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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549




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FORM 10-K


|(Mark One) | 
|---------- | 
|[X]        | 
|           | 

OR


|[   ] |  | 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



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AVONDALE INCORPORATED


(Exact name of registrant as specified in its charter)


|                                                                                |  |                                             
|------------------------------------------------------------------------------- |  | --------------------------------------------
|Georgia
(State of Incorporation)                                                |  | 58-0477150
(IRS Employer Identification No.)
|                                                                                |  |                                             
|506 South Broad Street
Monroe, Georgia
(Address of principal executive offices) |  | 30655
(Zip code)                            

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

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
[ü]  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.þ

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

The aggregate market value of the Class A Common Stock held by
non-affiliates of the registrant as of November 3, 2003 (based upon the book
value per share of Class A Common Stock as of August 29, 2003) was $14,200,000.

As of November 3, 2003, the registrant had 11,401,737 and 978,939 shares
of Class A Common Stock and Class B Common Stock outstanding, respectively.



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TABLE OF CONTENTS



|                                                  |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                           
|                                                  | ITEM 1. BUSINESS                                                                             
|                                                  | ITEM 2. PROPERTIES                                                                           
|                                                  | ITEM 3. LEGAL PROCEEDINGS                                                                    
|                                                  | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II                                          
|                                                  | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                
|                                                  | ITEM 6. SELECTED FINANCIAL DATA                                                              
|                                                  | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                  | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|                                                  | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|                                                  | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
|                                                  | ITEM 9A. CONTROLS AND PROCEDURES                                                             
|PART III                                         
|                                                  | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|                                                  | ITEM 11. EXECUTIVE COMPENSATION                                                              
|                                                  | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|                                                  | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|                                                  | ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                              
|PART IV                                          
|                                                  | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                     
|SIGNATURES                                       
|EX-10.12 FISCAL 2003 MANAGEMENT INCENTIVE PLAN   
|EX-10.13 FISCAL 2003 MANAGEMENT INCENTIVE PLAN   
|EX-10.14 FISCAL 2003 MANAGEMENT INCENTIVE PLAN   
|EX-10.15 FISCAL 2003 MANAGEMENT INCENTIVE PLAN   
|EX-10.16 FISCAL 2003 MANAGEMENT INCENTIVE PLAN   
|EX-10.44 CREDIT AGREEMENT, DATED NOVEMBER 7, 2003
|EX-10.45 AMENDMENT NO. 3 TO PURCHASE AGREEMENT   
|EX-10.46 INTERCREDITOR AGREEMENT, DATED 11/7/2003
|EX-12.1 COMPUTATION OF RATIO OF EARNINGS         
|EX-14.1 CODE OF ETHICS FOR SENIOR EXECUTIVES     
|EX-21.1 LIST OF SUBSIDIARIES                     
|EX-31.1 SECTION 302 CERTIFICATION OF THE CEO     
|EX-31.2 SECTION 302 CERTIFICATION OF THE CFO     
|EX-32.1 SECTION 906 CERTIFICATION OF THE CEO     
|EX-32.2 SECTION 906 CERTIFICATION OF THE CFO     



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INDEX TO FORM 10-K

AVONDALE INCORPORATED

|         |                                                                                       |          |  |           |  | 
|-------- | ------------------------------------------------------------------------------------- | -------- |  | --------- |  | 
|         |                                                                                       |          |  | Page     
|         |                                                                                       |          |  | Reference
|         |                                                                                       |          |  |          
|         |                                                                                       | PART I   |  |           |  | 
|Item 1.  | Business                                                                              |          |  | 2         | 
|Item 2.  | Properties                                                                            |          |  | 10        | 
|Item 3.  | Legal Proceedings                                                                     |          |  | 11        | 
|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                            |          |  | 29        | 
|Item 8.  | Financial Statements and Supplementary Data                                           |          |  | 30        | 
|Item 9.  | Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure  |          |  | 61        | 
|Item 9A. | Controls and Procedures                                                               |          |  | 61        | 
|         |                                                                                       | Part III |  |           |  | 
|Item 10. | Directors and Executive Officers of the Registrant                                    |          |  | 62        | 
|Item 11. | Executive Compensation                                                                |          |  | 66        | 
|Item 12. | Security Ownership of Certain Beneficial Owners and Management                        |          |  | 71        | 
|Item 13. | Certain Relationships and Related Transactions                                        |          |  | 74        | 
|Item 14. | Principal Accountant Fees and Services                                                |          |  | 74        | 
|         |                                                                                       | PART IV  |  |           |  | 
|Item 15. | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |          |  | 75        | 





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PART I

Unless the context otherwise requires, references herein to the Company
refer to Avondale Incorporated and its subsidiaries and any reference to a
fiscal year of the Company refers to the Companys fiscal year ending on the
last Friday in August in such year.




