<PAGE>   1
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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                 ---------------
                                    FORM 10-K

      (MARK ONE)

         [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                  THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
                  FOR THE FISCAL YEAR ENDED AUGUST 25, 2000

                                        OR

         [X]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                  THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
                  FOR THE TRANSITION PERIOD FROM ____________ TO _____________

                         COMMISSION FILE NUMBER 33-68412
                              --------------------
                              AVONDALE INCORPORATED
             (Exact name of registrant as specified in its charter)

                            GEORGIA                         58-0477150
                (State or other jurisdiction of          (I.R.S. employer
                 incorporation or organization)         identification no.)

                         506 SOUTH BROAD STREET                30655
                           MONROE, GEORGIA                   (Zip code)
             (Address of principal executive offices)

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

        Securities registered pursuant to Section 12(b) of the Act: NONE

        Securities registered pursuant to Section 12(g) of the Act: NONE

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]


     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     The aggregate market value of the Class A Common Stock held by
non-affiliates of the registrant as of November 1, 2000 (based upon the book
value per share of Class A Common Stock as of August 25, 2000) was $16,027,098.

         As of November 1, 2000, the registrant had 11,566,337 and 978,939
shares of Class A Common Stock and Class B Common Stock outstanding,
respectively.
================================================================================


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                               INDEX TO FORM 10-K

                              AVONDALE INCORPORATED

<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                      REFERENCE
                                                                                      ---------
                                     PART I
<S>        <C>                                                                        <C>
Item  1.   Business ...............................................................        2
Item  2.   Properties .............................................................       10
Item  3.   Legal Proceedings ......................................................       10
Item  4.   Submission of Matters to a Vote of Security Holders ....................       11

                                     PART II

Item  5.   Market for Registrant's Common Equity and Related Stockholder Matters ..       12
Item  6.   Selected Financial Data ................................................       13
Item  7.   Management's Discussion and Analysis of Financial Condition and
                Results of Operations .............................................       15
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk .............       23
Item  8.   Financial Statements and Supplementary Data ............................       24
Item  9.   Changes in and Disagreements with Accountants on Accounting
                and Financial Disclosure ..........................................       41


                                    Part III

Item 10.   Directors and Executive Officers of the Registrant .....................       42
Item 11.   Executive Compensation .................................................       46
Item 12.   Security Ownership of Certain Beneficial Owners and Management .........       51
Item 13.   Certain  Relationships and Related Transactions ........................       54

                                     PART IV

Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K ........       55
</TABLE>


<PAGE>   3

                                     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

         The Company is one of the largest domestic manufacturers of indigo-dyed
denim fabrics, cotton and cotton-blend piece dyed fabrics, and cotton and
cotton-blend yarns. The Company operates 23 manufacturing facilities in four
southeastern states and is organized in three principal business segments:
apparel fabrics, greige and specialty fabrics, and yarns.

         The Company's predecessor was founded in 1895 by the family of G.
Stephen Felker, the Company's Chairman, President and Chief Executive Officer.
Prior to 1986, the Company's predecessor primarily manufactured and marketed
greige fabrics. In July 1986, the Company's predecessor, together with Mr.
Felker and certain other investors, acquired Avondale Mills, Inc., now a wholly
owned subsidiary of the Company ("Avondale Mills"). The acquisition of Avondale
Mills expanded the Company's product line to include yarns and finished fabrics.
In April 1996 the Company acquired the assets of the textile business of
Graniteville Company and its subsidiaries ("Graniteville"). The acquisition of
Graniteville, founded in 1845, enhanced the Company's manufacturing and
marketing of cotton and cotton-blend finished fabrics.

DESCRIPTION OF THE BUSINESS

 Products

         Apparel fabrics. The Company's apparel fabrics consist of cotton and
cotton-blend fabrics used in the manufacture of jeans, utilitywear, sportswear
and other apparel.

         The Company is a leading manufacturer of indigo-dyed denim fabrics used
in the production of branded and private label fashion apparel, as well as
casual jeans, sportswear and outerwear. The Company develops and manufactures
new and innovative colors, textures, weaves and finishes for its customers,
which has helped make the Company's denim fabrics a leader in the branded and
private label, fashion-oriented segment of the apparel market.

         The Company is one of the largest domestic manufacturers and marketers
of fabrics used in the production of utilitywear (principally uniforms and other
occupational apparel) for the U.S. rental and retail markets. The Company's
utilitywear fabric customers require durable fabrics characterized by long wear
and easy care. The Company works closely with customers to develop fabrics with
these and other enhanced performance characteristics.

         The Company is a leading manufacturer and marketer of woven cotton
piece-dyed fabrics used in the production of sportswear, casual wear and
outerwear. Fabrics are produced for customers in a wide variety of styles,
colors, textures and weights according to individual customer specifications.
The Company's product design staff develops fabric designs that are presented to
customers and, once approved, are produced into fabrics to meet customers'
specifications.

         Apparel fabrics sales accounted for 67%, 73% and 74%, respectively, of
the Company's net sales in fiscal 1998, 1999 and 2000.


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         Greige and Specialty Fabrics. The Company produces undyed, unfinished
cotton and cotton-blend greige fabrics that are marketed to apparel, home
furnishing and industrial products manufacturers. The Company's product design
staff works with greige fabric customers to create new fabric styles and
constructions, and the Company is able to alter its overall product mix to meet
changing customer needs. The Company also has the manufacturing flexibility to
maintain high production efficiencies by producing greige fabric for consumption
within the apparel fabrics operation.

         The Company produces a variety of specialty fabrics that are marketed
to recreational, industrial and military products manufacturers. The Company's
specialty products include coated fabrics for awnings, tents, boat covers and
life vests. The Company also finishes customers' fabrics on a commission basis,
which enables customers to meet short delivery schedules while minimizing
inventories.

         The Company's greige and specialty fabrics sales accounted for 8%, 8%
and 10%, respectively, of the Company's net sales in fiscal 1998, 1999 and 2000.

         Yarns. The Company is one of the largest domestic producers and
marketers of cotton and cotton-blend yarns, which are used internally in the
production of woven fabrics or marketed to outside customers in the knitting and
weaving industries. The Company's yarns are used in the manufacture of a broad
range of items, including apparel (primarily T-shirts, underwear, hosiery,
knitted outerwear, denim, and woven and fleece sportswear) and home furnishings.
The Company's yarn sales accounted for approximately 27%, 22% and 23%,
respectively, of the Company's net sales in fiscal 1998, 1999 and 2000.

         Intersegment Sales. Intersegment sales represent the transfer of yarns
and greige fabrics among the three business segments. These items ultimately are
consumed in the production of finished products, and therefore are not included
in net sales. Intersegment sales accounted for (2%), (4%) and (7%),
respectively, of the Company's net sales in fiscal 1998, 1999 and 2000.

Sales and Marketing

         The Company sold apparel fabrics, greige and specialty fabrics, and
yarns to approximately 1,200, 200 and 400 customers, respectively, in fiscal
2000. The Company believes it is the leading supplier of denim to V.F.
Corporation (the maker of Lee(R), Rider(R), Wrangler(R), Rustler(R),
Brittania(R), Red Kap(R), Timbercreek(R), Chic(R), ANd HealthTex(R) brands),
with total sales of apparel fabrics and yarns to V.F. Corporation accounting for
15% of the Company's net sales in fiscal 2000. The Company believes that it has
a strong working relationship with V.F. Corporation. Other than V.F.
Corporation, none of the Company's customers accounted for 10% or more of the
Company's net sales in fiscal 2000.

         The Company targets customers who demand a high level of customer
service. The Company's two yarn sales offices are located geographically to be
close to customers' manufacturing facilities, and its six fabric sales offices
are generally located near the headquarters of key customers. Sales associates
visit their customers on a regular basis and are primarily responsible for
interpreting customers' needs, processing customer orders and interacting with
the Company's production scheduling personnel. The Company's sales associates
are paid a base salary plus sales incentives to the extent certain performance
targets are met. The Company's independent sales representatives are paid on a
commission basis.

Manufacturing

         The Company is a vertically integrated manufacturer of yarns and
fabrics. Through modernizing its manufacturing facilities, the Company has
sought to reduce lead times, lower costs, minimize inventory levels and maximize
flexibility to respond to changes in customer demand and market conditions.


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<PAGE>   5

         Manufacturing Processes. The Company's manufacturing processes involve
producing yarn, dyeing yarn, weaving yarn into fabrics and dyeing and finishing
fabrics. The Company's manufacturing plants employ computer control systems to
monitor the manufacturing process and computer product testing equipment to
measure the quality of the Company's yarns and fabrics.

         The Company's yarn manufacturing operations involve spinning raw cotton
and synthetic fibers into cotton and cotton-blend yarns. The Company uses modern
carding, drawing, combing, open-end spinning and ring spinning equipment and
offers a full line of yarns to respond to varied customer demand. Yarn produced
by the Company is either sold to outside customers or used internally in the
production of woven fabrics.

         Yarn to be used in the manufacture of apparel fabrics may be dyed using
"range" dyeing techniques. The Company weaves dyed or undyed yarn using modern,
high-speed looms to manufacture fabrics that have a variety of widths and
weaves. The woven fabrics may be piece-dyed and finished according to customer
specifications. The Company's dyeing and finishing facilities use a wide range
of technologies, including sophisticated computer monitoring and control
systems. These systems allow the Company to continuously monitor and control
each phase of the dyeing and finishing process, which helps to improve
productivity, efficiency, consistency and quality.

         Manufacturing Facilities. The Company currently operates 23
manufacturing facilities in the U.S. Of the Company's manufacturing facilities,
nine produce yarn, six manufacture fabrics, four are dyeing facilities and four
are engaged in fabric finishing.

         Expansion and Modernization. The Company has expanded its operations
through acquisitions, an ongoing capital improvements program and management's
efforts to optimize the productive output of the Company's manufacturing
facilities. As part of its expansion and modernization efforts, the Company has
also redeployed capital by closing certain manufacturing facilities and, in some
cases, moving manufacturing equipment to other locations. The Company's
expansion and modernization efforts over the past six fiscal years have
included, among others, the following principal initiatives:

         -        1995 -- Replaced earlier generation drawing systems and
                  open-end spinning equipment with state-of-the art drawing and
                  open-end spinning equipment, and installed a fiber reclamation
                  system;

         -        1996 -- Replaced carding equipment in two plants with modern
                  carding and drawing systems and earlier generation winders in
                  a third plant with fully automated winders;

         -        1996 -- Acquired Graniteville, which consisted of four
                  integrated yarn and fabric weaving plants, three indigo-dyeing
                  facilities, one piece-dyeing and finishing facility, one
                  fabric coating and finishing facility, and one garment dyeing
                  facility;

         -        1996 and 1997 -- Replaced earlier generation projectile looms
                  with new, high speed air jet looms and installed two new
                  integrated finishing ranges;

         -        1997 -- Purchased additional computer controlled cleaning and
                  blending equipment for one plant, replaced earlier generation
                  open-end spinning equipment with technologically advanced
                  spinning equipment at a second plant, and replaced opening and
                  carding equipment at a third plant;

         -        1997 and 1998 -- Constructed a new denim weaving facility,
                  completed in April 1998, housing technologically advanced
                  slashing equipment and high speed air jet looms, upgraded
                  fabric finishing equipment, and executed a lease for a new
                  distribution center;


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<PAGE>   6

         -        1998 and 1999 -- Completed expansion of an existing weaving
                  facility in June 1999, which included the installation of
                  technologically advanced slashing equipment and high speed air
                  jet looms for the production of additional greige fabrics to
                  be piece-dyed for sportswear and utilitywear end uses;

         -        1998 and 1999 - Completed construction of a new piece-dyeing
                  range in February 1999, and installed technologically advanced
                  fabric inspection equipment for piece-dyed fabrics;

         -        2000 -- Completed replacement of earlier generation air jet
                  looms with new, high speed air jet looms in November 1999 for
                  production of greige fabrics to be piece dyed for sportswear
                  and utilitywear end uses;

         -        2000 -- Completed modernization of an existing ring spinning
                  facility in August 2000, including the replacement of earlier
                  generation roving, ring spinning and winding equipment with
                  technologically advanced linked ring spinning;

         -        2000 -- Initiated expansion of an existing piece dyed
                  finishing facility, to be completed in January 2001, for the
                  production of additional finished piece dyed fabrics for
                  sportwear and utilitywear end uses; and

         -        2000 -- Began expansion of an existing weaving facility, to be
                  completed in May, 2001, to include the installation of modern
                  air jet looms for the production of additional greige fabrics.

Raw Materials

         The Company believes that it is one of the largest U.S. consumers of
raw cotton, the principal raw material used in the Company's manufacturing
processes. Consequently, the Company's results of operations may be impacted
significantly due to fluctuations in the price of cotton. Since cotton is an
agricultural product, its supply and quality, which affect prevailing prices,
are subject to forces of nature. Significant increases in cotton prices due to
any material shortage or interruption in the supply or variations in the quality
of cotton by reason of weather, disease or other factors could have a material
adverse effect on the Company's results of operations.

         Because the importation of cotton into the U.S. has generally been
prohibited, historically imbalances between the domestic and world price of
cotton have occurred. In recent years, Congress has passed a series of
legislative initiatives to ensure that U.S. cotton was priced competitively with
world markets. The Food, Agriculture, Conservation and Trade Act of 1990 (the
"1990 Trade Act") and the regulations promulgated thereunder established a
three-step competitiveness program designed to make domestic cotton prices
approximate world cotton prices. This program includes a mechanism that triggers
tariff free quotas for the importation of cotton if U.S. prices exceed world
prices for an extended period of time.

         In addition, the Federal Agricultural Improvement and Reform Act of
1996 established certain support programs that, among other things, continue
through the year 2002 the three-step competitiveness program established under
the 1990 Trade Act. In fiscal 1998 and 1999, the Company received payments from
the U.S. Department of Agriculture under these support programs representing the
differential between domestic cotton prices and world cotton prices. However,
these payments ceased as of December 15, 1998 as financing for the program was
exhausted, and tariff-free quotas for the importation of cotton opened in March
1999.


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         On October 22, 1999 the Fiscal 2000 Agriculture Appropriations Bill was
signed into law, restoring funding of payments effective October 1, 1999 under
the three-step competitiveness program and redefining import quota triggers.
Accordingly, during fiscal 2000 the Company received renewed payments from the
U.S. Department of Agriculture for the differential between domestic cotton
prices and world cotton prices for cotton consumed on or after October 1, 1999.

         The Company closely monitors the cotton market and manages its
cotton-buying practices. The Company's Chief Executive Officer is an officer of
the National Cotton Council, a trade organization that spearheads initiatives to
implement U.S. cotton industry policy, which helps the Company stay abreast of
developments in the cotton market. The Company generally purchases cotton in
sufficient quantities to achieve planned manufacturing schedules. Such purchases
may be short of, or in excess of, the quantities needed to satisfy customers'
orders depending upon such factors as the Company's outlook for the cotton
market.

         The Company generally enters into cotton purchase contracts several
months in advance of the scheduled date of delivery. Prices for such purchases
are fixed either on the date of the contract or thereafter on a date prior to
delivery and, as a result, the Company may be favorably or adversely affected if
cotton prices fluctuate during the contract period. Periodically, the Company
also purchases cotton futures and option contracts to hedge exposure to price
fluctuations in cotton acquired from various suppliers.

         The principal man-made fiber purchased by the Company is polyester. The
Company currently purchases substantially all of the man-made fibers used in its
products from one supplier, but such fibers are readily available from other
suppliers. The Company maintains a limited supply of such fibers in inventory.
The Company generally has no difficulty in obtaining sufficient quantities of
man-made fibers.

         The Company purchases dyes and chemicals used in its dyeing and
finishing processes, and these dyes and chemicals normally have been available
in adequate supplies through a number of suppliers. In connection with the
acquisition of Graniteville, the Company entered into a 10-year supply agreement
(the "Supply Agreement") with C.H. Patrick & Co., Inc. which was subsequently
acquired by B.F. Goodrich ("Goodrich"). The Supply Agreement generally
stipulates that Goodrich will have the opportunity to provide certain dyes and
chemicals utilized by the Company if Goodrich meets certain conditions,
including competitive pricing and the ability to provide the applicable dyes and
chemicals in accordance with the Company's specifications and delivery
requirements. The Supply Agreement is terminable by the Company prior to the end
of the 10-year term in the event of a pattern of repeated, material failures by
Goodrich to satisfy its obligations with respect to product specifications,
delivery schedules or other material terms.

         The Company purchases yarns and greige fabrics to supplement its
internal yarn and fabric production, and consumes these products in the
production of greige and finished fabrics for its customers. These yarns and
greige fabrics are readily available from a number of suppliers.

