---



##### Table of Contents



Inventories:
 August 27,
    
    
    August 26,2004
    
    
    2005Finished goods
    
    $
    29,187
    
    
    $
    34,891Work in process
    
    
    33,047
    
    
    
    31,855Raw materials
    
    
    8,173
    
    
    
    6,702Dyes and chemicals
    
    
    4,096
    
    
    
    4,14774,503
    
    
    
    77,595Adjustment of carrying value to LIFO basis,
net of market adjustment
    
    
    (1,645
    )
    
    
    72,858
    
    
    
    77,595Supplies at average cost
    
    
    5,424
    
    
    
    5,599$
    78,282
    
    
    $
    83,194
 Income Taxes:
 2003
    
    
    2004
    
    
    2005Current:Federal
    
    $
    364
    
    
    $
    50
    
    
    $
    (387
    )State
    
    
    54
    
    
    
    71
    
    
    
    91418
    
    
    
    121
    
    
    
    (296
    )Deferred:Federal
    
    
    (4,280
    )
    
    
    (4,367
    )
    
    
    (1,213
    )State
    
    
    (633
    )
    
    
    (669
    )
    
    
    (216
    )(4,913
    )
    
    
    (5,036
    )
    
    
    (1,429
    )$
    (4,495
    )
    
    $
    (4,915
    )
    
    $
    (1,725
    )
  2003
    
    
    2004
    
    
    2005Federal income tax benefit at statutory rate
    
    $
    (4,282
    )
    
    $
    (3,903
    )
    
    $
    (1,503
    )State income tax benefits, net of federal tax effect
    
    
    (376
    )
    
    
    (389
    )
    
    
    (81
    )Appreciated value of charitable contributions
    
    
    
    
    
    
    (562
    )
    
    
    Other
    
    
    163
    
    
    
    61
    
    
    
    (141
    )$
    (4,495
    )
    
    $
    (4,915
    )
    
    $
    (1,725
    )
  52




---



##### Table of Contents



August 27,
    
    
    August 26,2004
    
    
    2005Deferred tax liabilities:Depreciation
    
    $
    20,688
    
    
    $
    17,997Inventory valuation
    
    
    9,048
    
    
    
    8,081Other
    
    
    1,249
    
    
    
    1,65130,985
    
    
    
    27,729Deferred tax assets:Employee benefit programs
    
    
    6,133
    
    
    
    5,730Receivable reserves
    
    
    2,203
    
    
    
    1,819Net operating loss and contribution carryforwards
    
    
    2,612
    
    
    
    2,738Other
    
    
    2,386
    
    
    
    1,22013,334
    
    
    
    11,507Net deferred tax liabilities
    
    $
    17,651
    
    
    $
    16,222
 Long-term Debt:
 August 27,
    
    
    August 26,2004
    
    
    2005Revolving credit facility, interest tied to banks base
rate or alternative rates, 5.25% - 7.25% in
2005, due March 2006
    
    $
    
    
    
    $
    Equipment note, 5.18% - 7.19% in 2005, due in monthly
installments of approximately $360 beginning March 2004,
with final payment of approximately $876 due August 2007
    
    
    13,512
    
    
    
    9,187Floating rate senior notes, interest tied to LIBOR plus 7.0%,
8.75% - 10.5% in 2005, due July 1, 2012
    
    
    41,177
    
    
    
    41,677Senior subordinated notes, 101/4%, due July 1, 2013
    
    
    90,675
    
    
    
    90,000145,364
    
    
    
    140,864Less current portion
    
    
    (4,325
    )
    
    
    (4,325
    )$
    141,039
    
    
    $
    136,539
   53




---



##### Table of Contents



54




---



##### Table of Contents



2006
    
    $
    4,3252007
    
    
    4,8622012 and thereafter
    
    
    131,677$
    140,864
  Postretirement Benefits:
 55




---



##### Table of Contents



2004
    
    
    2005Beginning balance
    
    $
    7,750
    
    
    $
    7,045Service cost
    
    
    103
    
    
    
    Interest cost
    
    
    458
    
    
    
    213Amortization of prior service cost
    
    
    332
    
    
    
    (509
    )Benefits paid
    
    
    (1,537
    )
    
    
    (620
    )Actuarial gain
    
    
    (61
    )
    
    
    Ending balance
    
    $
    7,045
    
    
    $
    6,129
  August 27,
    
    
    August 26,2004
    
    
    2005Accumulated post retirement
benefit obligation
    
    $
    (3,651
    )
    
    $
    (3,637
    )Unrecognized prior service cost
    
    
    (3,729
    )
    
    
    (3,219
    )Unrecognized net (gain) loss
    
    
    335
    
    
    
    727Accrued postretirement benefit liability
    
    $
    (7,045
    )
    
    $
    (6,129
    )
  2003
    
    
    2004
    
    
    2005Service cost
    
    $
    111
    
    
    $
    103
    
    
    $
    Interest cost
    
    
    532
    
    
    
    458
    
    
    
    213Net amortization
    
    
    332
    
    
    
    332
    
    
    
    (509
    )Recognized actuarial gain
    
    
    (97
    )
    
    
    (61
    )
    
    
    Net postretirement benefit cost
    
    $
    878
    
    
    $
    832
    
    
    $
    (296
    )
 56




---



##### Table of Contents



Medicare
    
    Non MedicareEligible
    
    EligibleParticipants
    
    Participants2004
    
    
    11.5
    %
    
    
    9.5
    %2005
    
    
    9.5
    %
    
    
    9.5
    %2006
    
    
    9.0
    %
    
    
    9.0
    %2007
    
    
    8.5
    %
    
    
    8.5
    %2008
    
    
    8.0
    %
    
    
    8.0
    %2009
    
    
    7.5
    %
    
    
    7.5
    %2010
    
    
    7.0
    %
    
    
    7.0
    %2011
    
    
    6.5
    %
    
    
    6.5
    %2020
    
    
    6.0
    %
    
    
    6.0
    %2013
    
    
    5.5
    %
    
    
    5.5
    %2014 and thereafter
    
    
    5.0
    %
    
    
    5.0
    %
  One
    
    
    OnePercentage
    
    
    PercentagePoint
    
    
    PointIncrease
    
    
    DecreaseEffect on total service and interest cost
    
    $
    6
    
    
    $
    (6
    )Effect on post retirement benefit obligation
    
    $
    120
    
    
    $
    (106
    )
  2006
    
    $
    4562007
    
    
    4422008
    
    
    4202009
    
    
    4012010
    
    
    3802011 - 2015
    
    
    1,545$
    3,644
  57




---



##### Table of Contents



Common Stock:
    Grant Price Per Share$12.50
    
    
    $18.00
    
    
    $19.00Stock options outstanding at August 30, 2002
    
    
    475
    
    
    
    248
    
    
    
    100Options exercised
    
    
    (10
    )
    
    
    
    
    
    
    Stock options outstanding at August 29, 2003
    
    
    465
    
    
    
    248
    
    
    
    100Options forfeited
    
    
    
    
    
    
    
    
    
    
    (10
    )Stock options outstanding at August 27, 2004
    
    
    465
    
    
    
    248
    
    
    
    90Options forfeited
    
    
    
    
    
    
    (55
    )
    
    
    (20
    )Options expired
    
    
    (465
    )
    
    
    
    
    
    
    Stock options outstanding at August 26, 2005
    
    
    
    
    
    
    193
    
    
    
    70Average contractual life remaining in years
    
    
    
    
    
    
    0.8
    
    
    
    4.3Stock options exercisable at August 26, 2005
    
    
    
    
    
    
    193
    
    
    
    70
   58




---



##### Table of Contents



2003
    
    
    2004
    
    
    2005Net loss:As reported
    
    $
    (7,738
    )
    
    $
    (6,237
    )
    
    $
    (2,569
    )Fair value stock based
compensation, net of tax
    
    
    (35
    )
    
    
    (35
    )
    
    
    (9
    )Pro forma
    
    $
    (7,773
    )
    
    $
    (6,272
    )
    
    $
    (2,578
    )Net loss per share:BasicAs reported
    
    $
    (.62
    )
    
    $
    (.50
    )
    
    $
    (.21
    )Pro forma
    
    
    (.62
    )
    
    
    (.51
    )
    
    
    (.21
    )DilutedAs reported
    
    $
    (.62
    )
    
    $
    (.50
    )
    
    $
    (.21
    )Pro forma
    
    
    (.62
    )
    
    
    (.51
    )
    
    
    (.21
    )
   Commitments and Contingencies:
   59




---



##### Table of Contents



2006
    
    $
    2,2162007
    
    
    2,0392008
    
    
    8902009
    
    
    5162010
    
    
    214$
    5,875
  60




---



##### Table of Contents



Related Party Transactions:
 Subsequent Events:
   Consolidating Guarantor and Non-Guarantor Information:
 61




---



##### Table of Contents



AVONDALE INCORPORATED
CONSOLIDATING BALANCE SHEETS
August 26, 2005
(amounts in thousands)
 Non-GuarantorAvondaleMillsGuarantor
    
    
    GranitevilleAvondale
    
    
    Avondale
    
    
    Fabrics,Mills, Inc.
    