ITEM 1. BUSINESS

General

The Company is a leading domestic manufacturer and marketer of cotton and
cotton-blend fabrics and yarns used in the production of casual apparel and, to
a lesser extent, home furnishings and industrial products. The Company designs,
manufactures and markets a broad line of indigo-dyed denim for both branded and
private label apparel producers of denim jeans, slacks, shorts, skirts and
jackets as well as non-apparel producers of denim luggage, bags and other
products. The Company also designs and manufactures an extensive line of
piece-dyed sportswear and workwear fabrics. The Companys sportswear fabrics
are marketed to both branded and private label producers of casual, or khaki,
slacks, shorts and skirts. The Companys workwear fabrics are marketed to
producers of uniforms, career apparel and other workwear (shirts, slacks and
jackets) that are distributed through either the rental or retail channels. The
Company manufactures cotton and cotton-blend yarns, which are sold to knitters
and weavers of apparel fabrics. The Company also manufactures greige and
specialty fabrics, which are sold to the apparel, home furnishings and
industrial markets.

The Companys predecessor was founded in 1895 by the family of G. Stephen
Felker, the current chairman, president and chief executive officer. The
Company currently operates nineteen manufacturing facilities with locations in
Alabama, Georgia, North Carolina and South Carolina. The facilities and
equipment are modern and efficient, reflecting the significant investment made
in recent years to enhance productivity, operating efficiencies and
manufacturing flexibility, and to reduce unit costs.

Description of the Business

The Company operates principally in three segments: apparel fabrics, yarns
and other sales. Financial information relating to these segments is presented
in Note 4. to the consolidated financial statements.

Products

Apparel fabrics.The Companys apparel fabrics consist of cotton and
cotton-blend denim, sportswear and workwear fabrics and are generally
manufactured to fill specific customer orders.

The Company is a leading domestic manufacturer and marketer of indigo-dyed
denim used in the production of branded and private label denim jeans, slacks,
shorts, skirts, jackets and other denim garments. The Company designs, often
in conjunction with customers, and manufactures a broad range of high quality,
value-added denim with new and innovative colors, textures, weaves and
finishes.

The Company is one of the largest domestic manufacturers and marketers of
cotton sportswear fabrics used in the production of khaki slacks, shorts,
skirts and other sportswear garments. The Company produces fabrics in a wide
variety of styles, colors, finishes, textures and weights according to
individual customer specifications, including, for example, fabrics with water
and stain repellant finishes.

The Company is a leading domestic manufacturer and marketer of cotton and
cotton-blend workwear fabrics used in the production of uniforms, career
apparel and other workwear (shirts, slacks, jackets and other garments).
Customers of the Companys workwear fabrics require durable fabrics
characterized by long wear and easy care. The Company works closely with its
customers to develop fabrics with these and other enhanced performance
characteristics.

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Apparel fabrics sales accounted for 81%, 84% and 85%, respectively, of the
Companys net sales in fiscal 2001, 2002 and 2003.

Yarns. The Company is one of the largest domestic manufacturers of cotton
and cotton-blend yarns, which are used internally in the production of woven
apparel fabrics or marketed to knitters or weavers of apparel fabrics. The
Companys customers use these yarns in the manufacture of a broad range of
items, including apparel (T-shirts, underwear, socks and hosiery, knitted
shirts, shorts and slacks, denim jeans, woven khaki slacks, and fleece
sweatshirts, pants and jackets), and home furnishings. The Companys yarn sales
accounted for approximately 31%, 29% and 28%, respectively, of the Companys
net sales in fiscal 2001, 2002 and 2003.

Other.Other sales include sales of greige and specialty fabrics and
revenues from the Companys trucking operation.

The Company produces undyed, unfinished cotton and cotton-blend greige
fabrics that the Company markets to manufacturers of apparel, home furnishings
and industrial products. The Company works with customers to create new fabric
styles and constructions and can alter the Companys overall product mix to
meet changing customer requirements. In addition, the Company can maintain
production levels and efficiencies by manufacturing greige fabrics for use in
the apparel fabrics operation.