   Competition

         The textile industry is highly competitive, and no single company is
dominant. Management believes that the Company is one of the largest domestic
manufacturers of indigo-dyed denim, piece dyed fabrics for utilitywear and
sportswear and cotton and cotton-blend yarns. The Company's competitors include
large, vertically integrated textile companies and numerous smaller companies.
In recent years there has been a trend toward consolidation within certain
markets of the textile industry and, within the Company's markets, increases in
manufacturing capacity. The primary competitive factors in the textile industry
are price, product styling and differentiation, quality, manufacturing
flexibility, delivery time and customer service. The importance of these factors
is determined by the needs of particular customers and the characteristics of
particular products. The failure of the Company to compete effectively with
respect to any


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<PAGE>   8

of these key factors or to keep pace with rapidly changing markets could have a
material adverse effect on the Company's results of operations and financial
condition.

         Increases in domestic capacity and imports of foreign-made textile and
apparel products are a significant source of competition for many domestic
textile manufacturers. The U.S. government attempts to regulate the growth of
certain textile and apparel imports by establishing quotas on imports from
countries that historically account for significant shares of U.S. imports.
Although imported apparel represents a significant portion of the U.S. apparel
market, in recent years, a significant portion of import growth has been
attributable to imports of apparel products manufactured outside the U.S. of (or
using) domestic textile components. During fiscal 1999 and 2000, imports of
certain textile products into the U.S. increased primarily as a result of
declines in consumer demand within Asia, heightened liquidity requirements of
Asian textile producers and devaluation of Asian currencies vis-a-vis the U.S.
dollar.

         The extent of import protection afforded by the U.S. government to
domestic textile producers has been, and is likely to remain, subject to
considerable domestic political deliberation and foreign considerations. In
January 1995, a new multilateral trade organization, the World Trade
Organization (the "WTO"), was formed by the members of the General Agreement on
Tariffs and Trade ("GATT") to replace GATT. This new body has set forth the
mechanisms by which world trade in textiles and clothing will be progressively
liberalized with the elimination of quotas and the reduction of duties. The
implementation began in January 1995 with the phasing-out of quotas and the
reduction of duties to take place over a 10-year period. The selection of
products at each phase is made by each importing country and must be drawn from
each of the four main textile groups: yarns, fabrics, made-up textiles and
apparel. As it implements the WTO mechanisms, the U.S. government is negotiating
bilateral trade agreements with developing countries (which generally are
exporters of textile products) that are members of the WTO for the purpose of
reducing their tariffs on imports of textiles and apparel. The elimination of
quotas and reduction of tariffs under the WTO may result in increased imports of
certain textile products and apparel into North America. These factors could
make the Company's products less competitive against low cost imports from third
world countries.

         The North American Free Trade Agreement ("NAFTA") among the United
States, Canada and Mexico, which became effective on January 1, 1994, has
created the world's largest free-trade zone. The agreement contains safeguards
sought by the U.S. textile industry, including a rule of origin requirement that
products be processed in one of the three countries in order to benefit from
NAFTA. In addition, NAFTA requires merchandise to be made from yarns and fabrics
originating in North America in order to avoid trade restrictions. Thus, not
only must apparel be made from North American fabric but the fabric must be
woven from North American spun yarn. Based on experience to date, NAFTA has had
a favorable impact on the Company's business.

         On May 2, 2000, the United States passed the Caribbean Basin Initiative
("CBI")/Sub-Saharan Africa Trade Bill. Under the bill, apparel manufactured in
the Caribbean and Sub-Saharan regions using yarns or fabrics produced in the
United States may be imported to the U.S. duty and quota-free. In effect, this
legislation extends the favorable trade terms afforded to Mexico under NAFTA to
the Caribbean and Sub-Saharan countries. Management believes that NAFTA parity
for the CBI region will have a favorable effect on the Company by providing
access to lower cost labor for apparel assembly, making the U.S. a more
attractive location for textile sourcing.

 Backlog

         The Company's order backlog was approximately $400 million at August
25, 2000, as compared to approximately $340 million at August 27, 1999. Orders
on hand are not necessarily indicative of total


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future sales. Substantially all of the orders outstanding at August 25, 2000 are
expected to be filled by the end of fiscal 2001.

   Governmental Regulation

         The Company is subject to various federal, state and local
environmental laws and regulations limiting the discharge, storage, handling and
disposal of a variety of substances and wastes used in or resulting from its
operations and potential remediation obligations thereunder, particularly the
Federal Water Pollution Control Act, the Clean Air Act, the Resource
Conservation and Recovery Act ("RCRA") (including amendments relating to
underground storage tanks) and the Comprehensive Environmental Response,
Compensation and Liability Act, commonly referred to as "Superfund" or "CERCLA".
The Company has obtained, and is in compliance in all material respects with,
all material permits required to be issued by federal, state or local law in
connection with the operation of the Company's business as described herein.

         The Company's operations are also governed by laws and regulations
relating to workplace safety and worker health, principally the Occupational
Safety and Health Act and regulations thereunder which, among other things,
establish cotton dust, formaldehyde, asbestos and noise standards, and regulate
the use of hazardous chemicals in the workplace. The Company uses resins
containing formaldehyde in processing some of its products. Although the Company
does not use asbestos in the manufacture of its products, some of its facilities
contain some structural asbestos that management believes is properly contained.

         Many of the Company's manufacturing facilities have been in operation
for several decades. Historical waste disposal and hazardous substance releases
and storage practices may have resulted in on-site and off-site remediation
liability for which the Company may be responsible. In addition, certain
wastewater treatment facilities and air emission sources may have to be upgraded
to meet more stringent environmental requirements in the future. The Company
cannot with certainty assess at this time the impact of future emission
standards or enforcement practices under the foregoing environmental laws and
regulations and, in particular, under the 1990 Clean Air Act, upon its
operations or capital expenditure requirements. The Company believes it is
currently in compliance in all material respects with the foregoing
environmental and health and safety laws and regulations.

         In 1987, Graniteville Company was notified by the South Carolina
Department of Health and Environmental Control ("DHEC") that it had discovered
certain contamination of a pond near Graniteville, South Carolina and that
Graniteville may be one of the responsible parties. In 1990 and 1991,
Graniteville provided reports to DHEC summarizing its required study and
investigation of the alleged pollution and its sources which concluded that pond
sediments should be left undisturbed and that other remediation alternatives
either provided no significant benefit or themselves involved adverse effects.
In 1995, Graniteville submitted a proposal regarding periodic monitoring of the
site, to which DHEC responded with a request for additional information.
Graniteville provided such information to DHEC in February 1996. The Company is
unable to predict at this time whether any further actions will be required with
respect to the site or what the cost thereof may be. The Company has provided a
reserve for management's estimate of the cost of monitoring the site and
believes the ultimate outcome of this matter will not have a material adverse
effect on its results of operations or financial condition.

         As a result of the acquisition of Graniteville, the Company owns a nine
acre site in Aiken County, South Carolina, which was operated jointly by
Graniteville and Aiken County as a landfill from approximately 1950 through
1973. DHEC conducted a site screening investigation in 1990. The United States
Environmental Protection Agency conducted a site investigation in 1991 and an
Expanded Site Inspection in January 1994. Graniteville conducted a groundwater
quality investigation in 1992 and a supplemental site assessment in 1994. Based
on these investigations, DHEC requested that Graniteville


                                       8
<PAGE>   10

enter into a consent agreement providing for comprehensive assessment of the
nature and extent of soil and groundwater contamination at the site, if any, and
an evaluation of appropriate remedial alternatives. DHEC and the Company entered
into a consent agreement in December 1997. The cost of the comprehensive
assessment required by the consent agreement is estimated to be between $200,000
and $400,000. Because this investigation has not concluded, the Company is
currently unable to predict what further actions, if any, will be necessary to
address the landfill. The Company has provided a reserve for management's
estimate of the cost of investigating and remediating the site and believes the
ultimate outcome of this matter will not have a material adverse effect on its
results of operations or financial condition.

          The Company is currently defending three environmentally related
lawsuits, described under Item 3, Legal Proceedings.

Associates

         At August 25, 2000, the Company had approximately 6,600 associates.
None of the Company's associates is covered by a collective bargaining
agreement, and management believes that the Company's relations with its
associates are good.


                                       9
<PAGE>   11

ITEM 2.  PROPERTIES

         The Company currently operates 23 manufacturing facilities in the U.S.,
of which eight are located in Alabama, three are located in North Carolina,
three are located in Georgia and nine are located in South Carolina. The Company
owns 21 of these facilities and leases two facilities in connection with its
issuance of industrial revenue bonds. Of the Company's manufacturing facilities,
fourteen of the Company's manufacturing facilities produce yarn, six manufacture
fabrics, four are dyeing facilities and four are engaged in fabric finishing.
Additionally, the Company operates six warehouses.

         The Company's plants generally operate 24 hours a day, seven days a
week throughout the year. The Company considers its plants and equipment to be
in good condition and adequate for its current operations. The Company's
principal executive offices are located in Monroe, Georgia in a building owned
by the Company. The Company also has executive offices in Sylacauga, Alabama,
and Graniteville, South Carolina, which are located in buildings owned by the
Company. All of the Company's sales offices are leased from unrelated third
parties.


ITEM 3.  LEGAL PROCEEDINGS

         On March 3, 1993, a case was filed in the Circuit Court of Jefferson
County, Alabama by Joe and Darnell Sullivan and Tommy and Stella Fay Gould and
other parties against the Alabama Power Company, Russell Corporation, the
Company and certain other parties ("Sullivan"). The complaint alleges that the
Company and such other parties negligently or willfully discharged industrial
wastewater containing hazardous materials, which allegedly damaged the
plaintiffs' real properties and caused mental anguish to the plaintiffs. The
complaint seeks an award of compensatory and punitive damages. After two years
and eleven months of litigation, the plaintiffs amended their complaint to
include class action claims and treatment. Although the Trial Court granted
class certification, the Supreme Court of Alabama reversed the class
certification order, and the case proceeded as to the individual claims of the
five plaintiffs.

         On November 17, 1998, the trial court handed down a verdict of $155,200
in compensatory damages and $52,398,000 in punitive damages against the Alabama
Power Company, Russell Corporation and the Company, on a joint and several
basis, in favor of the plaintiffs. This case is now on appeal to the Supreme
Court of Alabama. Oral argument was held in January 2000, and on August 4, 2000,
the Alabama Supreme Court issued a 6-3 opinion reversing and ordering a judgment
to be entered in favor of the defendants because of plaintiff's failure of
proof. The plaintiffs filed an Application for Rehearing on August 18, 2000, and
the Company filed its response on September 1, 2000. On October 16, 2000, the
Alabama Supreme Court scheduled further limited oral arguments during November
2000 to include all parties except the Alabama Power Company. While the outcome
of this case cannot be predicted with certainty, based on currently available
information, the Company does not believe that it will have a material adverse
effect on the Company's financial condition or results of operations.

         On February 28, 1999, a case was filed in the Circuit Court of
Jefferson County, Alabama by Chris and Regina Christian against Russell
Corporation, Russell Lands, Inc., Alabama Power, the Company and certain other
parties. The complaint alleges that the Company, among others, negligently
and/or wantonly caused or permitted the discharge and disposal of sewage sludge
and contaminants into the lake adjacent to the plaintiffs' property, which
allegedly interfered with the plaintiffs' use of the property. As a result of
these alleged actions, the plaintiffs claim that the value of their property has
been diminished and that they suffered mental anguish, bodily injury and other
pecuniary loss. The complaint seeks compensatory and punitive damages in an
undisclosed amount. The Company intends to vigorously defend this case and
believes that it has a number of defenses available to it. This case has been
stayed by the trial court pending resolution of the appeals in the Sullivan
case. While the outcome of this case cannot be predicted with


                                       10
<PAGE>   12

certainty, based upon currently available information, the Company does not
believe that it will have a material adverse effect on the Company's financial
condition or results of operations.

         On January 13, 2000, a case was filed in the Circuit Court of Jefferson
County, Alabama by Larry and Cynthia Locke and the owners of fourteen other
residences in the Raintree subdivision of Lake Martin, against Russell
Corporation, Alabama Power and the Company. The complaint alleges that the
Company, among others, negligently and/or wantonly caused or permitted the
discharge and disposal of sewage sludge and contaminants into the lake adjacent
to the plaintiffs' property, which allegedly interfered with the plaintiffs' use
of the property. As a result of these alleged actions, the plaintiffs claim that
the value of their property has been diminished and that they suffered other
damages. The complaint seeks compensatory and punitive damages in an undisclosed
amount. The Company intends to vigorously defend this case and believes that it
has a number of defenses available to it. This case has been stayed by the trial
court pending resolution of the appeal in the Sullivan case. While the outcome
of this case cannot be predicted with certainty, based upon currently available
information, the Company does not believe that it will have a material adverse
effect on the Company's financial condition or results of operations.

         Avondale Mills, along with Russell Corporation and the municipality of
Alexander City, Alabama, was named during fiscal 1998 in two almost identical
citizen suits. The first suit, filed on May 18, 1998, was brought pursuant to
the federal Clean Water Act ("CWA"). The second suit, filed on August 28, 1998,
was brought pursuant to both the CWA and the RCRA. In both lawsuits, the
plaintiff has alleged that Avondale Mills' permitted discharges of wastewater
from its facility in Alexander City into the waste water treatment plant of
Alexander City have indirectly caused the wastewater treatment plant to exceed
the effluent limitation imposed upon the treatment plant's discharges into a
local body of water, thereby violating the CWA. The plaintiff repeated that
claim in the second lawsuit, but also alleged that Avondale Mills also violated
RCRA by contributing to the disposal of a hazardous waste in such a manner as to
endanger human health or the environment. In September 1998, the cases were
consolidated, and the first case filed was designated the "lead case". In each
of these cases, Avondale Mills filed motions to dismiss and for summary judgment
which it believed to be meritorious. However, prior to the court's ruling on
Avondale's motions, the plaintiff moved the court to dismiss the suits. On
September 30, 1999, pursuant to the plaintiff's motion, the court dismissed the
lead case and terminated the remaining case. The dismissal of these cases was
"without prejudice". Concurrent with this litigation, the United States
Environmental Protection Agency had initiated an investigation of the
possibility of CWA violations at Avondale Mills' facility, and this
investigation is continuing at the present time.

         The Company is also a party to other litigation incidental to its
business from time to time. The Company is not currently a party to any
litigation that management believes, if determined adversely to the Company,
would have a material adverse effect on the Company.


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

         Not applicable.

                                       11
<PAGE>   13

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
           STOCKHOLDER MATTERS

         There is no established public trading market for the Company's Class A
Common Stock or Class B Common Stock (collectively, "Common Stock"). As of
August 25, 2000 there were 130 and one holders of record of Class A Common Stock
and Class B Common Stock, respectively. The Company paid dividends aggregating
$5.1 million and $5.1 million in respect of its outstanding Common Stock during
fiscal 1999 and 2000, respectively.

         The Company has issued and outstanding $125 million aggregate principal
amount of 10 1/4% Senior Subordinated Notes due 2006 (the "Notes") under an
Indenture dated as of April 23, 1996 among the Company, Avondale Mills and The
Bank of New York, as trustee (the "Indenture"). The Indenture contains certain
covenants that could indirectly restrict the Company's ability to pay dividends.
As amended effective September 28, 2000, the Company maintains a $125 million
revolving credit facility under a loan agreement among Avondale Mills and a
syndicate of banks (the "Credit Facility"). The Credit Facility contains certain
covenants that could indirectly restrict the Company's ability to pay dividends.


                                       12
<PAGE>   14

ITEM 6.  SELECTED FINANCIAL DATA

         The following table sets forth selected consolidated statement of
income data and selected consolidated balance sheet data of the Company for each
of the five fiscal years in the period ended August 25, 2000. Such data were
derived from the audited Consolidated Financial Statements of the Company. The
audited Consolidated Financial Statements and Notes thereto of the Company for
each of the three fiscal years in the period ended August 25, 2000 are included
elsewhere in this Annual Report. The selected consolidated financial data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto of the Company included elsewhere in this
Annual Report.