    
    Incorporated
    
    
    Inc.
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assetsCash and cash equivalents
    
    $
    4,933
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    4,933Accounts receivable
    
    
    65,167
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    65,170Inventories
    
    
    83,194
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,194Prepaid expenses
    
    
    535
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    535Insurance claims receivable
    
    
    5,266
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,266Income taxes refundable
    
    
    144
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    144Total current assets
    
    
    159,239
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    159,242Assets held for sale
    
    
    700
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    700Property, plant and equipmentLand
    
    
    6,067
    
    
    
    
    
    
    
    195
    
    
    
    
    
    
    
    6,262Buildings
    
    
    64,318
    
    
    
    
    
    
    
    11,750
    
    
    
    
    
    
    
    76,068Machinery and equipment
    
    
    424,036
    
    
    
    
    
    
    
    37,895
    
    
    
    
    
    
    
    461,931494,421
    
    
    
    
    
    
    
    49,840
    
    
    
    
    
    
    
    544,261Less accumulated depreciation
    
    
    (353,727
    )
    
    
    
    
    
    
    (32,919
    )
    
    
    
    
    
    
    (386,646
    )140,694
    
    
    
    
    
    
    
    16,921
    
    
    
    
    
    
    
    157,615Goodwill
    
    
    2,951
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,951Investment in subsidiaries
    
    
    5,668
    
    
    
    94,299
    
    
    
    
    
    
    
    (99,967
    )
    
    
    Other assets
    
    
    5,374
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,374$
    314,626
    
    
    $
    94,299
    
    
    $
    16,924
    
    
    $
    (99,967
    )
    
    $
    325,882LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    30,662
    
    
    $
    
    
    
    $
    926
    
    
    $
    
    
    
    $
    31,588Accrued compensation, benefits
    
    
    11,720
    
    
    
    
    
    
    
    105
    
    
    
    
    
    
    
    11,825Accrued interest
    
    
    2,322
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,322Other accrued expenses
    
    
    8,779
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    8,781Long-term debt due in one year
    
    
    4,325
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,325Total current liabilities
    
    
    57,808
    
    
    
    
    
    
    
    1,033
    
    
    
    
    
    
    
    58,841Long-term debt
    
    
    136,539
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    136,539Deferred income taxes
and other long term liabilities
    
    
    25,742
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,742Due to (from) subsidiaries
    
    
    238
    
    
    
    (10,461
    )
    
    
    10,223
    
    
    
    
    
    
    
    Shareholders equity
    
    
    94,299
    
    
    
    104,760
    
    
    
    5,668
    
    
    
    (99,967
    )
    
    
    104,760$
    314,626
    
    
    $
    94,299
    
    
    $
    16,924
    
    
    $
    (99,967
    )
    
    $
    325,882
 62




---



##### Table of Contents



AVONDALE INCORPORATED
CONSOLIDATING BALANCE SHEETS
August 27, 2004
(amounts in thousands)
 Non-GuarantorAvondaleMillsGuarantor
    
    
    GranitevilleAvondale
    
    
    Avondale
    
    
    Fabrics,Mills, Inc.
    
    
    Incorporated
    
    
    Inc.
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assetsCash and cash equivalents
    
    $
    5,481
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    5,481Accounts receivable
    
    
    50,973
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    50,975Inventories
    
    
    78,282
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78,282Prepaid expenses
    
    
    1,275
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,275Income taxes refundable
    
    
    506
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    506Total current assets
    
    
    136,517
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    136,519Assets held for sale
    
    
    1,037
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,037Property, plant and equipmentLand
    
    
    6,093
    
    
    
    
    
    
    
    196
    
    
    
    
    
    
    
    6,289Buildings
    
    
    64,021
    
    
    
    
    
    
    
    11,750
    
    
    
    
    
    
    
    75,771Machinery and equipment
    
    
    427,807
    
    
    
    
    
    
    
    37,840
    
    
    
    
    
    
    
    465,647497,921
    
    
    
    
    
    
    
    49,786
    
    
    
    
    
    
    
    547,707Less accumulated depreciation
    
    
    (336,477
    )
    
    
    
    
    
    
    (29,278
    )
    
    
    
    
    
    
    (365,755
    )161,444
    
    
    
    
    
    
    
    20,508
    
    
    
    
    
    
    
    181,952Goodwill
    
    
    2,951
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,951Investment in subsidiaries
    
    
    7,840
    
    
    
    96,943
    
    
    
    
    
    
    
    (104,783
    )
    
    
    Other assets
    
    
    6,023
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,023$
    315,812
    
    
    $
    96,943
    
    
    $
    20,510
    
    
    $
    (104,783
    )
    
    $
    328,482LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    23,051
    
    
    $
    
    
    
    $
    1,116
    
    
    $
    
    
    
    $
    24,167Accrued compensation, benefits
    
    
    10,333
    
    
    
    
    
    
    
    107
    
    
    
    
    
    
    
    10,440Accrued interest
    
    
    2,403
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,403Other accrued expenses
    
    
    9,339
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    9,340Long-term debt due in one year
    
    
    4,325
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,325Total current liabilities
    
    
    49,451
    
    
    
    
    
    
    
    1,224
    
    
    
    
    
    
    
    50,675Long-term debt
    
    
    141,039
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    141,039Deferred income taxes
and other long term liabilities
    
    
    29,439
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,439Due to (from) subsidiaries
    
    
    (1,060
    )
    
    
    (10,386
    )
    
    
    11,446
    
    
    
    
    
    
    
    Shareholders equity
    
    
    96,943
    
    
    
    107,329
    
    
    
    7,840
    
    
    
    (104,783
    )
    
    
    107,329$
    315,812
    
    
    $
    96,943
    
    
    $
    20,510
    
    
    $
    (104,783
    )
    
    $
    328,482
 63




---



##### Table of Contents



AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF OPERATIONS
For the Fiscal Year ended August 26, 2005
(amounts in thousands)
 Non-GuarantorAvondaleMillsGuarantor
    
    
    GranitevilleAvondale
    
    
    Avondale
    
    
    Fabrics,Mills, Inc.
    
    
    Incorporated
    
    
    Inc.
    
    
    Eliminations
    
    
    ConsolidatedNet sales, including intercompany
transfers and charges
    
    $
    569,207
    
    
    $
    120
    
    
    $
    98,070
    
    
    $
    (98,190
    )
    
    $
    569,207Operating costs and expensesCost of goods sold
    
    
    501,359
    
    
    
    
    
    
    
    97,847
    
    
    
    (98,070
    )
    
    
    501,136Depreciation
    
    
    29,235
    
    
    
    
    
    
    
    3,690
    
    
    
    
    
    
    
    32,925Selling and administrative expenses
    
    
    24,476
    
    
    
    
    
    
    
    
    
    
    
    (120
    )
    
    
    24,356Restructuring charges, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating income (loss)
    
    
    14,137
    
    
    
    120
    
    
    
    (3,467
    )
    
    
    
    
    
    
    10,790Interest expense, net
    
    
    15,307
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,307Discounts and expenses on sales
of receivables
    
    
    2,254
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,254Gain on extinguishment of debt
    
    
    (162
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (162
    )Other income, net
    
    
    (2,315
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,315
    )Income (loss) before income taxes
    
    
    (947
    )
    
    
    120
    
    
    
    (3,467
    )
    
    
    
    
    
    
    (4,294
    )Provision for (benefit of) income taxes
    
    
    (475
    )
    
    
    45
    
    
    
    (1,295
    )
    
    
    
    
    
    
    (1,725
    )Equity in income (loss) of subsidiary
    
    
    (2,172
    )
    
    
    (2,644
    )
    
    
    
    
    
    
    4,816
    
    
    
    Net loss
    
    $
    (2,644
    )
    
    $
    (2,569
    )
    
    $
    (2,172
    )
    
    $
    4,816
    
    
    $
    (2,569
    )
 64




---



##### Table of Contents



AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF OPERATIONS
For the Fiscal Year ended August 27, 2004
(amounts in thousands)
 Non-GuarantorAvondaleMillsGuarantor
    
    
    GranitevilleAvondale
    
    
    Avondale
    
    
    Fabrics,Mills, Inc.
    
    
    Incorporated
    
    
    Inc.
    