The Company produces a variety of specialty fabrics that are marketed to
recreational, industrial and military product manufacturers. The Companys
specialty fabrics 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 other sales accounted for 10%, 11% and 11%, respectively, of
the Companys net sales in fiscal 2001, 2002 and 2003.

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
eliminated from net sales. Intersegment sales accounted for (22%), (24%) and
(25%), respectively, of the Companys net sales in fiscal 2001, 2002 and 2003.

Sales and Marketing

During fiscal 2003, the Company sold apparel fabrics, greige and specialty
fabrics, and yarns to approximately 600, 200 and 300 customers, respectively,
or approximately 1,000 customers in total after eliminating duplications. The
Company is one of the leading suppliers of denim to V.F. Corporation (the maker
of Lee®, Rider®, Wrangler®, Rustler®, Brittania®, Red Kap®, Timbercreek®,
Chic®, and HealthTex® brands), with total sales of apparel fabrics and yarns to
V.F. Corporation accounting for 16% of the Companys net sales in fiscal 2003.
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 2003. The
Companys sales billed to customers domiciled outside the U.S. accounted for
6%, 7% and 8%, respectively, of the Companys net sales in fiscal 2001, 2002
and 2003.

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.

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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.

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 automated control systems to
monitor the manufacturing process and electronic 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 electronic 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 nineteen
manufacturing facilities in the U.S. Of the Companys manufacturing
facilities, eleven produce yarn, five manufacture fabrics, four are dyeing
facilities and four are engaged in fabric finishing.

In response to highly competitive market conditions and continued
oversupply of open-end yarns, in January 2002, the Company completed the
closing of two separate open-end yarn manufacturing facilities located in North
Carolina. The closing of these two facilities allowed the Company to reduce its
sales of open-end yarns which had proven to be unprofitable in recent years and
improve capacity utilization and operating efficiencies at its remaining yarn
manufacturing facilities.

In response to the deterioration of domestic and regional demand for
heather and stock-dyed open-end yarns, in May 2003, the Company completed the
closing of an open-end yarn manufacturing facility located in Alabama.
Continued operation of this facility could not be justified given the
diminished demand and pricing for these products. Production of stock-dyed
yarns for internal production was shifted to another open-end yarn
manufacturing facility within the Company.

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:



| |  |  | 1998  Completed construction of a new denim weaving facility
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;                                             
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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 workwear end uses;

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| |  |  | 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
workwear 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;                
|
| |  |  | 2001  Completed expansion of an existing piece-dyed
finishing facility in January 2001, for the production of additional
finished piece-dyed fabrics for sportwear and workwear end uses;                                                          
|
| |  |  | 2001  Completed expansion and modernization of an existing
greige weaving facility in May 2001, including the construction of a
new building addition and the installation of modern air jet looms
for the production of additional greige fabrics;
|
| |  |  | 2001  Completed expansion and modernization of an existing
integrated denim weaving facility in May 2001, including the
installation of modern air jet looms for the production of
additional denim fabrics;                                       
|
| |  |  | 2001   Completed expansion of linked ring spinning facility
which was modernized in August 2000;                                                                                                                                                   
|
| |  |  | 2002  Completed replacement of earlier generation winding
equipment at an existing ring spinning facility in September 2001
with technologically advanced, fully automated winders;                                                                
|
| |  |  | 2002  Completed modernization of existing spinning
operation within integrated fabric weaving facility in October 2001,
including installation of technologically advanced linked ring
spinning equipment;                                         
|
| |  |  | 2002  Completed construction of a new ring spinning
facility using existing manufacturing floor space, in October 2001,
including installation of technologically advanced linked ring
spinning equipment;                                         
|
| |  |  | 2003  Completed installation of an automated dye mixing and
dispensing system in May 2003 at a fabric finishing facility in
South Carolina; and                                                                                                    
|
| |  |  | 2003  Completed installation of new roving equipment in May
2003 at an existing ring spinning facility in Alabama.                                                                                                                                 

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Raw Materials

The Company 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 is 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.

The Federal Agricultural Improvement and Reform Act of 1996 established
certain support programs that, among other things, continued through the year
2002 the three-step competitiveness program established under the 1990 Trade
Act. Under these support programs, the Company received compensation from the
U.S. Department of Agriculture representing the differential between domestic
cotton prices and world cotton prices, in excess of 1.25 cents per pound.
However, these payments ceased as of December 15, 1998 when financing for the
program was exhausted, and tariff-free quotas for the importation of cotton
were opened in March 1999.