<TABLE>
<CAPTION>
                                                                                      FISCAL YEAR
                                                             ---------------------------------------------------------------
                                                               1996         1997           1998         1999          2000
                                                             ---------    ---------      ---------    ---------    ---------
                                                                      (IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<S>                                                          <C>          <C>            <C>          <C>          <C>
Statement of Income Data:
    Net sales .........................................      $   706.2    $ 1,049.5      $ 1,056.1    $   880.9    $   826.6
    Gross profit ......................................           76.9        126.2          137.3         89.7        116.3
    Facility restructuring ............................             --           --            2.7          6.2           --
    Operating income ..................................           44.9         79.0           86.6         45.3         77.9
    Interest expense, net .............................           18.5         26.2           23.3         23.0         20.2
    Discount and expenses on sale of receivables ......            3.7          6.6            7.3          5.6          5.6
    Loss attributable to investment in Oneita .........             --          7.5             --           --           --
    Other (income) expense, net .......................             --          0.8            0.5          0.5          0.5
    Income before income taxes ........................           22.7         37.9           55.4         16.3         51.6
    Provision for income taxes ........................            9.0         15.0           21.1          6.3         18.6
    Net income ........................................           13.6         22.9           34.3         10.0         33.0

Per Share Data:
    Net income - basic ................................      $    1.16    $    1.73      $    2.62    $    0.79    $    2.61
    Net income - diluted ..............................           1.15         1.70           2.58         0.77         2.57
    Dividends declared ................................           0.28         0.28           0.40         0.40         0.40
    Weighted average number of shares outstanding -
       basic ..........................................           11.8         13.3           13.0         12.7         12.7
   Weighted average number of shares outstanding -
       diluted ........................................           11.9         13.5           13.3         12.9         12.8

Balance Sheet Data (at period end):
    Total assets ......................................      $   493.1    $   461.2      $   463.6    $   439.7    $   438.7
    Long-term debt, including current portion .........          303.1        251.3          246.8        219.5        187.7
    Shareholders' equity ..............................           67.5         86.4          100.0        105.0        130.5

Other Data:
    Capital expenditures ..............................      $    33.4    $    32.0      $    66.3    $    50.1    $    30.5
    Depreciation and amortization .....................           30.4         40.8           39.9         42.8         42.8
    EBITDA(1) .........................................           73.4        113.3          126.6         93.9        115.5
    Ratio of EBITDA to interest expense, net and
       discount and expenses on sale of receivables ...            3.3x         3.5x           4.1x         3.3x         4.5x
    Ratio of earnings to fixed charges(2) .............            2.0x         2.1x           2.8x         1.5x         2.9x
</TABLE>

------------------

(1)      EBITDA is defined as net income plus (i) provision for income taxes,
         (ii) interest expense, net, (iii) discount and expenses on sale of
         receivables, (iv) depreciation and amortization, (v) loss attributable
         to investment in Oneita, (vi) facility restructuring charges and (vii)
         plus or minus, as the case may be, adjustments to cost of goods sold
         made under the LIFO inventory valuation method. EBITDA is presented not
         as an alternative measure of operating results or cash flow from
         operations (as determined in accordance with generally accepted
         accounting principles), but because it is a widely accepted financial
         indicator of a company's ability to incur and service debt. EBITDA as
         calculated by the Company is not necessarily comparable with
         similarly-titled measures proposed by other companies.

                                       13
<PAGE>   15

(2)      The ratio of earnings to fixed charges is computed by dividing earnings
         by fixed charges. For this purpose, "earnings" include income before
         income taxes plus fixed charges. Fixed charges include interest,
         whether expensed or capitalized, amortization of deferred financing
         costs, discount and expenses on sale of receivables and the portion of
         rental expense that is representative of the interest factor in these
         rentals.


                                       14
<PAGE>   16

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

         The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and Notes thereto of the Company
included elsewhere in this Annual Report.

RESULTS OF OPERATIONS

         The table below sets forth for the periods indicated statement of
income data expressed as a percentage of net sales:

<TABLE>
<CAPTION>
                                                                   Fiscal Year
                                                        -----------------------------------
                                                         1998           1999          2000
                                                        -----          -----          -----
<S>                                                     <C>            <C>            <C>
Net sales ......................................        100.0%         100.0%         100.0%

    Apparel fabric sales .......................         67.3           72.8           74.5

    Greige and specialty fabric sales ..........          7.7            8.4            9.6

    Yarn sales .................................         26.7           22.4           22.5

    Intersegment sales .........................         (1.7)          (3.6)          (6.6)

Cost of goods sold:

    Raw materials ..............................         46.3           44.3           38.1

    Conversion costs ...........................         37.0           40.7           42.7

        Total ..................................         83.3           85.0           80.8

Depreciation ...................................          3.7            4.8            5.1

Selling and administrative expenses ............          4.5            4.3            4.7

Facility restructuring .........................          0.3            0.7             --

Operating income ...............................          8.2            5.2            9.4

Interest expense, net ..........................          2.2            2.6            2.5

Discount and expenses on sale of receivables ...          0.7            0.6            0.7

Provision for income taxes .....................          2.0            0.7            2.3

Net income .....................................          3.3            1.1            4.0
</TABLE>


Fiscal 2000 Compared to Fiscal 1999

         Net Sales. Net sales decreased 6.2% to $826.6 million for fiscal 2000
from $880.9 million for fiscal 1999, as the Company experienced intensely
competitive conditions in its markets. Global supply of textile and apparel
products continued to exceed demand, creating highly competitive market
conditions worldwide. As a result, weak foreign economies continued to offer
their textile and apparel production to the U.S. market, driving prices down in
the Company's principal distribution channels. The Company expects these
conditions to continue, adversely impacting sales during fiscal 2001.

         Operating Income. Operating income increased 71.8% to $77.9 million for
fiscal 2000 from $45.3 million for fiscal 1999. In response to the intensely
competitive market conditions, the Company significantly increased its
consumption of internally produced yarns and greige fabrics in the production of
finished apparel fabrics and thereby improved capacity utilization and sales
rationalization. This improvement in capacity utilization, more favorable raw
material costs and unit cost reductions achieved through plant management
programs and capital expenditure projects resulted in a 10.8% decline in cost of
goods sold to $668.0 million for fiscal 2000 from $748.9 million for fiscal
1999. Cost of goods sold as a percentage of net sales decreased to 80.8% for
fiscal 2000 from 85.0% for fiscal 1999.

RESULTS OF OPERATIONS (CONTINUED)

                                       15
<PAGE>   17

         Selling and administrative expenses increased 1.0% to $38.5 million for
fiscal 2000 from $38.1 million for fiscal 1999, primarily reflecting increased
accrual of certain associate benefits and performance based incentives
corresponding to the improvement in operating income for the period. Selling and
administrative expenses as a percentage of net sales increased to 4.7% for
fiscal 2000 from 4.3% for fiscal 1999.

         Segment Performance. Apparel fabric sales decreased 4.0% to $615.8
million for fiscal 2000 from $641.2 million for fiscal 1999. The decline in
sales reflected a 1.2% increase in yards sold and a 5.1% decrease in average
selling prices. Declines in average selling prices were experienced across the
board. The slight improvement in unit shipments reflected the recent improvement
in demand for denim and other bottomweight fabrics. Operating income for apparel
fabrics increased 18.5% to $86.4 million for fiscal 2000 from $72.9 million for
fiscal 1999. The improvement in operating income was largely due to more
favorable raw material costs and lower unit costs achieved through improved
capacity utilization, plant management programs and capital expenditure
projects.

         Greige and specialty fabric sales increased 7.2% to $79.0 million for
fiscal 2000 from $73.7 million for fiscal 1999. The increase in sales reflected
a 12.3% increase in units sold and a 4.5% decrease in average selling prices.
Unit sales of specialty fabrics experienced significant improvement during
fiscal 2000 while capacity utilization within the greige fabrics operation
benefited from increased production of yarns for consumption within the apparel
fabrics operation. Operating income for greige and specialty fabrics increased
43.0% to $10.1 million for fiscal 2000 from $7.1 million for fiscal 1999,
reflecting higher unit sales, lower raw material costs and continued reduction
of manufacturing costs.

         Yarn sales decreased 5.6% to $186.3 million for fiscal 2000 from $197.4
million for fiscal 1999, reflecting a 5.6% increase in pounds sold and a 10.6%
decrease in average selling prices. Although the Company's decision to
significantly increase its consumption of internally produced yarns within its
fabrics operations resulted in a decline in outside yarn sales, the improvement
in capacity utilization generated the improvement in overall yarn volume. Market
pricing for sales yarns remained very competitive, reflecting continued excess
production capacity within the domestic industry and continued imports of yarns
and knitted apparel from Asia. Operating income for yarns increased to $7.5
million for fiscal 2000 from a loss of $0.1 million for fiscal 1999. Operating
income was positively impacted by lower raw material costs and unit cost
reductions related to the improved capacity utilization.

         Intersegment sales increased 73.6% percent to $54.5 million for fiscal
2000 from $31.4 million for fiscal 1999, primarily reflecting the significant
increase in consumption of internally produced yarns within the Company's
fabrics operations.

         Interest Expense, Net. Interest expense, net decreased 12.0% to $20.2
million for fiscal 2000 from $23.0 million for fiscal 1999. This decrease
reflected lower average outstanding borrowings during fiscal 2000.

         Discount and Expenses on Sale of Receivables. Discount and expenses on
sale of receivables were $5.6 million for fiscal 2000 and fiscal 1999.

         Provision for Income Taxes. Provision for income taxes increased to
$18.6 million for fiscal 2000 from $6.3 million for fiscal 1999, reflecting the
increase in income before income taxes. The Company's effective tax declined to
36.0% for fiscal 2000, due to state incentive program credits related to the
Company's investments in its manufacturing facilities, compared to 38.5% for
fiscal 1999.


                                       16
<PAGE>   18

Fiscal 1999 Compared to Fiscal 1998

         Net Sales. Net sales decreased 16.6% to $880.9 million for fiscal 1999
from $1,056.1 million for fiscal 1998, as the Company experienced intensely
competitive conditions in its markets. Global supply continued to surpass demand
as weak foreign economies directed their production to the U.S. consumer. In
response, the Company was able to employ its sourcing flexibility to increase
its consumption of internally produced yarns and greige fabrics in the
production of finished fabrics and thereby minimize the detrimental effects of
underutilized manufacturing capacity.

         Operating Income. Operating income decreased 47.6% to $45.3 million for
fiscal 1999 from $86.6 million for fiscal 1998. The Company continued efforts to
reduce unit costs through strategic capital expenditure projects. However,
reduced capacity utilization and a corresponding reduction in absorption of
fixed manufacturing costs resulted in increased unit costs during fiscal 1999.
Cost of goods sold decreased 14.8% to $748.9 million for fiscal 1999 from $879.3
million for fiscal 1998. Cost of goods sold as a percentage of net sales
increased to 85.0% for fiscal 1999 from 83.3% for fiscal 1998.

         Selling and Administrative Expenses. Selling and administrative
expenses decreased 20.7% to $38.1 million for fiscal 1999 from $48.1 million for
fiscal 1998. This decrease reflected continued expense reduction efforts, and
reduced charges for certain associate benefits and performance based incentives
corresponding with the reduced results of operations of the Company for the
period. Selling and administrative expenses as a percentage of net sales
decreased to 4.3% for fiscal 1999 from 4.5% for fiscal 1998.

         Segment Performance. Apparel fabric sales decreased 9.9% to $641.2
million for fiscal 1999 from $711.6 million for fiscal 1998. This decrease in
sales reflected a 5.5% decrease in yards sold and a 4.7% decline in average
selling prices for those yards. Although reports of retail sales and consumer
preferences indicated that domestic sales of denim jeans continued to
demonstrate growth during fiscal 1999, the substantial increase in denim
productive capacity worldwide in recent years caused the global supply of denim
to far exceed demand. As a result, the market for denim fabrics became very
competitive and selling prices declined accordingly. These declines in denim
sales were partially offset during fiscal 1999 by growing demand for khaki and
other pant-weight fabrics.

         Greige and specialty fabric sales decreased 8.9% to $73.7 million for
fiscal 1999 from $80.9 million for fiscal 1998. This decrease reflected a 4.5%
decrease in units sold and a 4.6% decrease in average selling prices for those
units. The decrease in units sold and average selling prices was primarily the
result of softening demand during fiscal 1999 for greige and specialty fabrics
in the apparel, tent and marine products industries. The Company also increased
its consumption of internally produced greige fabrics in the production of
finished apparel fabrics.

         Yarn sales decreased 30.0% to $197.4 million for fiscal 1999 from
$282.0 million for fiscal 1998. This decrease reflected a 20.9% decrease in
pounds sold and an 11.5% decrease in average selling prices. The decrease in
pounds sold was partly the result of the Company's decision to significantly
increase its consumption of internally produced yarn within the Company's
weaving facilities, thereby reducing dependence on outside yarn sourcing, and to
discontinue the operation of higher cost production equipment. Continuing its
yarn restructuring efforts, the Company also announced the closing of the yarn
spinning operation at its Sibley plant located in Augusta, Georgia. Market
demand and pricing for sales yarn remained very competitive during fiscal 1999,
reflecting continued excess productive capacity within the industry, a condition
that has persisted for several years, and increased imports of yarn and knitted
apparel from Asia during fiscal 1998 and 1999.


                                       17
<PAGE>   19

         Intersegment sales increased 71.0% to $31.4 million for fiscal 1999
from $18.4 million for fiscal 1998, primarily reflecting an increase in
consumption of internally produced yarns within the Company's fabrics
operations.

         Interest Expense, Net. Interest expense, net decreased 1.2% to $23.0
million for fiscal 1999 from $23.3 million for fiscal 1998. This decrease
reflected lower interest rates during fiscal 1999.

         Discount and Expenses on Sale of Receivables. Discount and expenses on
sale of receivables were $5.6 million for fiscal 1999 compared to $7.3 million
for fiscal 1998. This decrease was primarily attributable to a net decrease in
the amount of accounts receivable sold under the facility, reflecting the
overall decline in net sales of the Company.

         Facility Restructuring. Charges incurred to consolidate facilities and
dispose of certain inefficient equipment in the Company's Graniteville, South
Carolina and Augusta, Georgia operations were $6.2 million for fiscal 1999.

         Provision for Income Taxes. Provision for income taxes decreased to
$6.3 million for fiscal 1999 from $21.1 million for fiscal 1998, reflecting the
decrease in income before income taxes. The Company's effective tax rate was
38.5% for fiscal 1999 compared to 38.1% for fiscal 1998.


                                       18
<PAGE>   20

LIQUIDITY AND CAPITAL RESOURCES

  General

         The Company has funded its working capital requirements and capital
expenditures with cash generated from operations, borrowings under its Credit
Facility, proceeds received in connection with sales of trade receivables and
proceeds received in connection with the issuance of equity and debt securities.
At August 25, 2000, the Company had borrowings of $50.2 million outstanding
under the Credit Facility and $149.8 million of borrowing availability
thereunder ($74.8 million of borrowing availability as amended effective
September 28, 2000). Such borrowings bore interest at a weighted average rate of
7.6% per annum at August 25, 2000. In addition, at August 25, 2000, $125 million
aggregate principal amount of the Notes (which are fully and unconditionally
guaranteed by the Company) issued by Avondale Mills during fiscal 1996 were
outstanding.

Credit Facility

         As amended effective September 28, 2000, the Credit Facility consists
of a forty-month revolving line of credit of up to $125 million. Borrowings
under the Credit Facility include revolving loans to be provided by the lenders
("Revolver Loans") and up to $12.5 million of revolving swing loans ("Swing
Revolver Loans") to be provided by Wachovia Bank, N.A. ("Wachovia"). Interest
accrues on Revolver Loans at the Company's option at either LIBOR (adjusted for
reserves) plus a specified number of basis points or the base rate, which is the
higher of Wachovia's prime rate or the overnight federal funds rate plus 0.5%.
Interest accrues on Swing Revolver Loans at the Company's option at either the
base rate or at the "set" rate, which shall be an interest rate agreed to by the
Company and Wachovia at the time such Swing Revolver Loan is made. In addition,
the Company is required to pay certain structuring, administration and funding
fees under the Credit Facility. The Credit Facility is secured by substantially
all of the Company's assets. The Credit Facility contains customary covenants,
including requirements to maintain certain financial ratios.

Swap Agreements

         The Company has used interest rate swap agreements to effectively fix
the interest rate with respect to a portion of the borrowings outstanding under
the Credit Facility, which otherwise bear interest at floating rates. Such
agreements involve the receipt of floating rate amounts in exchange for fixed
rate interest payments during the term of such agreements without an exchange of
the underlying principal amounts. The differential to be paid or received is
accrued as interest rates change and recognized as an adjustment to interest
expense related to the borrowings outstanding under the Credit Facility. The
related amount payable to or receivable from counterparties is included in other
liabilities or assets. At August 25, 2000, the Company had swap agreements with
notional amounts aggregating $60.0 million, providing an effective weighted
average interest rate of 5.5% on that equivalent portion of the outstanding
Revolver Loans.

   Receivables Securitization Facility

         Pursuant to an agreement between Avondale Mills and Bank One, formerly
The First National Bank of Chicago, Bank One has provided to the Company,
through a special purpose vehicle administered by it, a securitization facility
("Receivables Securitization Facility") of up to $120 million for the
securitization of certain trade receivables (the "Receivables") originated by
the Company. The Company acts as the servicer for the Receivables.