    
    Eliminations
    
    
    ConsolidatedNet sales, including intercompany
transfers and charges
    
    $
    564,777
    
    
    $
    110
    
    
    $
    103,311
    
    
    $
    (103,421
    )
    
    $
    564,777Operating costs and expensesCost of goods sold
    
    
    514,486
    
    
    
    
    
    
    
    100,148
    
    
    
    (103,311
    )
    
    
    511,305Depreciation
    
    
    32,996
    
    
    
    
    
    
    
    3,736
    
    
    
    
    
    
    
    36,732Selling and administrative expenses
    
    
    26,019
    
    
    
    
    
    
    
    
    
    
    
    (110
    )
    
    
    25,909Restructuring charges, net
    
    
    1,680
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,680Operating income (loss)
    
    
    (10,386
    )
    
    
    110
    
    
    
    (573
    )
    
    
    
    
    
    
    (10,849
    )Interest expense, net
    
    
    17,788
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,788Discounts and expenses on sales
of receivables
    
    
    2,419
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,419Gain on extinguishment of debt
    
    
    (17,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,000
    )Other income, net
    
    
    (2,904
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,904
    )Income (loss) before income taxes
    
    
    (10,689
    )
    
    
    110
    
    
    
    (573
    )
    
    
    
    
    
    
    (11,152
    )Provision for (benefit of) income taxes
    
    
    (4,744
    )
    
    
    40
    
    
    
    (211
    )
    
    
    
    
    
    
    (4,915
    )Equity in income (loss) of subsidiary
    
    
    (362
    )
    
    
    (6,307
    )
    
    
    
    
    
    
    6,669
    
    
    
    Net loss
    
    $
    (6,307
    )
    
    $
    (6,237
    )
    
    $
    (362
    )
    
    $
    6,669
    
    
    $
    (6,237
    )
 65




---



##### Table of Contents



AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF OPERATIONS
For the Fiscal Year ended August 29, 2003
(amounts in thousands)
 Non-GuarantorAvondaleMillsGuarantor
    
    
    GranitevilleAvondale
    
    
    Avondale
    
    
    Fabrics,Mills, Inc.
    
    
    Incorporated
    
    
    Inc.
    
    
    Eliminations
    
    
    ConsolidatedNet sales, including intercompany
transfers and charges
    
    $
    590,862
    
    
    $
    111
    
    
    $
    89,247
    
    
    $
    (89,358
    )
    
    $
    590,862Operating costs and expensesCost of goods sold
    
    
    512,319
    
    
    
    
    
    
    
    84,774
    
    
    
    (89,247
    )
    
    
    507,846Depreciation
    
    
    37,855
    
    
    
    
    
    
    
    3,987
    
    
    
    
    
    
    
    41,842Selling and administrative expenses
    
    
    26,254
    
    
    
    
    
    
    
    
    
    
    
    (111
    )
    
    
    26,143Restructuring charges, net
    
    
    2,450
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,450Operating income
    
    
    11,984
    
    
    
    111
    
    
    
    486
    
    
    
    
    
    
    
    12,581Interest expense, net
    
    
    19,034
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,034Discounts and expenses on sales
of receivables
    
    
    2,596
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,596Loss on extinguishment of debt
    
    
    3,236
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,236Other income, net
    
    
    (52
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (52
    )Income (loss) before income taxes
    
    
    (12,830
    )
    
    
    111
    
    
    
    486
    
    
    
    
    
    
    
    (12,233
    )Provision for (benefit of) income taxes
    
    
    (4,725
    )
    
    
    45
    
    
    
    185
    
    
    
    
    
    
    
    (4,495
    )Equity in income (loss) of subsidiary
    
    
    301
    
    
    
    (7,804
    )
    
    
    
    
    
    
    7,503
    
    
    
    Net income (loss)
    
    $
    (7,804
    )
    
    $
    (7,738
    )
    
    $
    301
    
    
    $
    7,503
    
    
    $
    (7,738
    )
 66




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##### Table of Contents



AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Fiscal Year ended August 26, 2005
(amounts in thousands)
 Non-GuarantorAvondaleMillsGuarantor
    
    
    GranitevilleAvondale
    
    
    Avondale
    
    
    Fabrics,Mills, Inc.
    
    
    Incorporated
    
    
    Inc.
    
    
    Eliminations
    
    
    ConsolidatedOperating activitiesNet loss
    
    $
    (2,644
    )
    
    $
    (2,569
    )
    
    $
    (2,172
    )
    
    $
    4,816
    
    
    $
    (2,569
    )Adjustments to reconcile net loss
to net cash provided by operating
activities:Depreciation and amortization
    
    
    30,099
    
    
    
    
    
    
    
    3,690
    
    
    
    
    
    
    
    33,789Benefit of deferred income taxes
    
    
    (1,429
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,429
    )Gain on disposal of equipment and
restructuring charges, net
    
    
    (1,997
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,997
    )Gain on extinguishment of debt
    
    
    (162
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (162
    )Sale of accounts receivable, net
    
    
    (25,164
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,164
    )Changes in operating assets and
liabilities
    
    
    9,053
    
    
    
    (75
    )
    
    
    (1,415
    )
    
    
    
    
    
    
    7,563Equity in loss of subsidiary
    
    
    2,172
    
    
    
    2,644
    
    
    
    
    
    
    
    (4,816
    )
    
    
    Net cash provided by
operating activities
    
    
    9,928
    
    
    
    
    
    
    
    103
    
    
    
    
    
    
    
    10,031Investing activitiesPurchase of property, plant and equipment
    
    
    (8,867
    )
    
    
    
    
    
    
    (103
    )
    
    
    
    
    
    
    (8,970
    )Proceeds from sale of property, plant
and equipment and assets held for sale
    
    
    2,716
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,716Net cash used in investing activities
    
    
    (6,151
    )
    
    
    
    
    
    
    (103
    )
    
    
    
    
    
    
    (6,254
    )Financing activitiesPayments on long-term debt
    
    
    (4,325
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,325
    )Net cash used in financing activities
    
    
    (4,325
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,325
    )Decrease in cash and cash equivalents
    
    
    (548
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (548
    )Cash and cash equivalents at beginning of
year
    
    
    5,481
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,481Cash and cash equivalents at end of year
    
    $
    4,933
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    4,933
 67




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AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Fiscal Year ended August 27, 2004
(amounts in thousands)
 Non-GuarantorAvondaleMillsGuarantor
    
    
    GranitevilleAvondale
    
    
    Avondale
    
    
    Fabrics,Mills, Inc.
    
    
    Incorporated
    
    
    Inc.
    
    
    Eliminations
    
    
    ConsolidatedOperating activitiesNet loss
    
    $
    (6,307
    )
    
    $
    (6,237
    )
    
    $
    (362
    )
    
    $
    6,429
    
    
    $
    (6,237
    )Adjustments to reconcile net loss
to net cash provided by operating
activities:Depreciation and amortization
    
    
    33,532
    
    
    
    
    
    
    
    3,736
    
    
    
    
    
    
    
    37,268Benefit of deferred income taxes
    
    
    (5,036
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,036
    )Gain on disposal of equipment and
restructuring charges, net
    
    
    (2,127
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,127
    )Gain on extinguishment of debt
    
    
    (17,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,000
    )Sale of accounts receivable, net
    
    
    (10,971
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,971
    )Changes in operating assets and
liabilities
    
    
    5,464
    
    
    
    (10
    )
    
    
    (3,345
    )
    
    
    
    
    
    
    2,109Dividends from subsidiary
    
    
    
    
    
    
    2,476
    
    
    
    
    
    
    
    (2,476
    )
    
    
    Equity in loss of subsidiary
    
    
    362
    
    
    
    6,307
    
    
    
    
    
    
    
    (6,429
    )
    
    
    Net cash provided by (used in)
operating activities
    
    
    (2,083
    )
    
    
    2,536
    
    
    
    29
    
    
    
    (2,476
    )
    
    
    (1,994
    )Investing activitiesPurchase of property, plant and equipment
    
    
    (6,269
    )
    
    
    
    
    
    
    (29
    )
    
    
    
    
    
    
    (6,298
    )Proceeds from sale of property, plant
and equipment and assets held for sale
    
    
    6,865
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,865Net cash provided by (used in)
investing activities
    
    
    596
    
    
    
    
    
    
    
    (29
    )
    
    
    
    
    
    
    567Financing activitiesPayments on long-term debt
    
    
    (4,325
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,325
    )Purchase and retirement of treasury
stock
    
    
    
    
    
    
    (60
    )
    
    
    
    
    
    
    
    
    
    
    (60
    )Dividends paid
    
    
    (2,476
    )
    
    
    (2,476
    )
    
    
    
    
    
    
    2,476
    
    
    
    (2,476
    )Net cash used in financing activities
    
    
    (6,801
    )
    
    
    (2,536
    )
    
    
    
    
    
    
    2,476
    
    
    
    (6,861
    )Decrease in cash and cash equivalents
    
    
    (8,288
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,288
    )Cash and cash equivalents at beginning of
year
    
    
    13,769
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,769Cash and cash equivalents at end of year
    
    $
    5,481
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    5,481
 68




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AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Fiscal Year ended August 29, 2003
(amounts in thousands)
 Non-GuarantorAvondaleMillsGuarantor
    
    
    GranitevilleAvondale
    
    
    Avondale
    
    
    Fabrics,Mills, Inc.
    