Effective October 1, 1999, the Fiscal 2000 Agriculture Appropriations Bill
restored funding of payments under the three-step competitiveness program and
redefined import quota triggers. The Farm Security and Rural Investment Act of
2002 extended the program until July 31, 2008, and suspended, from May 14, 2002
through July 31, 2006, the exclusion of 1.25 cents per pound from payments for
the differential between domestic cotton prices and world cotton prices.
Accordingly, the Company has continued to receive compensation from the U.S.
Department of Agriculture relating to 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 a director 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 two suppliers, 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 by the Company of the assets and certain of the
liabilities of Graniteville Company (Graniteville)

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during fiscal 1996, the
Company entered into an agreement (the Supply Agreement), extending through
March 2006, with C.H. Patrick & Co., Inc. which was subsequently acquired by
B.F. Goodrich (Goodrich). In 2000, Goodrich sold the chemical portion of
their business to Noveon, Inc. (Noveon), formerly B.F. Goodrich PMD Group and
the textile dye portion of their business to C.H. Patrick & Co, Inc.
(Patrick), formerly CHP Acquisition Group, Inc. On February 28, 2001, the
Company executed an assignment of the Supply Agreement whereby the Company will
purchase textile dyes from Patrick and chemicals from Noveon. This Supply
Agreement generally stipulates that Patrick and Noveon (the Suppliers) will
have the opportunity to provide certain dyes and chemicals utilized by the
Company if the Suppliers meet 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 original 10-year term in the
event of a pattern of repeated, material failures by the Suppliers to satisfy
their obligations with respect to product specifications, delivery schedules or
other material terms. Under the Supply Agreement, a default by one supplier
will not constitute a default by the other supplier.

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 workwear and
sportswear, and cotton and cotton-blend yarns. The Companys competitors
include large, vertically integrated textile companies and numerous smaller
companies. There has been a general trend toward consolidation within certain
markets of the textile industry and, within the Companys markets, some
increases in manufacturing capacity. However, the resulting excess
manufacturing capacity, an increase in the U.S. importation of textiles and
apparel from countries having significantly devalued currencies, a downturn in
the U. S. economy and the reaction of U. S. consumers to reports of terrorism
throughout the world and military action in response to those terrorist acts
have created intensely competitive market conditions leading to severe
financial difficulties of several domestic yarn and apparel fabric
manufacturers, and the accompanying closure of domestic 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 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.

Trade Regulation

Increases in domestic capacity and imports of foreign-made textile and
apparel products are a significant source of competition for many domestic
textile manufacturers, including the Company. The U.S. government attempts to
regulate the growth of certain textile and apparel imports by establishing
quotas and tariffs 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. In
addition, imports of certain textile products into the U.S. have increased in
recent years primarily as a result of significant devaluation of the currencies
of other textile producing countries, particularly within Asia, against 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 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. The WTO has set forth the mechanisms by which
world trade in textiles and clothing will be progressively liberalized with the
elimination of quotas and the

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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 United States-Caribbean Basin
Trade Partnership Act (CBI) and the Africa Growth and Opportunity Act
(AGOA). Under these acts, 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 Caribbean
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.

The Andean Trade Promotion and Drug Eradication Act was passed on August
6, 2002 to renew and enhance the Andean Trade Preference Act (ATPA). Under the
enhanced ATPA, apparel manufactured in Bolivia, Columbia, Ecuador and Peru
using yarns and fabrics produced in the United States may be imported into the
United States duty and quota free through September 30, 2007. This legislation
effectively grants these four countries the favorable trade terms afforded
Mexico and the Caribbean region. Management believes this legislation further
enhances the attractiveness of U.S. textiles and will have a favorable impact
on the Company.

The growing U.S. trade deficit with China and decline in U.S.
manufacturing jobs has resulted in numerous recent proposals to restrict
imports from China. Critics of the U.S. governments China trade policy have
focused on the Chinese governments policy of pegging its currency, the yuan,
to the dollar, rather than letting it float freely and having its value
determined by market forces. These critics have estimated that the yuan is
undervalued by as much as 40 percent relative to the dollar, which enhances the
competitiveness of Chinese exports in the United States. Pending legislation,
such as S. 1586, introduced on September 5, 2003, would impose tariffs on
imports from China to offset Chinas undervalued currency. Industry groups such
as the American Textile Manufacturers Institute (ATMI) and the National
Association of Manufacturers (NAM) are lobbying the U.S. government to
initiate dispute settlement proceedings in the WTO which, if successful, would
require China to allow the value of its currency to be determined by market
forces. An increase in the value of the Chinese yuan vis-à-vis the U.S. dollar
would make the Companys products more competitive with imports from China.
However, the Company cannot predict at this time whether legislation will be
adopted or the WTO lobbying efforts will be successful.