                                       19
<PAGE>   21

         Under the Receivables Securitization Facility, the Company transfers
Receivables to a wholly owned, limited-purpose subsidiary of the Company (the
"Receivables Company"), which sells the Receivables to a trust (the "Trust").
The Trust issues variable funding certificates to lending or financial
institutions or other investors evidencing undivided interests in the assets of
the Trust (the "Certificates"). The Receivables Securitization Facility permits
draws and repayments on a revolving basis prior to November 15, 2002 or such
earlier time as certain events occur (the "Amortization Commencement Date"). The
Certificates, which represent beneficial interests in the Trust, entitle the
holders thereof to (i) receipt of collections from the Receivables, (ii) all
rights of the Company or the Receivables Company in goods, the sale of which
gave rise to the Receivables, (iii) all collateral and other arrangements
supporting the Receivables, (iv) all rights to proceeds of any of the foregoing
held in lock-boxes and bank accounts of the Company or the Receivables Company,
(v) rights and interests of the Receivables Company under the documents for the
Receivables Securitization Facility and (vi) all collections and other proceeds
of the assets described above. The Certificates represent beneficial interests
in the Trust only, and do not represent obligations of, or interests in, and are
not guaranteed or insured by, the Receivables Company or the Company. At August
25, 2000, certificates of $86.0 million were outstanding.

         The rate of interest on the Receivables Securitization Facility is tied
to the Eurodollar rate (adjusted for any reserves) or Bank One's alternate base
rate. The final maturity of the Certificates is expected to occur six months
after the Amortization Commencement Date. All collections attributable to the
Certificates will be set aside commencing on the Amortization Commencement Date
to repay the Certificates in full. Amounts set aside will be applied on a
monthly basis to repay the Certificates in full.

         The Receivables Securitization Facility contains covenants,
representations and warranties customary for such facilities and consistent with
those that Bank One reasonably believes are required to obtain an "A" rating
from the rating agencies. Financial covenants are not included in the provisions
of the Receivables Securitization Facility nor are any provisions relating to
cross defaults to any other obligations of the Company.

 Capital Expenditures and Cash Flows Analysis

         The Company's capital expenditures aggregated $30.5 million for fiscal
2000. These expenditures were primarily to continue the modernization of a
fabric finishing facility in South Carolina, replace earlier generation air jet
looms with new high speed air jet looms at an existing greige weaving facility,
install new linked ring spinning equipment in a yarn production facility and
purchase other equipment. Management estimates that capital expenditures for
fiscal 2001 will be approximately $85 million, and that such amounts will be
used primarily to improve fabric finishing, greige weaving and yarn spinning
facilities.

         Net cash provided by operating activities was $74.7 million in fiscal
2000. Principal working capital changes included a $2.4 million decrease in
accounts receivable, a $7.0 million increase in other assets, primarily deposits
on equipment orders, and a $4.7 million increase in accounts payable and accrued
expenses. The Company's investing activities were primarily the capital
improvements described above. Net cash used in financing activities aggregated
$46.3 million, including $5.1 million used to pay dividends on Common Stock, a
net reduction in revolver loans and other long term debt of $31.9 million, and a
$7.0 million decrease in accounts receivable sold under the securitization
facility.

         Net cash provided by operating activities was $99.4 million in fiscal
1999. Principal working capital changes included a $31.5 million decrease in
accounts receivable, an $8.1 million decrease in inventories and a $7.0 million
decrease in accounts payable and accrued expenses. The Company's investing
activities were primarily capital improvements of $50.1 million. Net cash used
in financing activities aggregated $51.4 million, including $5.1 million used to
pay dividends on Common Stock, a net reduction


                                       20
<PAGE>   22

in revolver loans and other long term debt of $27.3 million, and a $19.0 million
decrease in accounts receivable sold under the securitization facility.

         Net cash provided by operating activities was $81.8 million in fiscal
1998. Principal working capital changes included a $5.2 million decrease in
accounts receivable, a $6.2 million decrease in inventories and an $8.3 million
decrease in accounts payable and accrued expenses. The Company's investing
activities were primarily capital improvements of $66.3 million. Net cash used
in financing activities aggregated $15.1 million, including $5.2 million used to
pay dividends on Common Stock, $15.4 million used to repurchase approximately
592,000 shares of Class A Common Stock pursuant to a tender offer distributed by
the Company to all shareholders and vested stock option holders of Class A
Common Stock, and receipt of $10.0 million from the sale of additional accounts
receivable under the securitization facility.

         Management believes that cash generated from operations, together with
borrowings available under the Credit Facility and proceeds received in
connection with sales of trade receivables, will be sufficient to meet the
Company's working capital and capital expenditure needs in the foreseeable
future. The Company will also continue to consider other options available to it
in connection with future working capital and capital expenditure needs,
including the issuance of additional debt and equity securities.

SEASONALITY

         The Company's sales are broadly distributed over markets with staggered
seasonality and, therefore, generally do not exhibit significant seasonal
trends.

NEW ACCOUNTING STANDARDS

         In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or a liability
measured at its fair value, and changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. The Company plans to adopt Statement No. 133 in fiscal 2001. Management
does not believe the adoption of this statement will have a material effect on
the consolidated financial position or results of operations of the Company.

         During December 1999, the Securities and Exchange Commission released
Staff Accounting Bulletin 101, "Revenue Recognition" to establish guidelines for
revenue recognition and enhance revenue recognition disclosure requirements. The
Bulletin clarifies basic criteria for the culmination of the earnings process
and will be effective for the third quarter of fiscal year 2001. Management does
not believe the adoption of Staff Accounting Bulletin 101 will have a material
effect on the consolidated financial statements of the Company.

         During the first quarter of fiscal 1999, the Company adopted Statement
of Financial Accounting Standard No. 130 "Reporting Comprehensive Income", which
requires the reporting and display of net income plus other comprehensive income
items such as unrealized gains and losses on securities or foreign currency
translation adjustments. The adoption of this statement did not have a material
impact on the presentation of the Company's condensed consolidated financial
statements, as the Company does not have any material other comprehensive income
items to report.


                                       21
<PAGE>   23

         During September 2000, the Financial Accounting Standards Board issued
Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," which supersedes an earlier statement and
enhances the disclosure requirements relating to securitization transactions and
collateral. Statement No. 140 is effective for transfers occurring after March
31, 2001. Management is currently assessing the implications of adopting the
disclosure requirements of Statement No. 140.

FORWARD LOOKING STATEMENTS.

         Statements herein regarding the Company's anticipated capital
expenditures and anticipated performance in future periods constitute forward
looking statements within the meaning of the Securities Act of 1993 and
Securities Act of 1934. Such statements are subject to certain risks and
uncertainties that could cause actual amounts to differ materially from those
projected. With respect to anticipated capital expenditures, management has made
certain assumptions regarding, among other things, maintenance of existing
facilities and equipment, availability and desirability of new, technologically
advanced equipment, installation and start up times, cost estimates and
continued availability of financial resources. The estimated amount of capital
expenditures is subject to certain risks, including, among other things, the
risk that unexpected capital expenditures will be required and unexpected costs
and expenses will be incurred. Further, statements herein regarding the
Company's performance in future periods are subject to risks relating to, among
other things, the cyclical and competitive nature of the textile industry in
general, pressures on sales prices due to competitive and economic conditions,
deterioration of relationships with, or loss of, significant customers,
availability, sourcing and pricing of cotton and other raw materials,
technological advancements, employee relations, continued availability of
financial resources, difficulties integrating acquired businesses and possible
changes in governmental policies affecting raw material costs. Management
believes these forward looking statements are reasonable; however, undue
reliance should not be placed on such forward looking statements, which are
based on current expectations.


                                       22
<PAGE>   24

OTHER DATA

         EBITDA, which is presented not as an alternative measure of operating
results or cash flow from operations (as determined in accordance with generally
accepted accounting principles) but because it is a widely accepted financial
indicator of the ability to incur and service debt, is calculated by the Company
as follows (amounts in thousands):

<TABLE>
<CAPTION>
                                                                     FISCAL YEAR
                                                      ------------------------------------------
                                                         1998             1999            2000
                                                      ---------         --------        --------
<S>                                                   <C>               <C>             <C>
Net income ...................................        $  34,313         $ 10,023        $ 33,003
Interest expense .............................           23,280           22,998          20,249
Discount and expenses on
    sale of receivables ......................            7,342            5,590           5,578
Provision for income taxes ...................           21,125            6,270          18,580
Depreciation and amortization ................           39,887           42,801          42,838
Facility restructuring .......................            2,699            6,240              --
Net change in allowance to reduce carrying
     value of inventory to LIFO basis ........           (2,027)              --          (4,700)
                                                      ---------         --------        --------

EBITDA .......................................        $ 126,619         $ 93,922        $115,548
                                                      =========         ========        ========
</TABLE>

         EBITDA as calculated by the Company is not necessarily comparable with
similarly-titled measures presented by other companies.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Upward or downward changes in market interest rates and their impact on
the reported interest expense of the Company's variable rate borrowings may
affect the Company's earnings. However, the Company's use of interest rate swap
agreements will limit the negative impact of higher interest rates. Assuming the
revolving credit facility and interest rate swap agreements at August 25, 2000
remain in effect throughout fiscal 2001, a 10% change in the effective average
interest rate would not have a material effect on the Company's pretax earnings
for fiscal 2001. In addition, a 10% change in interest rates would not have a
material effect on the fair value of the Company's interest rate swap agreements
and senior subordinated notes.

         Increases or decreases in the market price of cotton may affect the
valuation of the Company's inventories and fixed purchase commitments and,
accordingly, the Company's earnings. The potential decline in fair value of
these inventories and fixed purchase commitments resulting from a 10% decline in
market prices is estimated to be approximately $14 to $15 million.


                                       23
<PAGE>   25
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                              AVONDALE INCORPORATED

                        CONSOLIDATED FINANCIAL STATEMENTS
                                 AUGUST 25, 2000


<TABLE>
<CAPTION>
                                                                    PAGE
                                                                    ----
<S>                                                                 <C>
Report of Independent Public Accountants..................           25

Consolidated Balance Sheets...............................           26

Consolidated Statements of Income.........................           27

Consolidated Statements of Shareholders' Equity...........           28

Consolidated Statements of Cash Flows.....................           29

Notes to Consolidated Financial Statements................           30
</TABLE>


                                       24
<PAGE>   26




                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Avondale Incorporated:

         We have audited the accompanying consolidated balance sheets of
Avondale Incorporated as of August 27, 1999 and August 25, 2000, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended August 25, 2000. These financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Avondale Incorporated at August 27, 1999 and August 25, 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended August 25, 2000 in conformity with accounting
principles generally accepted in the United States.

         Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index at Item
14 (a) is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Atlanta, Georgia
October 6, 2000


                                       25
<PAGE>   27



                              AVONDALE INCORPORATED

                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                          AUGUST 28,        AUGUST 25,
                                                                            1999               2000
                                                                          ---------         ---------
<S>                                                                       <C>               <C>
                                     ASSETS

 Current assets
  Cash ...............................................................    $   8,545         $   7,867
  Accounts receivable, less allowance for doubtful accounts of
   $2,615 in 1999 and $2,989 in 2000 .................................       49,948            54,531
  Inventories ........................................................      106,559           105,965
  Prepaid expenses ...................................................        1,070             2,100
                                                                          ---------         ---------
      Total current assets ...........................................      166,122           170,463
 Property, plant and equipment
  Land ...............................................................        8,510             8,400
  Buildings ..........................................................       84,515            85,907
  Machinery and equipment ............................................      469,274           494,590
                                                                          ---------         ---------
                                                                            562,299           588,897
  Less accumulated depreciation ......................................     (306,318)         (346,006)
                                                                          ---------         ---------
                                                                            255,981           242,891
Other assets .........................................................       17,629            25,354
                                                                          ---------         ---------
                                                                          $ 439,732         $ 438,708
                                                                          =========         =========

                    LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
  Accounts payable ...................................................    $  30,773         $  32,358
  Accrued compensation, benefits and related expenses ................       18,378            23,277
  Other accrued expenses .............................................       22,366            20,618
  Long-term debt due in one year .....................................        3,250             2,500
  Income taxes payable ...............................................        3,411             2,375
                                                                          ---------         ---------
          Total current liabilities ..................................       78,178            81,128
Long-term debt .......................................................      216,275           185,175
Deferred income taxes and other long-term liabilities ................       40,283            41,900
Commitments and contingencies
Shareholders' equity
 Preferred stock
   $.01 par value; 10,000 shares authorized ..........................           --                --
 Common stock

  Class A, $.01 par value; 100,000 shares authorized; issued and
    outstanding -- 11,698 shares in 1999 and 11,565 shares in 2000 ...          117               115
  Class B, $.01 par value; 5,000 shares authorized; issued and
    outstanding -- 979 shares in 1999 and 2000 .......................           10                10
  Capital in excess of par value .....................................       39,835            39,696
  Retained earnings ..................................................       65,034            90,684
                                                                          ---------         ---------
     Total shareholders' equity ......................................      104,996           130,505
                                                                          ---------         ---------
                                                                          $ 439,732         $ 438,708
                                                                          =========         =========
</TABLE>

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


                                       26
<PAGE>   28

                              AVONDALE INCORPORATED

                        CONSOLIDATED STATEMENTS OF INCOME
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                       FISCAL YEAR ENDED
                                                          -------------------------------------------
                                                          AUGUST 28,       AUGUST 27,      AUGUST 25,
                                                              1998            1999            2000
                                                          ----------        --------        --------
<S>                                                       <C>               <C>             <C>
Net sales ........................................        $1,056,103        $880,855        $826,580
 Operating costs and expenses
   Cost of goods sold ............................           879,263         748,910         667,988
   Depreciation ..................................            39,497          42,271          42,250
   Selling and administrative expenses ...........            48,067          38,096          38,474
   Facility restructuring charges ................             2,699           6,240              --
                                                          ----------        --------        --------
       Operating income ..........................            86,577          45,338          77,868
Interest expense .................................            23,280          22,998          20,249
Discounts and expenses on sales of receivables ...             7,342           5,590           5,578
Other expenses, net ..............................               517             457             458
                                                          ----------        --------        --------
   Income before income taxes ....................            55,438          16,293          51,583
Provision for income taxes .......................            21,125           6,270          18,580
                                                          ----------        --------        --------
       Net income ................................        $   34,313        $ 10,023        $ 33,003
                                                          ==========        ========        ========
Per share data
       Net income - basic ........................        $     2.62        $    .79        $   2.61
                                                          ==========        ========        ========
       Net income - diluted ......................        $     2.58        $    .77        $   2.57
                                                          ==========        ========        ========
</TABLE>

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


                                       27
<PAGE>   29


                              AVONDALE INCORPORATED

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                             COMMON STOCK             CAPITAL IN
                                                                         ISSUED        EXCESS OF         RETAINED
                                                         SHARES          AMOUNT        PAR VALUE         EARNINGS
                                                         ------          ------        ---------         --------
<S>                                                      <C>            <C>           <C>                <C>
Balance at August 27, 1997 .....................         13,269         $   133         $ 41,478         $ 44,751
  Net income ...................................             --              --               --           34,313
  Cash dividends ($0.40 per share) .............             --              --               --           (5,249)
  Purchase and retirement of treasury stock ....           (592)             (6)          (1,643)         (13,733)
                                                         ------         -------         --------         --------
Balance at August 28, 1998 .....................         12,677             127           39,835           60,082
  Net income ...................................             --              --               --           10,023
  Cash dividends ($0.40 per share) .............                                                           (5,071)
                                                         ------         -------         --------         --------
Balance at August 27, 1999 .....................         12,677             127           39,835           65,034
  Net income ...................................             --              --               --           33,003
  Cash dividends ($0.40 per share) .............             --              --               --           (5,062)
  Common stock issued ..........................             22              --              349               --
  Purchase and retirement of treasury stock ....           (155)             (2)            (488)          (2,291)
                                                         ------         -------         --------         --------
Balance at August 25, 2000 .....................         12,544         $   125         $ 39,696         $ 90,684
                                                         ======         =======         ========         ========
</TABLE>


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


                                       28
<PAGE>   30


                              AVONDALE INCORPORATED

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                            FISCAL YEAR ENDED
                                                                --------------------------------------------
                                                                AUGUST 28,       AUGUST 27,       AUGUST 25,
                                                                   1998             1999              2000
                                                                ---------        ----------       ----------
<S>                                                             <C>              <C>              <C>
Operating activities
 Net income .............................................        $ 34,313         $ 10,023         $ 33,003
 Adjustments to reconcile net income to net cash
  provided by operating activities
   Depreciation and amortization ........................          39,887           42,801           42,838
   Provision for (benefit of) deferred income taxes .....           6,452           (1,852)           2,181
   Loss (gain) on sale of equipment .....................           1,877            4,183              (99)
   Changes in operating assets and liabilities
    Accounts receivable .................................           5,201           31,549            2,417
    Inventories .........................................           6,173            8,125              594
    Prepaid expenses ....................................             819             (328)          (1,030)
    Other assets and liabilities, net ...................          (1,119)           9,767           (8,878)
    Accounts payable and accrued expenses ...............          (8,339)          (6,957)           4,736
    Income taxes payable ................................          (3,459)           2,066           (1,035)
                                                                 --------         --------         --------
      Net cash provided by operating activities .........          81,805           99,377           74,727
 Investing activities
  Purchase of property, plant and equipment .............         (66,335)         (50,143)         (30,477)
  Proceeds from sale of property, plant and equipment ...             403            1,423            1,416
                                                                 --------         --------         --------
      Net cash used in investing activities .............         (65,932)         (48,720)         (29,061)
 Financing activities
  Payments on long-term debt ............................          (3,250)          (2,250)          (3,250)
  Payments on revolving line of credit, net .............          (1,250)         (25,050)         (36,100)
  Sales of accounts receivable, net .....................          10,000          (19,000)          (7,000)
  Issuance of long-term debt ............................              --               --            7,500
  Issuance of common stock ..............................              --               --              349
  Purchase and retirement of treasury stock .............         (15,382)              --           (2,781)
  Dividends paid ........................................          (5,249)          (5,071)          (5,062)
                                                                 --------         --------         --------
      Net cash used in financing activities .............         (15,131)         (51,371)         (46,344)
                                                                 --------         --------         --------
 Increase (decrease) in cash ............................             742             (714)            (678)
 Cash and cash equivalents at beginning of year .........           8,517            9,259            8,545
                                                                 --------         --------         --------
      Cash and cash equivalents at end of year ..........        $  9,259         $  8,545         $  7,867
                                                                 ========         ========         ========
</TABLE>



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


                                       29
<PAGE>   31


                              AVONDALE INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 AUGUST 25, 2000

         1.       Basis of Presentation: The accompanying consolidated financial
statements include the accounts of Avondale Incorporated and its wholly owned
subsidiaries, Avondale Mills, Inc. ("Avondale Mills") and Avondale Receivables
Company (collectively, the "Company"). All significant intercompany accounts and
transactions have been eliminated. Certain prior year financial statement
amounts have been reclassified to conform with the current year's presentation.
Unless otherwise stated, all references to years relate to the Company's fiscal
year, which ends on the last Friday in August, rather than calendar years.