    
    Incorporated
    
    
    Inc.
    
    
    Eliminations
    
    
    ConsolidatedOperating activitiesNet income (loss)
    
    $
    (7,804
    )
    
    $
    (7,738
    )
    
    $
    301
    
    
    $
    7,503
    
    
    $
    (7,738
    )Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:Depreciation and amortization
    
    
    38,217
    
    
    
    
    
    
    
    3,987
    
    
    
    
    
    
    
    42,204Benefit of deferred income taxes
    
    
    (4,913
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,913
    )Loss on disposal of equipment and
restructuring charges, net
    
    
    2,175
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,175Loss on extinguishment of debt
    
    
    3,236
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,236Sale of accounts receivable, net
    
    
    (21,313
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,313
    )Changes in operating assets and liabilities
    
    
    23,202
    
    
    
    2,248
    
    
    
    (3,823
    )
    
    
    
    
    
    
    21,627Dividends from subsidiary
    
    
    
    
    
    
    4,990
    
    
    
    
    
    
    
    (4,990
    )
    
    
    Equity in loss (income) of subsidiary
    
    
    (301
    )
    
    
    7,804
    
    
    
    
    
    
    
    (7,503
    )
    
    
    Net cash provided by operating
activities
    
    
    32,499
    
    
    
    7,304
    
    
    
    465
    
    
    
    (4,990
    )
    
    
    35,278Investing activitiesPurchase of property, plant and equipment
    
    
    (16,238
    )
    
    
    
    
    
    
    (465
    )
    
    
    
    
    
    
    (16,703
    )Proceeds from sale of property, plant
and equipment
    
    
    3,938
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,938Net cash used in investing activities
    
    
    (12,300
    )
    
    
    
    
    
    
    (465
    )
    
    
    
    
    
    
    (12,765
    )Financing activitiesNet payments on revolving line of
credit and long-term debt
    
    
    (154,299
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (154,299
    )Issuance of long term debt
    
    
    150,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,000Purchase and retirement of treasury stock
    
    
    
    
    
    
    (2,314
    )
    
    
    
    
    
    
    
    
    
    
    (2,314
    )Dividends paid
    
    
    (4,990
    )
    
    
    (4,990
    )
    
    
    
    
    
    
    4,990
    
    
    
    (4,990
    )Net cash used in financing activities
    
    
    (9,289
    )
    
    
    (7,304
    )
    
    
    
    
    
    
    4,990
    
    
    
    (11,603
    )Increase in cash and cash equivalents
    
    
    10,910
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,910Cash at beginning of year
    
    
    2,859
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,859Cash and cash equivalents at end of year
    
    $
    13,769
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    13,769
 69




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
  
 ITEM 9A. CONTROLS AND PROCEDURES.
   
 ITEM 9B. OTHER INFORMATION.
  70




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##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
  Name
    
    Age
    
    Positions HeldG. Stephen Felker
    
    53
    
    Chairman of the Board and Chief Executive
Officer of the Company and Avondale MillsJack R. Altherr, Jr.
    
    56
    
    Vice Chairman, Chief Financial Officer, and
Director of the Company and Avondale MillsKeith M. Hull
    
    52
    
    President and Chief Operating Officer of the
Company and Avondale MillsM. Delen Boyd
    
    49
    
    Vice President, Controller and Secretary of the Company
and Avondale MillsSharon L. Rodgers
    
    49
    
    Vice President, Human Resources of Avondale Mills and
Assistant Secretary of the Company and Avondale MillsDale J. Boden(1)
    
    48
    
    Director of the Company and Avondale MillsKenneth H. Callaway(1)
    
    50
    
    Director of the Company and Avondale MillsRobert B. Calhoun(1)(2)(3).
    
    63
    
    Director of the Company and Avondale MillsHarry C. Howard(2)
    
    76
    
    Director of the Company and Avondale MillsC. Linden Longino, Jr.(2)
    
    69
    
    Director of the Company and Avondale MillsJames A. Rubright (2)
    
    58
    
    Director of the Company and Avondale MillsJohn P. Stevens(1)
    
    76
    
    Director of the Company and Avondale Mills
 
 (1)
    
    Member of Compensation Committee.(2)
    
    Member of Audit Committee.(3)
    
    Mr. Calhoun has been elected a director of the Company pursuant to that certain shareholders
agreement dated as of April 29, 1996 by and among the Company and certain
shareholders of the Company. G. Stephen Felker
 Jack R. Altherr, Jr.
 Keith M. Hull
 71




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##### Table of Contents



M. Delen Boyd
 Sharon L. Rodgers
 Dale J. Boden
 Kenneth H. Callaway
 Robert B. Calhoun
 Harry C. Howard
 C. Linden Longino, Jr.
 James A. Rubright .
 John P. Stevens
  72




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##### Table of Contents



73




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##### Table of Contents



ITEM 11. EXECUTIVE COMPENSATION.
 Executive Compensation
 Summary Compensation Table.
 Summary Compensation Table
 Annual Compensation(1)Fiscal
    
    
    
    
    
    
    
    
    
    All OtherName and Principal Position
    
    Year
    
    Salary($)
    
    Bonus($)(2)
    
    Compensation($)(3)G. Stephen Felker
    
    
    2005
    
    
    
    800,016
    
    
    
    562,511
    
    
    
    14,290Chairman of the Board and Chief Executive Officer
    
    
    2004
    
    
    
    800,016
    
    
    
    500,000
    
    
    
    12,7152003
    
    
    
    800,016
    
    
    
    
    
    
    
    4,399Jack R. Altherr, Jr
    
    
    2005
    
    
    
    363,348
    
    
    
    332,849
    
    
    
    9,141Vice Chairman and Chief Financial Officer
    
    
    2004
    
    
    
    355,008
    
    
    
    420,000
    
    
    
    5,2442003
    
    
    
    355,008
    
    
    
    
    
    
    
    6,988Keith M. Hull
    
    
    2005
    
    
    
    322,760
    
    
    
    118,009
    
    
    
    5,730President and Chief Operating Officer
    
    
    2004
    
    
    
    298,032
    
    
    
    90,000
    
    
    
    3,3642003
    
    
    
    298,032
    
    
    
    
    
    
    
    4,990Sharon L. Rodgers
    
    
    2005
    
    
    
    149,168
    
    
    
    37,758
    
    
    
    2,162Vice President, Human Resources
    
    
    2004
    
    
    
    145,008
    
    
    
    30,000
    
    
    
    1,1932003
    
    
    
    137,088
    
    
    
    
    
    
    
    2,231M. Delen Boyd
    
    
    2005
    
    
    
    129,340
    
    
    
    32,500
    
    
    
    2,835Vice President, Controller and Secretary
    
    
    2004
    
    
    
    126,000
    
    
    
    20,000
    
    
    
    2003
    
    
    
    126,000
    
    
    
    
    
    
    
    2,061
 
 (1)
    
    The aggregate amount of perquisites and other personal benefits, if any, did not exceed the
lesser of $50,000 or 10% of the total annual salary and bonus reported for each Named
Executive Officer and has therefore been omitted.(2)
    
    Amounts shown include cash bonuses earned under the Companys management incentive plan,
payments received in the Companys distribution of cash profit sharing to all eligible
associates of the Company and such other payments as the Compensation Committee of the Board
of Directors elects to make based upon the Companys and respective officers performance.(3)
    
    All Other Compensation consists of matching 401(k) contributions made by the Company to the
Companys Associate Profit Sharing and Savings Plan and life insurance premiums paid by the
Company. The following table shows the amount received by each Named Executive Office in
fiscal 2005: 401(k) Matching
    
    Life InsuranceContribution ($)
    
    Premiums ($)G. Stephen Felker
    
    
    1,575
    
    
    
    12,715Jack R. Altherr, Jr.
    