In addition, the ATMI and other textile and apparel manufacturing trade
associations have requested that the U.S. government take the following actions
in response to recent increases in imports from China and Vietnam to enhance
the competitiveness of U.S. textile and apparel manufacturers: (1) invoke the
special China textile
safeguard that was enacted into law when China joined the WTO against products
for which quotas have been lifted, such as knit fabrics, brassieres and
dressing gowns; (2) maintain U.S. tariff levels in the Doha Round and require
U.S. trading partners to reduce their tariffs to U.S. levels and remove
non-tariff barriers; and (3) require a NAFTA-type yarn forward rule of origin,
with no tariff preference levels, in future trade agreements such as the
Central American Free Trade Agreement (CAFTA) and the Free Trade Area of the
Americas (FTAA). There can be no assurance that any of these proposals will
be implemented.

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Backlog

The Companys order backlog was approximately $200 million at August 29,
2003, as compared to approximately $294 million at August 30, 2002, reflecting
lower unit volume in all segments, as domestic retail sales of apparel continue
to reflect weak consumer demand. Orders on hand are not necessarily indicative
of total future sales. Substantially all of the orders outstanding at August
29, 2003 are expected to be filled by the end of fiscal 2004.

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 and various state
counterparts. The Company has obtained, and is in compliance in all material
respects with, all significant permits required to be issued by federal, state
or local laws 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,
asbestos-containing materials are present in some of the structural components
of some Company facilities, and management believes these materials are
properly contained and managed.

Many of the Companys manufacturing facilities have been in operation for
several decades, with some operations originating in the 1800s. Historical
management of hazardous substances and waste disposal practices may have
resulted in on-site and off-site unknown remediation liability for which the
Company may be responsible. In addition, certain operations, including
wastewater treatment facilities and air emission sources may have to be
upgraded to meet more stringent environmental requirements in the future. The
Company has established reserves for certain significant environmental projects
which it anticipates will be completed within the next two to three years to
address certain known potential environmental issues (including the two
Graniteville issues discussed in further detail below). The Company cannot
with certainty assess at this time the impact of future emission or discharge
or other regulatory 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 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.

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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 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 an environmentally related lawsuit,
described under Item 3, Legal Proceedings of this Annual Report on Form 10-K.

Associates

At August 29, 2003, the Company had approximately 5,000 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.




ITEM 2. PROPERTIES

The Company currently operates nineteen manufacturing facilities in the
U.S., of which six are located in Alabama, one is located in North Carolina,
three are located in Georgia and nine are located in South Carolina. The
Company owns all nineteen of these facilities. Of the Companys manufacturing
facilities, eleven produce yarn, five manufacture fabrics, four are dyeing
facilities and four are engaged in fabric finishing. Additionally, the Company
operates six warehouses, including one leased facility.

In January 2002, the Company completed the closing of two separate
open-end yarn manufacturing facilities located in North Carolina which allowed
the Company to reduce its sales of unprofitable open-end yarns and improve
capacity utilization and operating efficiencies at its remaining yarn
manufacturing facilities.

In May 2003, the Company completed the closing of an open-end yarn
manufacturing facility located in Alabama. Continued operation could not be
justified given the diminished demand and pricing for heather and stock-dyed
open-end yarns produced at this facility.

The Companys plants generally operate 24 hours a day, five to 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 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 Court subsequently dismissed
Alabama Power as a

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defendant in the case, based on their motion for summary
judgement. 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. After an initial
series of actions, the case was stayed by the trial court pending resolution of
an appeal in the case of Sullivan versus Russell Corporation, the Company and
others (Sullivan case), which also involved the Raintree subdivision. On
January 12, 2001, the Alabama Supreme Court issued a final order in the
Sullivan case rendering that case in favor of the defendants. Subsequent to the
Alabama Supreme Courts actions with regard to the Sullivan case, plaintiffs
counsel, which includes attorneys who acted as co-plaintiffs counsel on the
Sullivan case, presented arguments in a hearing before the trial judge on May
4, 2001 based on a narrow legal theory that the nuisance claimed in this action
is sufficiently different from the Sullivan case, and therefore, that this case
should be allowed to proceed in spite of the fact that the Sullivan case was
ultimately decided in favor of the defendants. The trial court allowed the case
to proceed to the discovery phase. On April 25, 2002, the trial court held a
hearing on summary judgment motions and, on May 22, 2002, entered judgement as
a matter of law in the Companys favor on all counts except the narrow legal
theory involving public nuisance tort. A trial on this single count, scheduled
to begin in October 2003, has been continued indefinitely based on a motion by
the plaintiffs. The Court granted the continuance to allow additional time for
summary judgement practice and the production of additional material
information in the case. The Company intends to vigorously defend this case and
believes that it has a number of defenses available to it. 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 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.