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

         Avondale Incorporated is a holding company and has no operations,
liabilities or assets other than those related to its investment in Avondale
Mills, Inc.

         Cash and Cash Equivalents: The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents.

         Inventories: Inventories are stated at the lower of cost or market
value. Except for certain supply inventories valued on an average cost basis,
cost is determined on a last-in, first-out ("LIFO") basis.

         Periodically, the Company purchases cotton futures and option contracts
to hedge exposure to price fluctuations in the cotton acquired from various
suppliers. Gains and losses on these hedging contracts, which are immaterial,
are deferred as an adjustment to the carrying value of inventories and
recognized when these inventories are sold.

         Property, Plant and Equipment: Property, plant and equipment is stated
at cost and depreciated over the estimated useful lives of the related assets,
which range from three to thirty years. Depreciation is calculated primarily
using the straight-line method. Capital lease amortization is included with
depreciation expense in the consolidated financial statements.

         Long-Lived Assets: The Company periodically reviews the values assigned
to long-lived assets, such as property, plant and equipment and goodwill. The
associated depreciation and amortization periods are reviewed on an annual
basis. Recoverability is measured based on the anticipated undiscounted cash
flows from operations. Management believes that long-lived assets included in
the accompanying balance sheets are appropriately valued.

         Associate Benefit Plans: The Company has a discretionary profit sharing
plan covering substantially all associates. Annual contributions by the Company
are made to the plan in amounts determined by the board of directors. In
addition, the plan has 401(k) savings options that are available to all
associates. The Company matches 25% of the first 3% of compensation contributed
by each associate. The Company also has a deferred compensation plan for certain
key personnel. The related expense for these profit sharing and deferred
compensation plans is charged to operations currently and totaled $8.1 million,
$3.5 million and $7.3 million for fiscal 1998, 1999 and 2000, respectively.


                                       30
<PAGE>   32

         Other Assets and Other Long-Term Liabilities: Other assets consist
primarily of unamortized loan fees, goodwill, cash surrender value of life
insurance, and deposits on machinery and equipment purchases. Loan fees are
amortized on a straight line basis over the outstanding term of the related
debt. Goodwill is amortized on a straight line basis over 20 years. Other
long-term liabilities consist of accrued postretirement and workers'
compensation benefits and deferred compensation for certain key management
personnel.

         Fair Value of Financial Instruments: The carrying values of cash,
accounts receivable, certain other assets, accounts payable and accrued expenses
approximate reasonable estimates of their fair values at August 27, 1999 and
August 25, 2000. See Note 7 for disclosures related to the fair values of
long-term debt and interest rate swap agreements.

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

<TABLE>
<CAPTION>
                                                                        1998        1999        2000
                                                                       ------      ------      ------
         <S>                                                           <C>         <C>         <C>
         Weighted average shares outstanding -
               Basic........................................           13,090      12,677      12,652
         Effect of employee and director stock options......              215         257         174
                                                                       ------      ------      ------
         Weighted average shares outstanding -
               Diluted......................................           13,305      12,934      12,826
                                                                       ======      ======      ======
</TABLE>


         Stock Based Compensation: The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations in accounting for its employee and director stock
options and adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("FAS
123"). The Company grants stock options for a fixed number of shares to
employees and directors with an exercise price equal to the fair value of the
shares at the date of grant and, accordingly, recognizes no compensation expense
for the stock option grants.

         Comprehensive Income: During the first quarter of fiscal 1999, the
Company adopted Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income," which requires the reporting and display of net income
plus other comprehensive income items such as unrealized gains and losses on
securities or foreign currency translation adjustments. The adoption of this
statement did not have a material impact on the presentation of the Company's
consolidated financial statements, as the Company does not have any material
other comprehensive income to report.

         Recent Accounting Pronouncements: In June 1998, the Financial
Accounting Standards Board issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or a liability measured at its fair value, and changes
in the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. The Company plans to adopt Statement
No. 133 in the first quarter of fiscal 2001. Management does not believe the
adoption of this statement will have a material effect on the consolidated
financial statements of the Company.

         During December 1999, the Securities and Exchange Commission released
Staff Accounting Bulletin 101, "Revenue Recognition", to establish guidelines
for revenue recognition and enhance revenue recognition disclosure requirements.
The Bulletin clarifies basic criteria for the culmination of the earnings
process and is effective for the third quarter of fiscal year 2001. Management
does not believe the adoption


                                       31
<PAGE>   33

of Staff Accounting Bulletin 101 will have a material effect on the consolidated
financial statements of the Company.

         During September 2000, the Financial Accounting Standards Board issued
Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," which supersedes an earlier statement and
enhances the disclosure requirements relating to securitization transactions and
collateral. Statement No. 140 is effective for transfers occurring after March
31, 2001. Management is currently assessing the implications of adopting the
disclosure requirements of Statement No. 140.

         Revenue Recognition: The Company records revenues principally when
products are shipped to customers. Consistent with recognized practice in the
textile industry, the Company also records revenues to a lesser extent
throughout the year (10%, 9% and 7% of total revenues in fiscal 1998, 1999 and
2000, respectively) on a bill and hold basis, invoicing goods that have been
produced, packaged and made ready for shipment. These goods are effectively
segregated from inventory which is available for sale, the risks of ownership of
the goods have passed to the customer, and the remittance terms and collection
experience on the related invoicing is consistent with all other sales by the
Company.

         The credit status of each customer is approved and monitored by the
Company. Sales to V.F. Corporation and its affiliates represented 16% of net
sales for fiscal 1998, 16% of net sales for fiscal 1999, and 15% of net sales
for fiscal 2000.

         2.       Facility Restructuring: During the fourth quarter of fiscal
1999, the Company recorded pretax charges of $6.2 million to consolidate
manufacturing facilities and dispose of certain inefficient equipment in its
Graniteville, South Carolina and Augusta, Georgia operations.

    During the third quarter of fiscal 1998, the Company recorded pretax charges
of $2.7 million to consolidate  manufacturing  facilities and dispose of certain
inefficient equipment in its Graniteville, South Carolina operations.

         3.       Segment Information: The Company operates principally in three
segments: apparel fabrics, greige and specialty fabrics and yarns. Apparel
fabrics manufactures and markets cotton and cotton-blend fabrics used in the
manufacture of jeans, sportswear and utilitywear. Greige and specialty fabrics
manufactures and markets a variety of fabrics to apparel, home furnishings,
industrial, military and recreational product manufacturers. Yarns manufactures
and markets cotton and cotton-blend yarns to customers in the knitting and
weaving industries. The unallocated amounts reflect expenses, assets and capital
expenditures for centralized transportation, warehouse and administrative
services (in thousands).

<TABLE>
<CAPTION>
                                                      1999            2000            1998
                                                  ----------        --------        --------
         <S>                                      <C>               <C>             <C>
         Revenues:
              Apparel fabrics ................    $  711,579        $641,201        $615,745
              Greige and specialty fabrics ...        80,931          73,699          79,034
              Yarns ..........................       281,974         197,372         186,335
                                                  ----------        --------        --------
                                                   1,074,484         912,272         881,114
               Less intersegment sales ....           18,381          31,417          54,534
                                                  ----------        --------        --------
                 Total .......................    $1,056,103        $880,855        $826,580
                                                  ==========        ========        ========
</TABLE>


                                       32
<PAGE>   34


<TABLE>
<CAPTION>
                                                    1998            1999            2000
                                                -----------       ---------       ---------
<S>                                             <C>               <C>             <C>
Income:
   Apparel fabrics .......................      $    78,847       $  72,900       $  86,377
   Greige and specialty fabrics ..........            9,826           7,064          10,100
   Yarns .................................           30,257            (125)          7,452
   Unallocated ...........................          (32,353)        (34,501)        (26,061)
                                                -----------       ---------       ---------
      Total operating income .............           86,577          45,338          77,868
   Interest expense ......................           23,280          22,998          20,249
   Discounts and expenses on sales of
        receivables ......................            7,342           5,590           5,578
   Other expenses, net ...................              517             457             458
                                                -----------       ---------       ---------
      Income before income taxes .........      $    55,438       $  16,293       $  51,583
                                                ===========       =========       =========

Identifiable Assets:
   Apparel fabrics .......................      $   322,222       $ 317,549       $ 318,858
   Greige and specialty fabrics ..........           30,600          25,336          24,747
   Yarns .................................           76,951          61,827          63,106
   Unallocated ...........................           33,809          35,020          31,997
                                                -----------       ---------       ---------
      Total ..............................      $   463,582       $ 439,732       $ 438,708
                                                ===========       =========       =========

Depreciation and Amortization:
   Apparel fabrics .......................      $    21,738       $  28,340       $  28,998
   Greige and specialty fabrics ..........            2,843           3,001           3,085
   Yarns .................................           11,031           8,127           7,817
   Unallocated ...........................            4,275           3,333           2,938
                                                -----------       ---------       ---------
      Total ..............................      $    39,887       $  42,801       $  42,838
                                                ===========       =========       =========

Capital Expenditures:
   Apparel fabrics .......................      $    56,913       $  38,844       $  19,228
   Greige and specialty fabrics ..........            1,902             868             710
   Yarns .................................            3,864           7,820           7,847
   Unallocated ...........................            3,656           2,611           2,692
                                                -----------       ---------       ---------
      Total ..............................      $    66,335       $  50,143       $  30,477
                                                ===========       =========       =========

Geographic Sales Information:
   United States .........................      $   985,078       $ 820,274       $ 743,481
   All Other .............................           71,025          60,581          83,099
                                                -----------       ---------       ---------
        Total ............................      $ 1,056,103       $ 880,855       $ 826,580
                                                ===========       =========       =========
</TABLE>



         4.       Receivables Securitization Facility: On November 21, 1997, the
Company executed a 5-year amendment to its April 29, 1996 agreement with a bank
(the "Agreement") under which it may sell an undivided interest in a defined
pool of revolving trade accounts receivable (the "Receivables") held by Avondale
Receivables Company. Under the facility, the Receivables are transferred to a
trust at a discount. The trust sells variable funding certificates to lending
institutions or other investors representing undivided ownership interests in a
defined portion of the Receivables. Such certificates do not represent
obligations of, or interests in, and are not guaranteed or insured by, the
Company. The proceeds from the issuance of the certificates are remitted to the
Company.


                                       33
<PAGE>   35

         The Company retains a residual interest in the Receivables in an amount
equal to the excess of the Receivables over the certificates sold. Such residual
interest is included in accounts receivable in the Consolidated Balance Sheets.
All losses, credits or other adjustments relating to the Receivables constitute
deductions applicable to the Company's residual interest in the Receivables.
Accordingly, the Company maintains an allowance for such deductions based upon
the expected collectibility of the Receivables. At August 27, 1999 and August
25, 2000, an allowance of $5.0 million and $4.8 million, respectively, related
to the Receivables is included in other accrued expenses in the Consolidated
Balance Sheets.

         The Agreement requires the Company to maintain sufficient levels of
Receivables to collateralize the outstanding certificates. The Agreement also
contains various covenants, representations and warranties customary to the
operation of such securitization programs, but does not include financial
covenants or cross defaults to any other obligations of the Company. The
Company, as agent for the trust, is responsible for the collection and
administrative processing of the Receivables.

         Under the Agreement, the trust may issue certificates of up to $120.0
million. Certificates of $93.0 million and $86.0 million, respectively, were
outstanding at August 27, 1999 and August 25, 2000. Accounts receivable in the
Consolidated Balance Sheets have been reduced by approximately $94.0 million and
$87.1 million, respectively, representing the face amount of the outstanding
receivables sold at those dates.

         For the fiscal years ended August 28, 1998, August 27, 1999 and August
25, 2000, discounts of $7.3 million, $5.6 million and $5.6 million,
respectively, on sales of Receivables have been included in discounts and
expenses on sales of receivables in the Consolidated Statements of Income. The
Company sells the Receivables as an alternative to incurring additional debt.
Viewed on this basis, the Company's ongoing cost of the facility at August 25,
2000 is equal to the Eurodollar rate (adjusted for any reserves) plus 0.40% or
the bank's base rate of interest.

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

<TABLE>
<CAPTION>
                                                                AUGUST 27,    AUGUST 25,
                                                                    1999         2000
                                                                ----------    ----------
         <S>                                                    <C>           <C>
         Finished goods ...................................      $ 28,519      $ 34,179
         Work in process ..................................        44,541        39,462
         Raw materials ....................................        20,907        15,088
         Dyes and chemicals ...............................         5,537         5,872
                                                                 --------      --------
                                                                   99,504        94,601
         Premium to adjust carrying value to LIFO basis ...            --         4,700
                                                                 --------      --------
                                                                   99,504        99,301
         Supplies at average cost .........................         7,055         6,664
                                                                 --------      --------
                                                                 $106,559      $105,965
                                                                 ========      ========
</TABLE>


                                       34
<PAGE>   36


         6.       Income Taxes: Provision for income taxes is composed of the
following (in thousands):

<TABLE>
<CAPTION>
                                                                1998          1999         2000
                                                            --------      --------     --------
         <S>                                                <C>           <C>          <C>
         Current:
           Federal....................................      $ 13,578      $  7,029     $ 14,193
           State......................................         1,095         1,093        2,206
                                                            --------      --------     --------
                                                              14,673         8,122       16,399
         Deferred:
           Federal....................................         5,506        (1,603)       1,888
           State......................................           946          (249)         293
                                                            --------      --------     --------
                                                               6,452        (1,852)       2,181
                                                            --------      --------     --------
                                                            $ 21,125      $  6,270     $ 18,580
                                                            ========      ========     ========
</TABLE>


         The following table shows the reconciliation of federal income tax
expense at the statutory rate on income before income taxes to reported income
tax expense (in thousands):


<TABLE>
<CAPTION>
                                                                      1998         1999        2000
                                                                  --------       ------     -------
         <S>                                                      <C>            <C>        <C>
         Federal income taxes.................................    $ 19,403       $5,702     $18,055
         State income taxes, net of federal tax benefit.......       1,407          492       1,344
         Other................................................         315           76        (819)
                                                                  --------       ------     -------
                                                                  $ 21,125       $6,270    $ 18,580
                                                                  ========       ======    ========
</TABLE>


         The Company made income tax payments of $11.5 million, $4.6 million and
$17.3 million during fiscal 1998, 1999 and 2000, respectively.