    
    1,575
    
    
    
    7,566Keith M. Hull
    
    
    750
    
    
    
    4,980Sharon L. Rodgers
    
    
    650
    
    
    
    1,512M. Delen Boyd
    
    
    1,575
    
    
    
    1,260
 74




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##### Table of Contents



Option Grants Table.
 Aggregated Options Table.
 Fiscal Year End Option Values Table
 Number ofShares Underlying
    
    Value ofUnexercised
    
    UnexercisedOptions at
    
    Options atFiscal Year End
    
    Fiscal Year EndExercisable/
    
    Exercisable/Unexercisable
    
    Unexercisable(1)G. Stephen Felker
    
    
    25,000 /-
    
    
    
    $-/$-Jack R. Altherr, Jr
    
    
    25,000 /-
    
    
    
    -/-Keith M. Hull
    
    
    25,000 /-
    
    
    
    -/-Sharon L. Rodgers
    
    
    20,000 /-
    
    
    
    -/-M. Delen Boyd
    
    
    5,000 /-
    
    
    
    -/-
 
 (1)
    
    All options are options to purchase Class A Common Stock of Avondale Incorporated. There is
no existing public market for the Class A Common Stock. The values shown are based on exercise
prices of outstanding options, which exceed managements estimate of the fair market value of
the Class A Common Stock at August 26, 2005. 75




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##### Table of Contents



Long-term Incentive Plans.
 Long-term Incentive Plans  Units Held at August 26, 2005
 Aggregate
    
    
    
    
    
    Estimated FuturePhantom Units
    
    Period Until
    
    Payouts for AllName
    
    Held(1)
    
    Payout (Years)
    
    Phantom Units Held(2)G. Stephen Felker
    
    
    150
    
    
    
    12
    
    
    $
    327,654Jack R. Altherr, Jr.
    
    
    90
    
    
    
    10
    
    
    
    196,592Keith M. Hull
    
    
    90
    
    
    
    13
    
    
    
    196,592Sharon L. Rodgers
    
    
    
    
    
    
    
    
    
    
    M. Delen Boyd
    
    
    30
    
    
    
    16
    
    
    
    65,531
 
 (1)
    
    Each phantom unit equals 398.606 phantom shares. The value of each phantom share is equal to
the result obtained by dividing (i) five times Avondales earnings before depreciation,
amortization, LIFO inventory adjustments, interest and income taxes for the 10 fiscal quarters
immediately preceding such date divided by 2.5, plus (ii) certain balance sheet adjustments
by the sum of (i) the aggregate number of outstanding phantom shares plus (ii) the aggregate
number of outstanding shares of Class A Common Stock and Class B Common Stock of the Company.
Phantom units vest at the rate of 5% per year for each full and uninterrupted year that the
Named Executive Officer remains employed by the Company after August 31, 1989, and vest fully
if the Named Executive Officer dies before his employment is terminated. The value of vested
phantom units is payable beginning on the later of the date on which the Named Executive
Officer reaches the age of 65 or the date on which the employment of such Named Executive
Officer terminates (the Normal Payment Date), in 10 equal annual installments, with interest
equal to the one-year U.S. Treasury Bill rate in effect on the Normal Payment Date. If the
Named Executive Officer dies before his employment with the Company is terminated, the value
of his phantom units on the date of death is payable to his beneficiary as described above. If
the Named Executive Officer dies after his Normal Payment Date, the present value of the
balance of the annual installments is payable in a lump sum to his beneficiary. A Named
Executive Officer will forfeit all interest in his Phantom Stock Units (whether or not vested)
if he violates certain non-compete covenants applicable during such Named Executive Officers
employment and for a period of five years after termination of such employment.(2)
    
    There are no threshold, target or maximum amounts payable with respect to phantom unit awards
made by the Company. The amounts shown reflect the future value, excluding interest payable
during the installment payment period, as of September 1, 2005, of vested and non-vested
phantom units held at the end of fiscal 2005 based on the results of the Company for the 10
fiscal quarters ended August 26, 2005. 76




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##### Table of Contents



Report on Executive Compensation
 Compensation Policy.
 
    
    providing base salaries that are market-competitive;
    
    rewarding the achievement of the Companys business plan goals and earnings objectives; and
    
    creating stock ownership opportunities to align the interests of executive officers
with those of shareholders.
  Base Salary.
 Cash Bonuses.
 77




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##### Table of Contents



Stock Options.
 John P. StevensDale J. BodenRobert B. CalhounKenneth H. Callaway
 The foregoing report shall not be deemed incorporated by reference by any general statement
incorporating by reference this Annual Report into any filing under the Securities Act of 1933, as
amended, or under the Securities Exchange Act of 1934 as amended (together, the Acts), except to
the extent that the Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
 Compensation Committee Interlocks and Insider Participation
  78




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##### Table of Contents



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
   Beneficial Ownership
    
    Beneficial Ownershipof Class A
    
    of Class B
    
    PercentageCommon Stock
    
    Common Stock
    
    OfNumber
    
    Percent
    
    Number
    
    Percent
    
    CombinedName of Beneficial Owner(1)
    
    of Shares
    
    Of Class
    
    of Shares
    
    of Class
    
    Voting PowerG. Stephen Felker (2)
    
    
    4,098,889
    
    
    
    35.9
    %
    
    
    978,939
    
    
    
    100
    %
    
    
    73.2
    %Jack R. Altherr, Jr.(3)
    
    
    132,199
    
    
    
    1.2
    %
    
    
    
    
    
    
    
    
    
    
    *Keith M. Hull (4)
    
    
    75,000
    
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    *Sharon L. Rodgers (5)
    
    
    21,000
    
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    *Michael D. Boyd (6)
    
    
    6,000
    
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    *Dale J. Boden (7)
    
    
    121,500
    
    
    
    1.1
    %
    
    
    
    
    
    
    
    
    
    
    *Kenneth H. Callaway (8)
    
    
    26,000
    
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    *Robert B. Calhoun (9)(10)(11)
    
    
    110,887
    
    
    
    1.0
    %
    
    
    
    
    
    
    
    
    
    
    *Harry C. Howard (12)
    
    
    61,000
    
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    *C. Linden Longino, Jr. (13)
    
    
    41,250
    
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    *James A. Rubright (14)
    
    
    14,500
    
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    *John P. Stevens (15)
    
    
    119,000
    
    
    
    1.0
    %
    
    
    
    
    
    
    
    
    
    
    *Credit Suisse Group (16)(17)(18)
    
    
    1,352,949
    
    
    
    11.9
    %
    
    
    
    
    
    
    
    
    
    
    4.4
    %Grayward Company (19)
    
    
    1,748,870
    
    
    
    15.3
    %
    
    
    
    
    
    
    
    
    
    
    5.6
    %Equitable Trust Company (20)
    
    
    1,748,870
    
    
    
    15.3
    %
    
    
    
    
    
    
    
    
    
    
    5.6
    %Felker Investments, Ltd. (21)
    
    
    2,093,750
    
    
    
    18.4
    %
    
    
    
    
    
    
    
    
    
    
    6.8
    %All
directors and executive officers
As a group (16 persons)
    
    
    4,827,225
    
    
    
    41.6
    %
    
    
    978,939
    
    
    
    100
    %
    
    
    75.1
    %
 
 *
    
    Less than 1%(1)
    
    Except as otherwise noted, the address of each person who is an officer or a director of the
Company is c/o Avondale Mills, Inc., 506 South Broad Street, Monroe, Georgia 30655. Under
Securities and Exchange Commission rules, a person is deemed to be a beneficial owner of a
security if that person has or shares voting power, which includes the power to vote or to
direct the voting of such security, or investment power, which includes the power to dispose
of or to direct the disposition of such security. A person also is deemed to be a beneficial
owner of any securities which that person has the right to acquire within sixty (60) days.
Under these rules, more than one person may be deemed to be a beneficial owner of the same
securities and a person may be deemed to be a beneficial owner of securities as to which he or
she has no economic or pecuniary interest. 79




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##### Table of Contents



(2)
    
    Includes (i) 2,093,750 shares of Class A Common Stock held of record by Felker Investments,
Ltd., a partnership of which Mr. Felker is the general partner (as the general partner, Mr.
Felker is deemed to beneficially own such shares under Rule 13d-3 under the Exchange Act), (ii) 978,939 shares
of Class A Common Stock issuable upon conversion of the 978,939 shares of Class B Common
Stock beneficially owned by Mr. Felker, (iii) 25,000 shares of Class A Common Stock issuable
upon exercise of stock options beneficially owned by Mr. Felker, which shares are deemed
beneficially owned by Mr. Felker under Rule 13d-3 under the Exchange Act.(3)
    
    Includes 25,000 shares of Class A Common Stock issuable upon exercise of stock options
beneficially owned by Mr. Altherr, which shares are deemed beneficially owned by Mr. Altherr
under Rule 13d-3 under the Exchange Act.(4)
    
    Includes 25,000 shares of Class A Common Stock issuable upon exercise of stock options
beneficially owned by Mr. Hull, which shares are deemed beneficially owned by Mr. Hull under
Rule 13d-3 under the Exchange Act.(5)
    
    Includes 20,000 shares of Class A Common Stock issuable upon exercise of stock options
beneficially owned by Ms. Rodgers, which shares are deemed beneficially owned by Ms. Rodgers
under Rules 13d-3 under the Exchange Act.(6)
    