         Deferred income taxes are provided for temporary differences in
financial and income tax reporting. Significant components of the Company's
year-end deferred tax liabilities and assets are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                       AUGUST 27,  AUGUST 25,
                                                                          1999        2000
                                                                       ----------  ----------
          <S>                                                          <C>         <C>
          Deferred tax liabilities:
           Depreciation......................................            $26,215     $25,710
           Inventory valuation...............................              5,491       7,576
           Goodwill..........................................              2,355       2,214
           Other.............................................              1,600       2,306
                                                                        --------    --------
                                                                          35,661      37,806
          Deferred tax assets:
           Employee benefit programs.........................              9,496       8,948
           Receivable reserves...............................              3,094       3,155
           Other.............................................              1,904       2,356
                                                                        --------    --------
                                                                          14,494      14,459
                                                                        --------    --------
          Net deferred tax liabilities........................          $ 21,167    $ 23,348
                                                                        ========    ========
</TABLE>


                                       35
<PAGE>   37



         7.       Long-Term Debt: Long-term debt consists of the following (in
thousands):


<TABLE>
<CAPTION>
                                                                       AUGUST        AUGUST 25,
                                                                        1999            2000
                                                                     ---------       ---------
<S>                                                                  <C>             <C>
Revolving credit facility, interest tied to banks' base rate or
alternative rates, 6.3% - 9.5% in 2000, due January 2004 .........   $  86,275       $  50,175
Industrial revenue bonds, floating rate, 3.0% - 6.0% in
2000, due in various installments through 2010 ...................       8,250          12,500
Senior subordinated notes, 10.25%, due May 1, 2006 ...............     125,000         125,000
                                                                     ---------       ---------
                                                                       219,525         187,675
Less current portion .............................................      (3,250)         (2,500)
                                                                     ---------       ---------
                                                                     $ 216,275       $ 185,175
                                                                     =========       =========
</TABLE>


         The Company maintains a secured revolving credit facility with a group
of banks, amended effective September 28, 2000, which provides aggregate
borrowing availability of a maximum of $125 million through January 2004. Under
the terms of this agreement, the Company can designate an interest rate tied to
the Eurodollar rate (adjusted for any reserves) or the banks' base rate, or at
alternative rates negotiated with the lead bank, for specified time periods. A
commitment fee is payable quarterly on the average daily unused portion of the
revolving credit commitment. The revolving credit facility is secured by
substantially all of the Company's assets. Covenants of the credit agreement
require the Company to maintain certain cash flow ratios and debt to equity
ratios, and contain restrictions on payment of dividends. Under the most
restrictive of these covenants, $20.0 million of retained earnings was available
for payment of dividends at August 25, 2000.

         The Company uses interest rate swap agreements to effectively convert a
portion of its outstanding revolving credit facility and industrial revenue
bonds to a fixed rate basis, thus reducing the impact of interest rate changes
on future income. These agreements involve the receipt of floating rate amounts
in exchange for fixed rate interest payments over the lives of the agreements
without an exchange of the underlying principal amounts. The differential to be
paid or received is accrued as interest rates change and recognized as an
adjustment to interest expense related to the debt. The related amount payable
to or receivable from counterparties is included in other liabilities or assets.
At August 25, 2000, the Company had interest rate swap agreements with notional
amounts aggregating $60 million providing an effective weighted average interest
rate of 5.5% on that equivalent portion of the revolving credit facility. These
interest rate swap agreements had no significant market value at August 25,
2000. The Company does not anticipate realization of any gain or loss as the
interest rate swap agreements are anticipated to remain outstanding through
maturity.

         During fiscal 2000, the Company issued $7.5 million of floating rate,
industrial revenue bonds in connection with a linked ring spinning modernization
program at a facility in Rockford, Alabama. The bonds mature on April 1, 2010
and represent a capital lease obligation which is secured by a letter of credit
agreement issued under the revolving credit facility.

         One of the remaining industrial revenue bonds also represents a
capital lease obligation. This lease obligation plus the other industrial
revenue bonds are secured by letter of credit agreements with a bank. The
letter of credit agreements are, in turn, secured by the property, plant and
equipment at four plant locations, which had a carrying value of approximately
$29.9 million at August 25, 2000. Covenants of the letter of credit agreements
substantially adopt the restrictive covenant provisions of the revolving credit
facility.

         Avondale Mills has $125 million of 10.25% senior subordinated notes
outstanding which mature on May 1, 2006. The notes are unsecured and the
guarantee of these notes by the Company is subordinated


                                       36
<PAGE>   38

to all existing and future senior indebtedness of the Company. Interest on the
notes is due on May 1 and November 1 of each year. At August 27, 1999 and August
25, 2000, the market value of the notes was approximately $116 million and $119
million, respectively. The Company does not anticipate settlement of the notes
at fair value and currently expects the notes to remain outstanding through
maturity.

         On or after May 1, 2001, the senior subordinated notes will be
redeemable at the Company's option, in whole or in part, at a scheduled
redemption price of 105.125% in 2001 declining to 100% in 2004 and thereafter.

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

         At August 25, 2000, the Company was in compliance with the covenants of
the revolving credit facility, subordinated note indenture and letter of credit
agreements.

         The carrying value of the Company's revolving credit facility and
industrial revenue bonds approximates fair value.

         Aggregate maturities of long-term debt, as amended effective September
28, 2000, are as follows (in thousands):

<TABLE>
         <S>                                                        <C>
         2001......................................                 $  2,500
         2002......................................                      500
         2003......................................                    1,000
         2004......................................                   51,175
         2005........................................                     --
         Thereafter through 2010.......................              132,500
                                                                    --------
                                                                    $187,675
                                                                    ========
</TABLE>

         In connection with the Company's borrowings, no interest has been
capitalized. The Company paid interest on revolving credit, long-term debt and
interest rate swap agreements of approximately $23.5 million , $21.9 million and
$19.3 million in fiscal 1998, 1999 and 2000, respectively.

         8.       Common Stock: Each share of Class A Common Stock is entitled
to one vote and each share of Class B Common Stock is entitled to 20 votes with
respect to matters submitted to a vote of shareholders. Each share of the Class
B Common Stock is convertible at any time, at the option of its holder, into one
share of Class A Common Stock. The Class B Common Stock will convert
automatically into Class A Common Stock, and thereby lose its special voting
rights, if such Class B Common Stock is sold or otherwise transferred to any
person or entity other than certain designated transferees.

         During fiscal 1998, the Company repurchased approximately 592,000
shares of Class A Common Stock for an aggregate purchase price of $15.4 million.
These shares were repurchased pursuant to a tender offer, distributed to all
shareholders and vested stock option holders of the Company's Class A Common
Stock, to purchase for cash up to $18.0 million worth of Class A Common Stock.

         During fiscal 2000, the Company repurchased approximately 155,000
shares of Class A Common Stock for an aggregate purchase price of $2.8 million,
pursuant to offers to sell made by various shareholders.


                                       37
<PAGE>   39

         All shares repurchased have been canceled and reinstated as authorized
but unissued shares of Class A Common Stock.

         The Company maintains an employee Stock Option Plan that allows for the
grant of non-qualified and incentive stock options. Under this Stock Option
Plan, options to purchase up to 1,081,250 shares of Class A Common Stock may be
granted to full-time employees, including executive officers of the Company.
Activity under the plan is summarized as follows (option shares in thousands):

<TABLE>
<CAPTION>
                                                                      Grant Price Per Share
                                                                  ------------------------------
<S>                                                               <C>         <C>         <C>
                                                                  $12.50      $18.00      $19.00
                                                                  ------      ------      ------
   Stock options outstanding at August 29, 1997..................    590         365          --
      Options redeemed at $24.00 to $28.00 per share.............    (85)        (10)         --
      Option forfeited...........................................     --         (30)         --
                                                                  ------      ------      ------
   Stock options outstanding at August 28, 1998 and
      August 27, 1999............................................    505         325          --
      Options granted............................................     --          --         110
      Options exercised .........................................    (30)         --          --
                                                                  ------      ------      ------
   Stock options outstanding at August 25, 2000..................    475         325         110
                                                                  ======      ======      ======

   Average contractural life remaining in years..................    4.3         5.8         9.3
                                                                  ======      ======      ======

   Stock options exercisable at August 25, 2000..................    475         239          --
                                                                  ======      ======      ======
</TABLE>


         The exercise prices of the options granted approximated the fair market
value of the Company's Common Stock on the dates of grant. In conjunction with
the fiscal 1998 stock repurchase described above, certain participants in the
Company's Stock Option Plan redeemed options in exchange for an aggregate cash
payment of $1.2 million. The Company recorded the cost of the redemption as
compensation expense, which is included in selling and administrative expenses.
Options forfeited by employees leaving the Company are reinstated as available
for grant. All options granted vest ratably over five years and may be exercised
for a period of ten years. At August 25, 2000, there were 71,000 stock options
available for grant.

         The Company maintains a Stock Option Plan for Non-employee Directors,
under which 100,000 shares of the Company's Class A Common Stock are reserved
for issuance. Under the plan, each director will automatically be granted
annually, on the fifth day following the annual shareholders meeting, a fully
vested option to purchase 2,000 shares of Class A Common Stock, at an option
price equal to the fair market value of such stock on the date the option is
granted. Options granted are exercisable for a period of ten years, subject to
certain limitations. During fiscal 1998, 1999 and 2000, 12,000 non-qualified
options were granted in each year at an exercise price of $18.00, $22.00 and
$19.00 per share, respectively. At August 25, 2000, 36,000 non-qualified options
remain outstanding and exercisable.

Pro forma information  regarding the effect on the Company's results of
operations,  assuming employee and non-employee  director stock options had been
accounted for under the fair value method of


                                       38
<PAGE>   40

FAS 123, was calculated using the "minimum value" method which is permitted for
companies with nonpublic equity. The following weighted average assumptions were
used in these calculations for options granted in fiscal 1998, 1999 and 2000:

<TABLE>
               <S>                                          <C>
               Risk free interest rate..............           5.9%
               Expected dividend yield..............           2.2%
               Expected lives.......................        8 years
</TABLE>


         The total value of the options granted during fiscal 1998, 1999 and
2000 was computed as approximately $32,000, $44,000 and $332,000, respectively,
which would be amortized over the vesting period of the options. If the Company
had accounted for these plans in accordance with FAS 123, the reported net
income and net income per share would have decreased by the following pro forma
amounts (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                          1998         1999         2000
                                                          ----         ----         ----
          <S>                                            <C>          <C>         <C>
          Net income:
             As reported.........................        $34,313      $10,023     $33,003
             Pro forma..........................          34,128        9,805      32,413
          Net income per share:
             Basic
                 As reported....................          $ 2.62         $.79      $ 2.61
                 Pro forma.......................           2.61          .77        2.56
             Diluted
                As reported.....................          $ 2.58         $.77      $ 2.57
                Pro forma.......................            2.57          .76        2.53
</TABLE>

         Because the accounting provisions of FAS 123 only apply to options
granted after December 1995, the pro forma compensation cost presented may not
be representative of that to be expected in future years.

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

         On March 3, 1993, a case was filed in the Circuit Court of Jefferson
County, Alabama by Joe and Darnell Sullivan and Tommy and Stella Fay Gould and
other parties against the Alabama Power Company, Russell Corporation, the
Company and certain other parties ("Sullivan"). The complaint alleges that the
Company and such other parties negligently or willfully discharged industrial
wastewater containing hazardous materials, which allegedly damaged the
plaintiffs' real properties and caused mental anguish to the plaintiffs. The
complaint seeks an award of compensatory and punitive damages. After two years
and eleven months of litigation, the plaintiffs amended their complaint to
include class action claims and treatment. Although the Trial Court granted
class certification, the Supreme Court of Alabama reversed the class
certification order, and the case proceeded as to the individual claims of the
five plaintiffs.

         On November 17, 1998, the trial court handed down a verdict of $155,200
in compensatory damages and $52,398,000 in punitive damages against the Alabama
Power Company, Russell Corporation and the Company, on a joint and several
basis, in favor of the plaintiffs. This case is now on appeal to the


                                       39
<PAGE>   41

Supreme Court of Alabama. Oral argument was held in January 2000, and on August
4, 2000, the Alabama Supreme Court issued a 6-3 opinion reversing the verdict
and ordering a judgment to be entered in favor of the defendants due to
plaintiff's failure of proof. The plaintiffs filed an Application for Rehearing
on August 18, 2000, and the Company submitted its response on September 1, 2000.
On October 16, 2000, the Alabama Supreme Court scheduled further limited oral
arguments for November 16, 2000 to include all parties except the Alabama Power
Company. While the outcome of this case cannot be predicted with certainty,
based on currently available information, the Company does not believe that it
will have a material adverse effect on the Company's financial condition or
results of operations.

         On February 28, 1999, a case was filed in the Circuit Court of
Jefferson County, Alabama by Chris and Regina Christian against Russell
Corporation, Russell Lands, Inc., Alabama Power, the Company and certain other
parties. The complaint alleges that the Company, among others, negligently
and/or wantonly caused or permitted the discharge and disposal of sewage sludge
and contaminants into the lake adjacent to the plaintiffs' property, which
allegedly interfered with the plaintiffs' use of the property. As a result of
these alleged actions, the plaintiffs claim that the value of their property has
been diminished and that they suffered mental anguish, bodily injury and other
pecuniary loss. The complaint seeks compensatory and punitive damages in an
undisclosed amount. The Company intends to vigorously defend this case and
believes that it has a number of defenses available to it. This case has been
stayed by the trial court pending resolution of the appeals in the Sullivan
case. While the outcome of this case cannot be predicted with certainty, based
upon currently available information, the Company does not believe that it will
have a material adverse effect on the Company's financial condition or results
of operations.

         On January 13, 2000, a case was filed in the Circuit Court of Jefferson
County, Alabama by Larry and Cynthia Locke and the owners of fourteen other
residences in the Raintree subdivision of Lake Martin, against Russell
Corporation, Alabama Power and the Company. The complaint alleges that the
Company, among others, negligently and/or wantonly caused or permitted the
discharge and disposal of sewage sludge and contaminants into the lake adjacent
to the plaintiffs' property, which allegedly interfered with the plaintiffs' use
of the property. As a result of these alleged actions, the plaintiffs claim that
the value of their property has been diminished and that they suffered other
damages. The complaint seeks compensatory and punitive damages in an undisclosed
amount. The Company intends to vigorously defend this case and believes that it
has a number of defenses available to it. This case has been stayed by the trial
court pending resolution of the appeal in the Sullivan case. While the outcome
of this case cannot be predicted with certainty, based upon currently available
information, the Company does not believe that it will have a material adverse
effect on the Company's financial condition or results of operations.

         The Company is also a party to other litigation incidental to its
business from time to time. The Company is not currently a party to any
litigation that management, in consultation with legal counsel, believes, if
determined adversely to the Company, would have a material adverse effect on the
Company's financial condition or results of operations.

         The Company leases certain of its facilities and equipment, primarily a
warehouse, several sales offices and computer equipment. Future minimum rental
payments required under such leases that have lease terms in excess of one year
are as follows (in thousands):


                                       40
<PAGE>   42

<TABLE>
                 <S>                                  <C>
                 2001.......................          $1,651
                 2002.......................           1,295
                 2003.......................           1,143
                 2004.......................           1,059
                 2005.......................             988
                 Thereafter.................           1,518
                                                      ------
                                                      $7,654
                                                      ======
</TABLE>


         Rent expense for operating leases totaled $2.6 million, $2.7 million
and $2.3 million for fiscal 1998, 1999 and 2000, respectively.

         Commitments for future additions to plant and equipment were
approximately $88.5 million at August 25, 2000. Commitments for the purchase of
raw materials were approximately $110.4 million at August 25, 2000.


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

    Not Applicable.


                                       41
<PAGE>   43
                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The executive officers and directors of the Company and its wholly
owned subsidiary, Avondale Mills, are as follows:

<TABLE>
<CAPTION>
NAME                                            AGE    POSITIONS HELD
----                                            ---    --------------
<S>                                             <C>    <C>
G. Stephen Felker........................        48    Chairman of the Board, President and Chief
                                                          Executive Officer of the Company and
                                                          Avondale Mills
Jack R. Altherr, Jr......................        51    Vice Chairman, Chief Financial Officer, and
                                                          Director of the Company and Avondale
                                                          Mills
T. Wayne Spraggins.......................        63    Vice President of Avondale Mills and
                                                          President, Manufacturing Operations
Keith M. Hull............................        47    Vice President of Avondale Mills and
                                                          President, Marketing and Sales
Craig S. Crockard........................        58    Vice President, Planning and Development of
                                                          Avondale Mills
M. Delen Boyd............................        44    Vice President, Controller of Avondale
                                                          Mills, and Secretary of the Company
                                                          and Avondale Mills
J. Elliott Woodward......................        48    Vice President, Treasurer of Avondale
                                                          Mills, and Assistant Secretary of the
                                                          Company and Avondale Mills
Sharon L. Rodgers........................        44    Vice President, Human Resources of Avondale
                                                          Mills
Kenneth H. Callaway(1)...................        45    Director of the Company and Avondale Mills
Robert B.Calhoun(1)(2)(3)................        58    Director of the Company and Avondale Mills
Harry C. Howard(2).......................        71    Director of the Company and Avondale Mills
C. Linden Longino, Jr.(2)................        64    Director of the Company and Avondale Mills
Dale J. Boden(1).........................        43    Director of the Company and Avondale Mills
John P. Stevens(1).......................        71    Director of the Company and Avondale Mills
</TABLE>

---------------

(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 has served as Chairman of the Board of the Company
since 1992, President and Chief Executive Officer of the Company since 1980, and
in various other capacities since 1974. Mr. Felker has served as Chairman of the
Board and Chief Executive Officer of Avondale Mills since 1986, when the Company
acquired Avondale Mills, and President of Avondale Mills since 1995. Mr. Felker
serves as Chairman of the Georgia State Advisory Board of Wachovia Bank, N.A.
and is a director of American Fibers and Yarns, Inc.


                                       42
<PAGE>   44

         Jack R. Altherr, Jr. has served as Vice Chairman of the Company and
Avondale Mills since May 1996, Chief Financial Officer and a director of the
Company since December 1989, Chief Financial Officer of Avondale Mills since
October 1988 and a director of Avondale Mills since 1993. With the exception of
fiscal 1995, he served as Secretary of the Company and Avondale Mills from
August 1993 until November 1998. Mr. Altherr has served the Company and Avondale
Mills in various other capacities since July 1982.

         T. Wayne Spraggins has served as Vice President of Avondale Mills and
President, Manufacturing Operations since May 1996. Mr. Spraggins joined
Avondale Mills as a standards engineer in August 1961 and has served Avondale
Mills in various other capacities, including Vice President, Manufacturing of
Avondale Mills, since that time.

         Keith M. Hull has served as President, Marketing and Sales, of Avondale
Mills, Inc. since August 1999, having served as President, Apparel Fabrics, the
apparel fabrics division of Avondale Mills since May 1996 and Vice President of
Avondale Mills since April 1989. He has served the Company in various other
capacities including Vice President, Marketing since 1977. Mr. Hull serves as a
director of Cherokee, Inc.

         Craig S. Crockard has served as Vice President, Planning and
Development of Avondale Mills since September 1983. Mr. Crockard has served
Avondale Mills in various other capacities, including Vice President, Corporate
Services, since September 1966.

         M. Delen Boyd has served as Vice President, Controller of Avondale
Mills since May 1996 and Secretary of the Company and Avondale Mills since
November 1998. Mr. Boyd served as Assistant Secretary of the Company and
Avondale Mills from May 1996 until November 1998. Mr. Boyd has served as
Controller of Avondale Mills since 1987. Mr. Boyd joined Avondale Mills in 1982
and has served in various capacities, including Assistant Controller and
Corporate Director of Accounting and Taxes.

         J. Elliott Woodward has served as Vice President, Treasurer of Avondale
Mills since May 1996. Mr. Woodward served as Vice President and Controller of
Graniteville Company from November 1993 to May 1996. Mr. Woodward joined
Graniteville Company in 1984 and served in various capacities from 1984 to May
1996, including Manager of General Accounting and Controller.

         Sharon L. Rodgers has served as Vice President, Human Resources of
Avondale Mills since May 1996. Ms. Rodgers served as Vice President, Legal and
Assistant Secretary of Graniteville Company from 1993 to May 1996. Ms. Rodgers
joined Graniteville Company in 1980 and served in various other capacities at
Graniteville Company during the thirteen years ended in 1993.

         Kenneth H. Callaway has served as a director of the Company since
November 1987 and of Avondale Mills since August 1993. Mr. Callaway has been
President of Calgati Chemical Company, a specialty chemical manufacturer, since
December 1991.

         Robert B. Calhoun has served as a director of the Company since August
1993 and of Avondale Mills since November 1991. He is presently a Managing
Director and Co-founder of Monitor Clipper Partners. Mr. Calhoun is also
President of Clipper Asset Management Corporation, the sole general partner of
The Clipper Group, L.P., a private investment firm, since January 1991, and of
Clipper Capital Corporation, the sole general partner of Clipper, an affiliated
private investment firm, since 1993. From 1975 to 1991, Mr. Calhoun was a
Managing Director of Credit Suisse First Boston Corporation, an investment
banking firm. Mr. Calhoun is also a director of Interstate Bakeries Corporation,
Travel Centers of America, Inc., and Lord Abbett Family of Funds.

         Harry C. Howard has served as a director of the Company since August
1993 and of Avondale Mills since July 1986. Mr. Howard retired from the law firm
of King & Spalding, where he had practiced law since 1956, as of December 31,
1992.


                                       43
<PAGE>   45

         C. Linden Longino, Jr. has served as a director of the Company since
November 1975 and of Avondale Mills since August 1993. Mr. Longino was a Senior
Vice President of SunTrust Bank, Atlanta from December 1978 until his retirement
in July 1996. During his 34-year career with SunTrust Bank, Atlanta, Mr. Longino
served in various management positions. He now serves in various capacities with
several community and educational organizations.

         Dale J. Boden has served as a director of the Company and Avondale
Mills since November 1994. Mr. Boden has served as President and Chief Executive
Officer of B.F. Capital, Inc., a private investment company, since January 1993.

         John P. Stevens has served as a director of the Company since January
1970 and of Avondale Mills since July 1986. Mr. Stevens served as Executive Vice
President of Wachovia Bank, N.A. from April 1981 until his retirement in January
1994 and was responsible for managing the Government Banking and Public Finance
Department. Mr. Stevens served as a consultant to Wachovia Bank, N.A. from
February 1994 to February 1996. In addition, from February 1994 until the
present time, Mr. Stevens has been a partner in The Stevens Group, a consulting
firm specializing in providing assistance in a wide range of business and
governmental affairs.

         All executive officers of the Company are elected annually by and serve
at the discretion of the Board of Directors.

         The directors of the Company are elected annually by the shareholders
of the Company. During the fiscal year ended August 25, 2000, the Board of
Directors of the Company held four meetings.

         The Compensation Committee of the Board of Directors during fiscal 2000
consisted of John P. Stevens, Chairman of the Compensation Committee, Dale J.
Boden, Robert B. Calhoun and Kenneth H. Callaway. None of the Members of the
Compensation Committee is an employee of the Company. The Compensation
Committee's principal responsibilities consist of establishing the compensation
for the Company's Named Executive Officers and administering the Company's Stock
Option Plan. During the fiscal year ended August 25, 2000, the Compensation
Committee held one meeting. See Report on Executive Compensation.

         The Audit Committee of the Board of Directors during fiscal 2000
consisted of Harry C. Howard, Chairman of the Audit Committee, Robert B. Calhoun
and C. Linden Longino, Jr. None of the members of the Audit Committee is an
employee of the Company. During the fiscal year ended August 25, 2000, the Audit
Committee held three meetings.

         The Audit Committee meets with the independent public accountants,
management and internal auditors to assure that all are carrying out their
respective responsibilities. The Audit Committee reviews the performance and
fees of the independent public accountants prior to recommending their
appointment, and meets with them, without management present, to discuss the
scope and results of their audit work, including the adequacy of internal
controls and the quality of financial reporting. Both the independent public
accountants and the internal auditors have full access to the Audit Committee. A
written charter for the Audit Committee was approved by the Board of Directors
effective July 13, 2000.

         During fiscal 2000, the Company paid each non-employee director a
quarterly fee of $5,250 plus reimbursement of out-of-pocket expenses.

         The Company adopted a stock option plan for its non-employee directors,
effective September 1, 1997, under which 100,000 shares of the Company's Class A
Common Stock are reserved for issuance. Under the plan, each director will
automatically be granted annually, on the fifth day following the annual


                                       44
<PAGE>   46

shareholders meeting, a fully vested option to purchase 2,000 shares of Class A
Common Stock, at an option price equal to the fair market value of such stock on
the date the option is granted. Options granted are exercisable for a period of
ten years, subject to certain limitations. During fiscal 1998, 1999, and 2000,
12,000 non-qualified options were granted in each respective year. At August 25,
2000, 36,000 non-qualified options remained outstanding and exercisable.


                                       45
<PAGE>   47

ITEM 11.  EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

         Summary Compensation Table. The table below sets forth certain
information concerning the compensation earned during fiscal 2000, 1999 and 1998
by the Company's Chief Executive Officer and its four other most highly
compensated executive officers (collectively, the "Named Executive Officers").


                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                         ANNUAL COMPENSATION(1)
                                                                         ----------------------
                                                                FISCAL                                 ALL OTHER
NAME AND PRINCIPAL POSITION                                      YEAR      SALARY($)  BONUS($)(2)  COMPENSATION($)(3)
---------------------------                                     ------     ---------  -----------  ------------------
<S>                                                             <C>        <C>        <C>          <C>
G. Stephen Felker......................................           2000      800,016    1,015,359          7,230
  Chairman of the Board, President and Chief                      1999      800,016      236,898          2,210
  Executive Officer                                               1998      800,016      914,326          7,039

Jack R. Altherr, Jr....................................           2000      342,500      236,327          9,898
  Vice Chairman and Chief Financial Officer                       1999      326,668       54,822          5,133
                                                                  1998      308,340      174,731         10,413

T. Wayne Spraggins.....................................           2000      285,836      190,664         15,030
  Vice President and President,  Manufacturing                    1999      272,516       38,999         10,442
  Operations                                                      1998      258,348      140,016         15,999

Keith M. Hull..........................................           2000      285,836      195,919          8,401
  Vice  President  and  President,  Marketing and                 1999      272,516       38,933          3,705
  Sales                                                           1998      258,348      134,940          9,036

Craig S. Crockard......................................           2000      129,176       53,806          7,188
 Vice President,  Planning and Development                        1999      123,848       10,000          3,737
                                                                  1998      117,340       21,442          8,766
</TABLE>

----------

(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, payments received in lieu of profit sharing contributions
         under the Company's Associate Profit Sharing and Savings Plan on
         compensation in excess of qualified plan limits, 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)      Amounts shown reflect for fiscal 1998, (i) matching 401(k)
         contributions made by the Company to the Company's Associate Profit
         Sharing and Savings Plan of $1,200 on behalf of each Named Executive
         Officer, (ii) profit sharing contributions made by the Company to the
         Company's Associate Profit Sharing and Savings Plan of $5,032 on behalf
         of each Named Executive Officer and (iii) life insurance premiums of
         $4,181, $9,767, $2,804 and $2,537 paid by the Company on behalf of
         Messrs. Altherr, Spraggins, Hull and Crockard, respectively and taxable
         income of $807



                                       46
<PAGE>   48

         to Mr. Felker, in conjunction with a split dollar insurance agreement.
         Amounts shown reflect, for fiscal 1999, (i) matching 401(k)
         contributions made by the Company to the Company's Associate Profit
         Sharing and Savings Plan of $1,200 on behalf of each Named Executive
         Officer and (ii) life insurance premiums of $3,933, $9,242, $2,505 and
         $2,534 paid by the Company on behalf of Messrs. Altherr, Spraggins,
         Hull and Crockard, respectively and taxable income of $1,010 to Mr.
         Felker in conjunction with a split dollar insurance agreement. Amounts
         shown reflect, for fiscal 2000, (i) matching 401(k) contributions made
         by the Company to the Company's Associate Profit Sharing and Savings
         Plan of $1,275 on behalf of Messrs. Felker, Altherr, Spraggins and
         Hull, respectively, and $1,002 on behalf of Mr. Crockard, (ii) profit
         sharing contributions made by the Company to the Company's Associate
         Profit Sharing and Savings Plan of $4,617 on behalf of Messrs. Felker,
         Altherr, Spraggins and Hull, respectively, and $3,590 on behalf of Mr.
         Crockard and (iii) life insurance premiums of $4,006, $9,138, $2,509,
         and $2,596 paid by the Company on behalf of Messrs. Altherr, Spraggins,
         Hull and Crockard, respectively, and taxable income of $1,339 to Mr.
         Felker in conjunction with a split dollar insurance agreement.

         Option Grants Table. The table below sets forth certain information
relating to options granted during fiscal 2000 to each Named Executive Officer.

                                          OPTION GRANTS TABLE
<TABLE>
<CAPTION>

                                              INDIVIDUAL GRANTS
                           ---------------------------------------------------------       POTENTIAL
                                                                                       REALIZABLE VALUE
                                                                                       AT ASSUMED ANNUAL
                                                % OF TOTAL                              RATES OF STOCK
                                                  OPTIONS                                    PRICE
                                NUMBER OF       GRANTED TO                             APPRECIATION FOR
                               SECURITIES        EMPLOYEES    EXERCISE                    OPTION TERM
                           UNDERLYING OPTIONS    IN FISCAL   PRICE PER   EXPIRATION  --------------------
                                 GRANTED           YEAR        SHARE        DATE        5%          10%
                           ------------------   -----------  ---------   ----------  --------    --------
<S>                        <C>                  <C>          <C>         <C>         <C>         <C>
G. Stephen Felker.......           --                --          --            --         --          --
Jack R. Altherr, Jr.....           --                --          --            --         --          --
T. Wayne Spraggins......           --                --          --            --         --          --
Keith M. Hull...........           --                --          --            --         --          --
Craig S. Crockard.......       10,000               9.1      $19.00      11/26/09   $119,472    $302,784
</TABLE>

---------------


                                       47
<PAGE>   49

         Aggregated Options Table. The table below sets forth certain
information with respect to options held at the end of fiscal 2000 by each Named
Executive Officer.

                            AGGREGATED OPTIONS TABLE
<TABLE>
<CAPTION>
                                             NUMBER OF                          VALUE OF
                                         SHARES UNDERLYING                     UNEXERCISED
                                           UNEXERCISED                         IN-THE-MONEY
                                            OPTIONS AT                          OPTIONS AT
                                          FISCAL YEAR END                    FISCAL YEAR END
                                           EXERCISABLE/                        EXERCISABLE/
                                           UNEXERCISABLE                     UNEXERCISABLE(1)
                                        -------------------                ------------------
<S>                                     <C>                                <C>
G. Stephen Felker....................    260,000/     5,000                $1,580,000/  $5,000
Jack R. Altherr, Jr..................    120,000/     5,000                   670,000/   5,000
T. Wayne Spraggins...................     40,000/     5,000                   150,000/   5,000
Keith M. Hull........................     66,001/     5,000                   319,000/   5,000
Craig S. Crockard....................         --/    10,000                         -/      --
----------
</TABLE>

(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 management's estimate of the fair
         market value of the Class A Common Stock at August 25, 2000.

         Long-Term Incentive Plans. The table below sets forth certain
information with respect to phantom units held at the end of fiscal 2000 by each
Named Executive Officer. No phantom units were awarded during fiscal 2000.

           LONG-TERM INCENTIVE PLANS -- UNITS HELD AT AUGUST 25, 2000

<TABLE>
<CAPTION>
                                                    AGGREGATE                         ESTIMATED FUTURE
                                                  PHANTOM UNITS    PERIOD UNTIL        PAYOUTS FOR ALL
NAME                                                 HELD(1)      PAYOUT (YEARS)    PHANTOM UNITS HELD(2)
----                                              -------------   --------------    ---------------------
<S>                                               <C>             <C>               <C>
G. Stephen Felker.........................            150               16               $1,514,503
Jack R. Altherr, Jr.......................             90               14                  908,702
T. Wayne Spraggins........................             50                2                  504,834
Keith M. Hull.............................             90               17                  908,702
Craig S. Crockard.........................             --               --                       --
</TABLE>

---------------

  (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 5.0% 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


                                       48
<PAGE>   50

         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, 2000, of vested and non-vested
         phantom units held at the end of fiscal 2000 based on the results of
         the Company for the 10 fiscal quarters ended August 25, 2000.


                                       49
<PAGE>   51

                        REPORT ON EXECUTIVE COMPENSATION

         Compensation Policy. The Company's executive compensation policy is
designed to attract, retain and motivate executive officers to maximize the
Company's performance and shareholder value by:

         -        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.

         In light of the Company's compensation policy, the primary components
of its executive compensation program for fiscal 2000 included base salaries,
cash bonuses and stock options.

         Base Salary. Each executive officer's base salary, including the Chief
Executive Officer's base salary, is determined based upon a number of factors
including the executive officer's responsibilities, contribution to the
achievement of the Company's business plan goals, demonstrated leadership skills
and overall effectiveness, and length of service. Base salaries are also
designed to be competitive with those offered in the various markets in which
the Company competes for executive talent and are analyzed with a view towards
desired base salary levels over a three-year to five-year time period. Each
executive officer's salary is reviewed annually and although these and other
factors are considered in setting base salaries, no specific weight is given to
any one factor. During fiscal 2000, the base salary of each Named Executive
Officer other than the Chief Executive Officer was increased by 4% to 5% over
each such executive officer's fiscal 1999 base salary. Mr. Felker's base salary
has not been adjusted since November 1, 1995.

         Cash Bonuses. Each executive officer, including the Chief Executive
Officer, is eligible to receive an annual cash bonus under the management
incentive plan. The Company's management incentive plan is designed to motivate
key managers and sales people as well as executive officers and reward the
achievement of specific business plan goals. Under the Company's management
incentive plan, in fiscal 2000, certain executive officers were eligible to earn
a cash bonus in an amount from 25% up to 125% of their respective base salaries
depending on a number of factors including, without limitation, the Company's
financial performance. In addition, the executive officers may receive payments
in lieu of profit sharing contributions under the Company's Associate Profit
Sharing and Savings Plan on compensation in excess of qualified plan limits.
During fiscal 2000, the Named Executive Officers other than the Chief Executive
Officer earned bonuses ranging from 40% to 65% of their respective base
salaries. Mr. Felker's bonus was equal to 125% of his base salary.