    Includes 5,000 shares of Class A Common Stock issuable upon exercise of stock options
beneficially owned by Mr. Boyd, which shares are deemed beneficially owned by Mr. Boyd under
Rules 13d-3 under the Exchange Act.(7)
    
    Reflects (i) 16,000 shares of Class A Common Stock issuable upon exercise of stock options
beneficially owned by Mr. Boden, which shares are deemed beneficially owned by Mr. Boden under
Rule 13d-3 under the Exchange Act, (ii) 6,333 shares beneficially owned by Textile Capital
Partners with respect to which Mr. Boden has shared voting and investment power, (iii) 8,500
shares beneficially owned by Textile Capital Partners II with respect to which Mr. Boden has
shared voting and investment power, (iv) 90,000 shares beneficially owned by The Sterling
Trust; Hilliard Lyons Trust Co. Trustee, with respect to which Mr. Boden is a beneficiary and
has shared voting and investment power, and (v) 667 shares owned by Mr. Bodens wife, for
which Mr. Boden shares neither voting nor investment power. Mr. Boden is the majority
shareholder of Textile Capital Partners and Textile Capital Partners II, and, consequently, is
deemed to beneficially own under Rule 13d-3 under the Exchange Act all of the shares
beneficially owned by these entities.(8)
    
    Includes 16,000 shares of Class A Common Stock issuable upon exercise of stock options
beneficially owned by Mr. Callaway, which shares are deemed beneficially owned by Mr. Callaway
under Rule 13d-3 under the Exchange Act.(9)
    
    The address of Mr. Calhoun is c/o Monitor Clipper Partners, 650 Madison Avenue,
9th Floor, New York, New York 10022.(10)
    
    Includes (i) 16,000 shares of Class A Common Stock issuable upon exercise of stock options
beneficially owned by Mr. Calhoun, which shares are deemed beneficially owned by Mr. Calhoun
under Rule 13d-3 under the Exchange Act, and (ii) 95,472 shares of Class A Common Stock
beneficially owned by Clipper Capital Associates LP (CCA).(11)
    
    Mr. Calhoun is the sole stockholder and a director of CCA. As a result, Mr. Calhoun and CCA
are deemed to beneficially own all shares of Class A Common Stock beneficially owned by CCA.(12)
    
    Includes 16,000 shares of Class A Common Stock issuable upon exercise of stock options
beneficially owned by Mr. Howard, which shares are deemed beneficially owned by Mr. Howard
under Rule 13d-3 under the Exchange Act.(13)
    
    Includes (i) 16,000 shares of Class A Common Stock issuable upon exercise of stock options
beneficially owned by Mr. Longino, which shares are deemed beneficially owned by Mr. Longino
under Rule 13d-3 under the Exchange Act.(14)
    
    Includes 10,000 shares of Class A Common Stock issuable upon exercise of stock options
beneficially owned by Mr. Rubright, which shares are deemed beneficially owned by Mr. Rubright
under Rule 13d-3 under the Exchange Act.(15)
    
    Includes (i) 13,000 shares beneficially owned by Mr. Stevens spouse, for which Mr. Stevens
shares neither voting nor investment power, and (ii) 16,000 shares of Class A Common Stock
issuable upon exercise of stock options beneficially owned by Mr. Stevens, which shares are
deemed beneficially owned by Mr. Stevens under Rule 13d-3 under the Exchange Act. 80




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##### Table of Contents



(16)
    
    The address of Credit Suisse Group (CSG) is 11 Madison Avenue, New York, NY 10010.(17)
    
    Includes (i) 670,496 shares of Class A Common Stock held of record by Merban Holding LP
(Merban), (ii) 579,619 shares of Class A Common Stock held of record by Merchant Holding,
Inc. (Merchant), and (iii) 102,834 shares of Class A Common Stock held of record by CS First Boston Merchant
Investments 1995/96 LP (CSFB).(18)
    
    Merchant, a wholly-owned affiliate of CSG, is the general partner of Merban. CSG is the
general partner of CSBF. Merchant, Merban and CSFB are all ultimately controlled by CSG, a
Swiss company whose stock is publicly traded on the New York Stock Exchange. As a result, CSG
is deemed to beneficially own all of the shares of Class A Common Stock beneficially owned by
Merchant, Merban and CSFB.(19)
    
    Grayward Companys address is c/o SunTrust Bank, Nashville, N.A., P.O. Box 305110, Nashville,
Tennessee 37230. Grayward Company is a trust of which SunTrust Bank, Nashville, N.A. serves as
trustee. As trustee, SunTrust Bank, Nashville, N.A. is deemed to beneficially own under Rule
13d-3 under the Exchange Act all of the shares beneficially owned by Grayward Company.(20)
    
    Equitable Trust Companys address is 4400 Harding Road, Nashville, Tennessee 37205. Equitable
Trust Company serves as trustee for three related trusts and, as trustee, Equitable Trust
Company is deemed to beneficially own under Rule 13d-3 under the Exchange Act all of the
shares beneficially owned by the trusts.(21)
    
    The address of Felker Investments, Ltd. is c/o G. Stephen Felker, 506 South Broad Street,
Monroe, Georgia 30655. Equity Compensation Plan Information
  (c) Number ofSecurities RemainingAvailable for(a) Number of
    
    
    
    
    
    Future IssuanceSecurities to be
    
    (b) Weighted
    
    Under EquityIssued Upon
    
    Average
    
    CompensationExercise of
    
    Exercise Price of
    
    Plans (ExcludingOutstanding
    
    Outstanding
    
    Securities ReflectedPlan Category
    
    Options
    
    Options
    
    in Column (a))Equity Compensation plans approved
by the security holders
    
    
    263,000
    
    
    $
    18.27
    
    
    
    Equity Compensation plans not
approved by the security holders
    
    
    106,000
    
    
    $
    15.95
    
    
    
    136,000
  81




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##### Table of Contents



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
  2004
    
    2005Audit fees
    
    $
    150
    
    
    $
    150Audit related fees
    
    
    6
    
    
    
    30Tax fees
    
    
    25
    
    
    
    22Total fees
    
    $
    181
    
    
    $
    202
  82




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
 Financial Statements.
  
 2.
    
    Financial Statement Schedules of the Company.Schedule II  Valuation and Qualifying Accounts3.
    
    Exhibits.
 ExhibitNumber3.1
    
    
    
    Restated and Amended Articles of Incorporation of Avondale Incorporated (incorporated by
reference to Exhibit 3.1 to Avondale Incorporateds Registration Statement on Form S-4, File No.
333-5455-01).3.3
    
    
    
    Amended and restated bylaws of Avondale Incorporated, adopted as of January 17, 2000
(incorporated by reference to Exhibit 3.3 to Avondale Incorporateds Quarterly Report on Form
10-Q for the period ended February 25, 2000, File No. 333-5455-01).4.3
    
    
    
    Indenture for the 101/4 Senior Subordinated Notes due 2013 among Avondale Incorporated, Avondale
Mills, Inc. and Wachovia Bank, National Association, as Trustee (incorporated by reference to
Exhibit 4.3 to Avondale Incorporateds Registration Statement on Form S-4, File No. 333-108353).4.10
    
    
    
    Exchange Agreement, dated as of May 27, 2004, by and among Avondale Mills, Inc., Avondale
Incorporated and Cohanzick Management, L.L.C., as agent for Cohanzick Credit Opportunities Master
Fund, Ltd., Gabriel Capital, L.P. and Ariel Fund Limited (incorporated by reference to Exhibit
4.10 to Avondale Incorporateds Current Report on Form 8-K, dated August 26, 2004, File No.
33-68412).4.11
    
    
    
    Exchange Agreement, dated as of July 1, 2004, by and among Avondale Mills, Inc., Avondale
Incorporated and Allstate Life Insurance Company, Allstate Insurance Company, Allstate Plans
Master Trust and Allstate Investments, LLC (incorporated by reference to Exhibit 4.11 to Avondale
Incorporateds Current Report on Form 8-K, dated
August 26, 2004, File
No. 33-68412).4.12
    
    
    
    Exchange Agreement, dated as of July 30, 2004, by and among Avondale Mills, Inc., Avondale
Incorporated and Cohanzick Management, L.L.C., as agent for Cohanzick Credit Opportunities Master
Fund, Ltd., and Gabriel Capital, L.P. (incorporated by reference to Exhibit 4.12 to Avondale
Incorporateds Current Report on Form 8-K, dated August 26, 2004, File No. 33-68412).4.13
    
    
    
    Exchange Agreement, dated as of August 26, 2004, by and among Avondale Mills, Inc., Avondale
Incorporated and 3V Capital Master Fund Ltd. (incorporated by reference to Exhibit 4.13 to
Avondale Incorporateds Current Report on
Form 8-K, dated August 26, 2004, File No. 33-68412).4.14
    