         Stock Options. The grant of stock options is designed to align the
interests of executive officers with those of shareholders in the Company's
long-term performance. Stock options granted have exercise prices equal to the
fair market value of the underlying shares on the date of grant so that
compensation is earned only through long-term appreciation in the fair market
value of the underlying shares. Stock options are granted from time to time if
warranted by the Company's growth and profitability and individual grants are
based on, among other things, the executive officer's responsibilities and
individual performance. To encourage an executive officer's long-term
performance, stock options generally vest over five years and terminate ten
years after the date of grant. The creation of opportunities to own stock is
considered the most significant component in an executive officer's compensation
package. During fiscal 2000, Craig S. Crockard received options to purchase
10,000 shares of Class A Common Stock.


                                                     John P. Stevens
                                                     Dale J. Boden

                                       50
<PAGE>   52

                                                     Robert B. Calhoun
                                                     Kenneth 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 1993, AS AMENDED, OR UNDER THE SECURITIES
EXCHANGE ACT OF 1934 (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.


                                       51
<PAGE>   53

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

         The table below sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of November 1, 2000, by (i) each
person who is known to the Company to be the beneficial owner of more than 5% of
the outstanding Class A Common Stock or Class B Common Stock, (ii) each of the
Named Executive Officers, (iii) each of the directors of the Company and (iv)
all directors and executive officers of the Company as a group. Except as set
forth below, the shareholders named below have sole voting and investment power
with respect to all shares of Common Stock shown as being beneficially owned by
them.

<TABLE>
<CAPTION>
                                                         BENEFICIAL OWNERSHIP         BENEFICIAL OWNERSHIP
                                                              OF CLASS A                   OF CLASS B           PERCENTAGE
                                                             COMMON STOCK                 COMMON STOCK              OF
                                                         NUMBER        PERCENT       NUMBER        PERCENT       COMBINED
NAME OF BENEFICIAL OWNER(1)                            OF SHARES       OF CLASS     OF SHARES      OF CLASS    VOTING POWER
---------------------------                            ----------      --------     ---------      --------    ------------
<S>                                                    <C>             <C>          <C>            <C>         <C>
G. Stephen Felker(2).......................             4,332,689        33.8%       978,939           100%        73.0%
Jack R. Altherr, Jr.(3)....................               227,199         1.9%            --            --             *
T. Wayne Spraggins(4)......................               110,000            *            --            --             *
Keith M. Hull (5)..........................               116,001            *            --            --             *
Craig S. Crockard..........................                 8,077            *            --            --             *
Dale J. Boden(6)...........................               120,833            *            --            --             *
Kenneth H. Callaway(7).....................                16,000            *            --            --             *
Robert B. Calhoun(8)(9)(10)................             2,306,823        19.9%            --            --          7.4%
Harry C. Howard(11)........................                51,000            *            --            --             *
C. Linden Longino, Jr.(12).................                31,250            *            --            --             *
John P. Stevens(13)........................                98,500            *            --            --             *
The Clipper Group(9)(14)...................             2,277,523        19.7%            --            --          7.3%
Grayward Company(15).......................             3,497,740        30.2%            --            --         11.2%
Felker Investments, Ltd.(16)...............             2,093,750        18.1%            --            --          6.7%
Avondale Mills, Inc. Associate Profit
  Sharing and Savings Plan(17).............               600,000         5.2%            --            --          1.9%
All directors and executive officers
  As a group (16 persons)..................             7,452,872        56.9%       978,939           100%        82.2%
</TABLE>

---------------

*  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.

(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 and (iii) 260,000 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 120,000 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 40,000 shares of Class A Common Stock issuable upon exercise
         of stock options beneficially owned by Mr. Spraggins, which shares are
         deemed beneficially owned by Mr. Spraggins under Rule 13d-3 under the
         Exchange Act.


                                       52
<PAGE>   54

(5)      Includes 66,001 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.

(6)      Reflects (i) 6,000 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, and (ii) 6,333 shares beneficially owned by Textile
         Capital Partners with respect to which Mr. Boden has shared voting and
         investment power, and (iii) 8,500 shares beneficially owned by Textile
         Captial Partners II with respect to which Mr. Boden has shared voting
         and investment power, and (iv) 100,000 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.
         Mr. Boden is the majority shareholder of Textile Capital Partners and,
         consequently is deemed to beneficially own under Rule 13d-3 under the
         Exchange Act all of the shares beneficially owned by these entities.

(7)      Includes 6,000 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.

(8)      The address of Mr. Calhoun is c/o Monitor Clipper Partners, Two Canal
         Park, Cambridge, MA 02141.

(9)      Includes (i) 6,000 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, (ii) shares beneficially owned by Clipper
         Capital Associates, L.P. ("CCA"), Clipper/Merchant Partners, L.P.,
         Clipper Equity Partners I, L.P., Clipper/Merban L.P. ("Merban"),
         Clipper/European Re, L.P. and CS First Boston Merchant Investments
         1995/96, L.P. ("Merchant"), (whose address is 650 Madison Avenue, 9th
         Floor, New York, New York 10022).

(10)     CCA is the general partner of all of the Clipper Group partnerships
         other than Merchant. The general partner of CCA is Clipper Capital
         Associates, Inc. ("CCI"), and Mr. Calhoun is the sole stockholder and a
         director of CCI. Clipper, an affiliate of Mr. Calhoun, has sole voting
         and investment power with respect to the shares of Class A Common Stock
         beneficially owned by Merchant. As a result, each of Mr. Calhoun, CCA
         and CCI is deemed to beneficially own all shares of Class A Common
         Stock beneficially owned by the Clipper Group (other than Merchant),
         and Mr. Calhoun is deemed to beneficially own the shares of Class A
         Common Stock beneficially owned by Merchant. It is anticipated that
         Merban will beneficially own shares of Class A Common Stock
         representing approximately 5.9% of the outstanding Class A Common Stock
         and Clipper/Merchant Partners, L.P., will beneficially own shares of
         Class A Common Stock representing approximately 5.0% of the outstanding
         Class A Common Stock. Each of the other members of the Clipper Group
         will beneficially own less than 5.0% of the outstanding Class A Common
         Stock.

(11)     Includes 6,000 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.

(12)     Includes (i) 6,000 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.

(13)     Includes (i) 2,500 shares beneficially owned by Mr. Stevens' spouse,
         for which Mr. Stevens shares neither voting nor investment power, and
         (ii) 6,000 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.

(14)     Merchant Capital, Inc. ("Merchant Capital"), an affiliate of CS First
         Boston Corporation, is the general partner of Merchant and the 99%
         limited partner of Clipper/Merchant Partners, L.P. CS Holding, an
         affiliate of CS First Boston Corporation, is the indirect 99% limited
         partner of


                                       53
<PAGE>   55

         Merban. None of Merchant, Merchant Capital, CS First Boston Corporation
         and CS Holding is an affiliate of Clipper or CCA.

(15)     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.

(16)     The address of Felker Investments, Ltd. is c/o G. Stephen Felker, 506
         South Broad Street, Monroe, Georgia 30655.

(17)     The address of the Avondale Mills, Inc. Associate Profit Sharing and
         Savings Plan (the "Plan") is c/o Scudder Trust Company, P.O. Box 957,
         Salem, New Hampshire 03079. Scudder Trust Company serves as trustee for
         the Plan and, as such, is deemed to beneficially own under Rule 13d-3
         under the Exchange Act all of the shares beneficially owned by the
         Plan.


                                       54
<PAGE>   56

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Kenneth H. Callaway, a director, is president of Calgati Chemical
Company, Ltd. During fiscal 2000, the Company purchased specialty chemicals from
Calgati Chemical Company, Ltd. in the aggregate amount of approximately
$235,000.


                                       55
<PAGE>   57

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
          FORM  8-K.

      (a) 1.  Financial Statements.

         The following Consolidated Financial Statements of the Company and its
consolidated subsidiaries and the Report of the Independent Auditors, included
in the Registrant's Annual Report to Shareholders for the year ended August 25,
2000 are included in Part II, Item 8.

                  Report of Independent Public Accountants
                  Consolidated Balance Sheets as of August 27, 1999 and August
                  25, 2000
                  Consolidated Statements of Income -- Fiscal Years Ended August
                  28, 1998, August 27, 1999 and August 25, 2000
                  Consolidated Statements of Shareholders' Equity-- Fiscal Years
                  Ended August 28, 1998, August 27, 1999 and August 25, 2000
                  Consolidated Statements of Cash Flows-- Fiscal Years Ended
                  August 28, 1998, August 27, 1999 and August 25, 2000
                  Notes to Consolidated Financial Statements

          2.  Financial Statement Schedules of the Company.

              Schedule II -- Valuation and Qualifying Accounts

          3.  Exhibits.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
   <S>        <C>   <C>
    3.1       --    Restated and Amended Articles of Incorporation of Avondale
                    Incorporated (incorporated by reference to Exhibit 3.1 to
                    Avondale Incorporated's Registration Statement on Form S-4,
                    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).

    4.1       --    Indenture for the Notes between Avondale Incorporated,
                    Avondale Mills, Inc. and The Bank of New York, as Trustee
                    (incorporated by reference to Exhibit 4.1 to Avondale
                    Incorporated's Registration Statement on Form S-4, File No.
                    333-5455-01).

    4.8       --    Amendments to Letter of Credit Agreements, dated October
                    19, 1999, between and among Avondale Incorporated, Avondale
                    Mills, Inc. and SunTrust Bank, Atlanta related to Industrial
                    Development Board refunding revenue bonds issued to finance
                    improvements at four Company manufacturing facilities
                    (incorporated by reference to Exhibit 4.8 to Avondale
                    Incorporated's 1999 annual report on Form 10-K, File No.
                    33-68412).

    4.9       --    Second Amended and Restated Credit Agreement, dated as of
                    September 28, 2000, among Avondale Mills, Inc., various
                    listed banks and Wachovia Bank, N.A., as agent.

    5.1       --    Charter of the Audit Committee of the Board of Directors,
                    adopted effective July 13, 2000.

   10.1       --    Receivables Purchase Agreement, dated April 29, 1996, among
                    Avondale Mills, Inc., as Servicer, and Avondale Receivables
                    Company (incorporated by reference to Exhibit 10.1 to
                    Avondale Incorporated's Registration Statement on Form S-4,
                    File No. 333-5455-01).

   10.2       --    Pooling and Servicing Agreement, dated April 29, 1996, among
                    Avondale Receivables Company, Avondale Mills, Inc. and
                    Manufacturers and Traders Trust Company
</TABLE>


                                       56
<PAGE>   58
<TABLE>
   <S>        <C>   <C>
                    (incorporated by reference to Exhibit 10.2 to Avondale
                    Incorporated's Registration Statement on Form S-4, File No.
                    333-5455-01).

   10.3       --    Amendment No. 1 to Pooling and Service Agreement and
                    Receivables Purchase Agreement; Dated November 21, 1997,
                    among Avondale Receivables Company, Avondale Mills, Inc.,
                    And Manufacturers and Traders Trust Company. (Incorporated
                    by reference to Exhibit 10.3 to Avondale Incorporated's 1998
                    Annual Report on Form 10-K, File No. 33-68412).

   10.4       --    Amended and Restated Series 1996-1 Supplement to the
                    Pooling and Servicing Agreement, Dated November 21, 1997,
                    among Avondale Receivables Company, Avondale Mills, Inc. And
                    Manufacturers and Traders Trust Company. (Incorporated by
                    reference to Exhibit 10.4 to Avondale Incorporated's 1998
                    Annual Report on Form 10-K, File No. 33-68412).

   10.5       --    Amended and Restated Certificate Purchase Agreement, dated
                    November 21, 1997, among Avondale Receivables Company,
                    Avondale Mills, Inc., the purchasers described therein And
                    First National Bank of Chicago, as Agent. (Incorporated by
                    reference to Exhibit 10.5 to Avondale Incorporated's 1998
                    Annual Report on Form 10-K, 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).

   10.8       --    Post-Merger Stock Transfer and Repurchase Agreement, dated
                    August 27, 1993 by and Among Avondale Incorporated,
                    Metropolitan Life Insurance Company, 1985 Merchant
                    Investment Partnership, Merchant LBO, Inc., G. Stephen
                    Felker, John F. Maypole and Jack R. Altherr, Jr.
                    (incorporated by reference to Exhibit 10.10 to Avondale
                    Incorporated's Registration Statement on Form S-4, File No.
                    333-5455-01).

   10.9       --    Post-Merger Stock Transfer and Repurchase Agreement,
                    dated August 27, 1993 by and Among Avondale Incorporated,
                    Metropolitan Life Insurance Company, 1985 Merchant
                    Investment Partnership, Merchant LBO, Inc., G. Stephen
                    Felker, John F. Maypole and T. Wayne Spraggins
                    (incorporated by reference to Exhibit 10.11 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).

   10.12      --    Avondale Mills, Inc. Fiscal 2000 Management Incentive Plan
                    for G. Stephen Felker.

   10.13      --    Avondale Mills, Inc. Fiscal 2000 Management Incentive Plan
                    for Jack R. Altherr, Jr.

   10.14      --    Avondale Mills, Inc. Fiscal 2000 Management Incentive Plan
                    for T. Wayne Spraggins.

   10.15      --    Avondale Mills, Inc. Fiscal 2000 Management Incentive Plan
                    for Keith Hull.

   10.16      --    Avondale Mills, Inc. Fiscal 2000 Management Incentive Plan
                    for Craig Crockard.

   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).
</TABLE>


                                       57
<PAGE>   59

<TABLE>
   <S>        <C>   <C>
   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).

   12.1       --    Computation of Ratio of Earnings to Fixed Charges.

     27       --    Financial Data Schedule (for SEC use only).
</TABLE>

---------------

         (b)      Reports on Form 8-K

                  Not applicable.

         (c)      See Item 14(a)(3) and separate Index to Exhibits attached
                  hereto.


                                       58
<PAGE>   60

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                            AVONDALE INCORPORATED

                                            By: /s/ G. STEPHEN FELKER
                                               ---------------------------------
                                            Name:  G. Stephen Felker
                                            Title: Chairman of the Board,
                                                   President and
                                                   Chief Executive Officer

Date:   November 10, 2000

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR:

<TABLE>
<CAPTION>
NAME                                                         TITLE                         DATE
----                                                         -----                         ----
<S>                                              <C>                             <C>
/s/  G. STEPHEN FELKER                           Chairman of the Board,          November 10, 2000
----------------------                           President and Chief Executive
G. Stephen Felker                                Officer

PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:

/s/  JACK R. ALTHERR, JR.                        Vice Chairman, Chief            November 10, 2000
-------------------------                        Financial Officer and
Jack R. Altherr, Jr.                             Director

DIRECTORS:

/s/  DALE J. BODEN                               Director                        November 10, 2000
------------------
Dale J. Boden

/s/  ROBERT B. CALHOUN                           Director                        November  10, 2000
----------------------
Robert B. Calhoun

/s/  KENNETH H. CALLAWAY                         Director                        November  10, 2000
------------------------
Kenneth H. Callaway

/s/  HARRY C. HOWARD                             Director                        November  10, 2000
--------------------
Harry C. Howard

/s/  C. LINDEN LONGINO, JR.                      Director                        November  10, 2000
---------------------------
C. Linden Longino, Jr.

/s/  JOHN P. STEVENS                             Director                        November  10, 2000
--------------------
John P. Stevens
</TABLE>


                                       59
<PAGE>   61

                                                                    SCHEDULE  II

                              AVONDALE INCORPORATED

                    CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
                VALUATION AND QUALIFYING ACCOUNTS (in thousands)

<TABLE>
<CAPTION>
                                                                         CHARGED                      (B)
                                                          BALANCE OF     TO COSTS                   BALANCE
                                                           BEGINNING       AND         (A)         AT END OF
                                 DESCRIPTION                PERIOD       EARNINGS   DEDUCTIONS       PERIOD
                                 -----------              ----------     --------   ----------     ---------
<S>                             <C>                       <C>            <C>        <C>            <C>
Year Ended August 28, 1998      Allowance for                $13,083      $1,532     $(7,572)       $ 7,043
                                doubtful accounts
Year Ended August 27, 1999      Allowance for                  7,043       1,464        (857)         7,650
                                doubtful accounts
Year Ended August 25, 2000      Allowance for doubtful         7,650         900        (747)         7,803
                                accounts
</TABLE>

---------------

(A)      Deductions represent customer account balances written off during the
         period.

(B)      At August 28, 1998, August 27, 1999, and August 25, 2000, the balance
         at end of period includes $4,510, $5,035, and $4,814 respectively,
         related to accounts receivable sold. These amounts are included in
         other accrued expenses in the Consolidated Balance Sheets.