    
    
    Exchange Agreement, dated as of August 26, 2004, by and among Avondale Mills, Inc., Avondale
Incorporated and Deutsche Asset Management Inc. and Deutsche Investment Management Americas, Inc.
(incorporated by reference to Exhibit 4.14 to Avondale Incorporateds Current Report on Form 8-K,
dated August 26, 2004, File No. 33-68412).4.15
    
    
    
    Exchange Agreement, dated as of August 26, 2004, by and among Avondale Mills, Inc., Avondale
Incorporated and T. Rowe Price Associates, Inc. (incorporated by reference to Exhibit 4.15 to
Avondale Incorporateds Current Report on Form 8-K, dated August 26, 2004, File No. 33-68412).
 83




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##### Table of Contents



4.16
    
    
    
    Trustee Agreement, dated as of August 26, 2004, between Avondale Mills, Inc., Avondale
Incorporated and Wachovia bank, N.A., as Trustee. (incorporated by reference to Exhibit 4.16 to
Avondale Incorporateds Current Report on Form 8-K, dated August 26, 2004, File No. 33-68412).4.17
    
    
    
    Felker Put Agreement, dated July 8, 2004, by and between Avondale Incorporated and G. Stephen
Felker. (incorporated by reference to Exhibit 4.16 to Avondale Incorporateds Annual Report on
Form 10-K, dated August 27, 2004, File No. 33-68412).10.6
    
    
    
    Registration Rights Agreement, dated April 29, 1996 between Avondale Incorporated and the Persons
listed therein (incorporated by reference to Exhibit 10.8 to Avondale Incorporateds Registration
Statement on Form S-4, File No. 333-5455-01).10.7
    
    
    
    Shareholders Agreement, dated April 29, 1996 among Avondale Incorporated, the Investors listed
therein, the Shareholders listed therein and Clipper Capital Partners, L.P., in its capacity as
Purchaser Representative under the Agreement (incorporated by reference to Exhibit 10.9 to
Avondale Incorporateds Registration Statement on Form S-4, File No. 333-5455-01).10.10
    
    
    
    Avondale Incorporated Stock Option Plan (incorporated by reference to Exhibit 10.12 to Avondale
Incorporateds Registration Statement on Form S-4, File No.333-5455-01).10.11
    
    
    
    Avondale Mills, Inc. Associate Profit Sharing and Savings Plan (incorporated by Reference to
Exhibit 10.13 to Avondale Incorporateds Registration Statement on Form S-4, File No.
333-5455-01).10.17
    
    
    
    Phantom Unit Awards to G. Stephen Felker (incorporated by reference to Exhibit 10.19 To Avondale
Incorporateds Registration Statement on Form S-4, File No.333-5455-01).10.18
    
    
    
    Phantom Unit Awards to Jack R. Altherr, Jr. (incorporated by reference to Exhibit 10.21 to
Avondale Incorporateds Registration Statement on Form S-4, File No.333-5455-01).10.19
    
    
    
    Phantom Unit Awards to T. Wayne Spraggins (incorporated by reference to Exhibit 10.23 to Avondale
Incorporateds Registration Statement on Form S-4, File No. 333-5455-01).10.20
    
    
    
    Phantom Unit Awards to Keith M. Hull (incorporated by reference to Exhibit 10.19 to Avondale
Incorporated s 1996 Annual Report on Form 10-K, File No. 33-68412).10.21
    
    
    
    Supply Agreement dated March 31, 1996 between the Company and B.F. Goodrich (incorporated by
reference to Exhibit 10.24 to Avondale Incorporateds Registration Statement on Form S-4, File
No. 33-5455-01).10.22
    
    
    
    Avondale Incorporated Stock Option Plan for Non-Employee Directors, Dated April 10, 1997
(incorporated by reference to Exhibit 10.23 to Avondale Incorporateds 1997 Annual Report on Form
10-K, File No. 33-68412).10.26
    
    
    
    Consent and First Amendment between Avondale Mills, Inc. and B.F. Goodrich, Partial Assignment
and Assumption of Supply Agreement between Avondale Mills, Inc., B.F. Goodrich and Noveon, Inc.
(formerly B.F. Goodrich PMD Group) and Amendment and Partial Assignment of Supply Agreement,
between Avondale Mills, Inc., B.F. Goodrich and C.H. Patrick & Co. (formerly CHP Acquisition
Group, Inc.), all dated February 28, 2001 (incorporated by reference to Exhibit 10.26 to Avondale
Incorporateds 2001 Annual Report on Form 10-K, File No. 33-68412).10.30
    
    
    
    Master Security Agreement and related documents, dated July 30, 2002, among Avondale Mills, Inc.
and The CIT Group/Equipment Financing, Inc. (incorporated by reference to Exhibit 10.30 to
Avondale Incorporateds 2002 Annual Report on Form 10-K, File No. 33-68412).10.31
    
    
    
    Intercreditor Agreement, dated July 30, 2002 among Avondale Mills, Inc. The CIT Group/Equipment
Financing, Inc. and various listed banks and Wachovia Bank, National Association, as agent
(incorporated by reference to Exhibit 10.31 to Avondale Incorporateds 2002 Annual Report on Form
10-K, File No. 33-68412).10.32
    
    
    
    Sale and Contribution Agreement, dated as of August 30, 2002, among Avondale Mills, Inc.,
Avondale Incorporated and Avondale Funding, LLC (incorporated by reference to Exhibit 10.32 to
Avondale Incorporateds 2002 Annual Report on Form 10-K, File No. 33-68412).10.33
    
    
    
    Receivables Purchase and Servicing Agreement, dated as of August 30, 2002, by and among Avondale
Funding, LLC, Redwood Receivables Corporation, Avondale Mills, Inc., and General Electric Capital
Corporation (incorporated by reference to Exhibit 10.33 to Avondale Incorporateds 2002 Annual
Report on Form 10-K, File No. 33-68412).10.34
    
    
    
    Annex X to Sale and Contribution Agreement and Receivables Purchase and Servicing Agreement, each
dated as of August 30, 2002 (incorporated by reference to Exhibit 10.34 to Avondale
Incorporateds 2002 Annual Report on Form 10-K, File No. 33-68412).10.35
    
    
    
    Receivables Purchase Termination and Reassignment Agreement, dated August 30, 2002, among
Manufacturers and Traders Trust Company, Avondale Receivables Master Trust, Avondale Receivables
Company, Avondale Mills, Inc., Falcon Asset Securitization Corporation, and Bank One, N.A.
(incorporated by reference to Exhibit 10.35 to Avondale Incorporateds 2002 Annual Report on Form
10-K, File No. 33-68412).10.36
    
    
    
    Blocked Account Agreement, dated August 30, 2002, among Wachovia Bank, National Association,
Avondale Mills, Inc., Avondale Funding, LLC and General Electric Capital Corporation
(incorporated by
reference to Exhibit 10.36 to Avondale Incorporateds 2002 Annual Report on Form
10-K, File No. 33-68412).
 84




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##### Table of Contents



10.37
    
    
    
    Intercreditor Agreement, dated August 30, 2002, among General Electric Capital Corporation,
Wachovia Bank, National Association, Avondale Funding, LLC and Avondale Mills, Inc. (incorporated
by reference to Exhibit 10.37 to Avondale Incorporateds 2002 Annual Report on Form 10-K, File
No. 33-68412).10.38
    
    
    
    Fifth Amendment to Second Amended and Restated Credit Agreement, dated August 30, 2002 among
Avondale Mills, Inc., various listed banks and Wachovia Bank, National Association, as agent
(incorporated by reference to Exhibit 10.38 to Avondale Incorporateds 2002 Annual Report on Form
10-K, File No. 33-68412).10.39
    
    
    
    Borrow Pledge Agreement, dated August 30, 2002 between Avondale Mills, Inc. various listed banks
and Wachovia Bank, National Association, as agent (incorporated by reference to Exhibit 10.39 to
Avondale Incorporateds 2002 Annual Report on Form 10-K, File No. 33-68412).10.40
    
    
    
    Third Amended and Restated Credit Agreement dated, as of March 28, 2003, among Avondale Mills,
Inc., various listed banks and Wachovia Bank, National Association, as agent (incorporated by
reference to Exhibit 10.40 to Avondale Incorporateds quarterly report on Form 10-Q for the
period ended May 31, 2003, File No. 33-68412).10.41
    
    
    
    Amendment No. 1 to Receivables Purchase and Servicing Agreement, and Sale and Contribution
Agreement, dated as of March 28, 2003, by and among Avondale Funding, LLC, Redwood Receivables
Corporation, Avondale Mills, Inc., and General Electric Capital Corporation (incorporated by
reference to Exhibit 10.41 to Avondale Incorporateds quarterly report on Form 10-Q for the
period ended May 31, 2003, File No. 33-68412).10.42
    
    
    
    Amendment No. 2 to Receivables Purchase and Servicing Agreement, dated as of August 30, 2002, by
and among Avondale Mills, Inc. and General Electric Capital Corporation dated July 3, 2003
(incorporated by reference to Exhibit 10.42 to Avondale Incorporateds Registration Statement on
Form S-4, File No. 333-108353).10.43
    
    
    
    Letter Agreement related to the Blocked Account Agreement, dated August 30, 2002, by and among
Avondale Mills, Inc., Avondale Funding, LLC, General Electric Capital Corporation and Wachovia
Bank, National Association, dated July 3, 2003 (incorporated by reference to Exhibit 10.43 to
Avondale Incorporateds Registration Statement on Form S-4, File No. 333-108353).10.44
    
    
    
    Credit Agreement, dated as of November 7, 2003, among Avondale Mills, Inc., Avondale Mills
Graniteville Fabrics, Inc. and General Electric Capital Corporation, GECC Capital Markets Group,
Inc., and from time to time various Lenders, and various related agreements (incorporated by
reference to Exhibit 10.44 to Avondale Incorporateds 2003 Annual Report on Form 10-K, File No.
33-68412).10.45
    
    
    
    Amendment No. 3 to Receivables Purchase and Servicing Agreement, dated as of August 30, 2002, by
and among Avondale Mills, Inc., Avondale Funding, LLC and General Electric Capital Corporation,
dated November 7, 2003 (incorporated by reference to Exhibit 10.45 to Avondale Incorporateds
2003 Annual Report on Form 10-K, File No. 33-68412).10.46
    
    
    
    Intercreditor Agreement, dated as of November 7, 2003, by and among General Electric Capital
Corporation, Avondale Funding, LLC and Avondale Mills, Inc. (incorporated by reference to Exhibit
10.46 to Avondale Incorporateds 2003 Annual Report on Form 10-K, File No. 33-68412).10.47
    
    
    
    Wavier and Amendment No. 1 to Credit Agreement, dated as of November 7, 2003, among Avondale
Mills, Inc., Avondale Mills Graniteville Fabrics, Inc. and General Electric Capital Corporation,
GECC Capital Markets Group, Inc., and from time to time various Lenders, dated January 22, 2004
(incorporated by reference to Exhibit 10.47 to Avondale Incorporateds quarterly report on Form
10-Q for the period ended February 27, 2004, File No. 33-68412).10.48
    
    
    
    Amendment No. 4 to Receivables Purchase and Servicing Agreement, dated as of August 30, 2002, by
and among Avondale Mills, Inc., Avondale Funding, LLC and General Electric Capital Corporation,
dated January 22, 2004 (incorporated by reference to Exhibit 10.48 to Avondale Incorporateds
quarterly report on Form 10-Q for the period ended February 27, 2004, File No. 33-68412).10.49
    
    
    
    Amendment No. 1 to Master Security Agreement, dated July 30, 2002, between Avondale Mills, Inc.
and The CIT Group/Equipment Financing, Inc., dated February 24, 2004 (incorporated by reference
to Exhibit 10.48 to Avondale Incorporateds quarterly report on Form 10-Q for the period ended
February 27, 2004, File No. 33-68412).10.50
    
    
    
    First Amendment to the Post-Merger Stock Transfer and Repurchase Agreement, dated as of August
1993, by and among Avondale Incorporated, Jack R. Altherr, Jr. and G. Stephen Felker, dated April
12, 2004. Corporation (incorporated by reference to Exhibit 10.50 to Avondale Incorporateds
quarterly report on Form 10-Q for the period ended May 28, 2004, File No. 33-68412).10.51
    
    
    
    Consent and Amendment No. 2 to Credit Agreement, dated as of November 7, 2003, among Avondale
Mills, Inc., Avondale Mills Graniteville Fabrics, Inc. and General Electric Capital Corporation,
GECC Capital Markets Group, Inc., and from time to time various Lenders, dated May 26, 2004
(incorporated by reference to Exhibit 10.51 to Avondale Incorporateds Current Report on Form
8-K, dated August 26, 2004, File No. 33-68412).
 85




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##### Table of Contents



10.52
    
    
    
    Consent and Amendment No. 3 to Credit Agreement, dated as of November 7, 2003, among Avondale
Mills, Inc., Avondale Mills Graniteville Fabrics, Inc. and General Electric Capital Corporation,
GECC Capital Markets Group, Inc., and from time to time various Lenders, dated July 1, 2004
(incorporated by reference to Exhibit 10.52 to Avondale Incorporateds Current Report on Form
8-K, dated August 26, 2004, File No. 33-68412).10.53
    
    
    
    Consent to Credit Agreement, dated as of November 7, 2003, among Avondale Mills, Inc., Avondale
Mills Graniteville Fabrics, Inc. and General Electric Capital Corporation, GECC Capital Markets
Group, Inc., and from time to time various Lenders, dated July 28, 2004 (incorporated by
reference to Exhibit 10.53 to Avondale Incorporateds Current Report on Form 8-K, dated August
26, 2004, File No. 33-68412).10.54
    
    
    
    Amendment No. 2 to Master Security Agreement, dated July 30, 2002, between Avondale Mills, Inc.
and The CIT Group/Equipment Financing, Inc., dated July 20, 2004 (incorporated by reference to
Exhibit 10.54 to Avondale Incorporateds Current Report on Form 8-K, dated August 26, 2004, File
No. 33-68412).10.55
    
    
    
    Avondale Incorporated Stock Option Plan for Non-Employee Directors, Dated November 18, 2004
(incorporated by reference to Exhibit 4.18 to Avondale Incorporateds quarterly report on Form
10-Q for the period ended November 26, 2004, File No. 33-68412).12.1
    
    
    
    Computation of Ratio of Earnings to Fixed Charges.14.1
    
    
    
    Code of Ethics For Senior Executive and Financial Officers (incorporated by reference to Exhibit
10.46 to Avondale Incorporateds 2003 Annual Report on Form 10-K, File No. 33-68412).21.1
    
    
    
    List of Subsidiaries.31.1
    
    
    
    Certificate of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    
    Certificate of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.99.1
    
    
    
    Charter of the Audit Committee of the Board of Directors, adopted effective July 13, 2000
(Incorporated by reference to Exhibit 5.1 to Avondale Incorporateds 2000 Annual Report on Form
10-K, File No. 33-68412).
 
 (c)
    
    See Item 15(a)(3). 86




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##### Table of Contents



SIGNATURES
  AVONDALE INCORPORATEDBy: /s/ G. STEPHEN FELKERName: G. Stephen FelkerTitle: Chairman of the Board andChief Executive OfficerDate: November 11, 2005
  Name
    
    
    
    Title
    
    DatePrincipal Executive Officer and Director:/s/ G. STEPHEN FELKER
    
    
    
    Chairman of the Board and Chief Executive Officer
    
    November 11, 2005G. Stephen FelkerPrincipal Financial and Accounting Officer:/s/ JACK R. ALTHERR, JR.
    
    
    
    Vice Chairman, Chief Financial
Officer and Director
    
    November 11, 2005Jack R. Altherr, Jr.Directors:/s/ DALE J. BODEN
    
    
    
    Director
    
    November 11, 2005Dale J. Boden/s/ ROBERT B. CALHOUN
    
    
    
    Director
    
    November 11, 2005Robert B. Calhoun/s/ KENNETH H. CALLAWAY
    
    
    
    Director
    
    November 11, 2005Kenneth H. Callaway/s/ HARRY C. HOWARD
    
    
    
    Director
    
    November 11, 2005Harry C. Howard/s/ C. LINDEN LONGINO, JR.
    
    
    
    Director
    
    November 11, 2005C. Linden Longino, Jr./s/ JAMES A. RUBRIGHT
    
    
    
    Director
    
    November 11, 2005James A. Rubright/s/ JOHN P. STEVENS
    
    
    
    Director
    
    November 11, 2005John P. Stevens
 87




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##### Table of Contents



Schedule II
  
 Balance
    
    Charged to
    
    
    
    
    
    Balanceat Beginning
    
    and Costs
    
    (A)
    
    at End ofDescription
    
    of Period
    
    Earnings
    
    Deductions
    
    PeriodYear Ended August 29, 2003
    
    Allowance for doubtful accounts
    
    
    2,199
    
    
    
    (318
    )
    
    
    (14
    )
    
    
    1,867Year Ended August 27, 2004
    
    Allowance for doubtful accounts
    
    
    1,867
    
    
    
    31
    
    
    
    (883
    )
    
    
    1,015Year Ended August 26, 2005
    
    Allowance for doubtful accounts
    
    
    1,015
    
    
    
    (45
    )
    
    
    (161
    )
    
    
    809
 
 (A)
    
    Deductions represent customer account balances written off during the period.