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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 29, 2003 there were 129 and one holders of record of Class A Common
Stock and Class B Common Stock, respectively. The Company paid dividends
aggregating $5.0 million, $3.8 million and $5.0 million in respect of its
outstanding Common Stock during fiscal 2001, 2002 and 2003, respectively.

The Company has issued and outstanding $150 million aggregate principal
amount of 10 1/4% Senior Subordinated Notes due 2013 (the 2013 Notes) under
an Indenture dated as of June 30, 2003 among the Company, Avondale Mills and
Wachovia Bank, National Association, as trustee (the Indenture). The
Indenture contains certain covenants that limit the Companys ability to pay
dividends.

The Company maintains a secured five-year installment equipment note,
executed July 30, 2002, with a balance outstanding of $17.8 million at August
29, 2003. The equipment note contains certain covenants that limit the
Companys ability to pay dividends.

At August 29, 2003 there was no balance outstanding, other than
obligations relating to three letters of credit issued in the aggregate amount
of $1.4 million, under a $62 million revolving credit facility executed March
28, 2003 among Avondale Mills and three lenders. The revolving credit facility
was replaced on November 7, 2003 by a new revolving credit facility executed
among Avondale Mills, its subsidiary Avondale Mills Graniteville Fabrics, Inc.
and General Electric Capital Corporation. See Note 14. Subsequent Events in
the Notes to Consolidated Financial Statements included in Item 8 of this
Annual Report on Form 10-K. The new revolving credit facility contains certain
covenants that limit the Companys ability to pay dividends.

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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 29, 2003. 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 29, 2003 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.

|                                    |                                                                                           |  |                                                 |       |      |  |      |       |      |  |             |       |   |  |   |       |   |  |   |       |  
|----------------------------------- | ----------------------------------------------------------------------------------------- |  | ----------------------------------------------- | ----- | ---- |  | ---- | ----- | ---- |  | ----------- | ----- | - |  | - | ----- | - |  | - | ----- | -
|                                    |                                                                                           |  |                                                 |       |      |  |      |       |      |  | Fiscal Year |       |   |  |   |       |   |  |  
|                                    |                                                                                           |  | 1999                                            |       | 2000 |  | 2001 |       | 2002 |  | 2003       
|                                    |                                                                                           |  |                                                 |       |      |  |      |       |      |  |            
|                                    |                                                                                           |  | (In millions, except per share data and ratios)
|Statement of Income Data:           |                                                                                           |  |                                                 |       |      |  |      |       |      |  |             |       |   |  |   |       |   |  |   |      
|                                    | Net sales                                                                                 |  | $                                               | 890.9 |      |  | $    | 836.5 |      |  | $           | 772.8 |   |  | $ | 659.7 |   |  | $ | 590.9 |  
|                                    | Gross profit                                                                              |  |                                                 | 89.7  |      |  |      | 116.3 |      |  |             | 60.9  |   |  |   | 54.0  |   |  |   | 41.2  |  
|                                    | Facility restructuring                                                                    |  |                                                 | 6.2   |      |  |      |      |      |  |             |      |   |  |   | 7.0   |   |  |   | 2.5   |  
|                                    | Operating income                                                                          |  |                                                 | 45.3  |      |  |      | 77.9  |      |  |             | 27.9  |   |  |   | 18.7  |   |  |   | 12.6  |  
|                                    | Interest expense, net                                                                     |  |                                                 | 23.0  |      |  |      | 20.2  |      |  |             | 20.4  |   |  |   | 18.4  |   |  |   | 19.0  |  
|                                    | Discount and expenses on sale of receivables                                              |  |                                                 | 5.6   |      |  |      | 5.6   |      |  |             | 4.9   |   |  |   | 1.1   |   |  |   | 2.6   |  
|                                    | Loss on extinguishment of debt                                                            |  |                                                 |      |      |  |      |      |      |  |             |      |   |  |   |      |   |  |   | 3.2   |  
|                                    | Other expense (income), net                                                               |  |                                                 | 0.5   |      |  |      | 0.5   |      |  |             | 0.8   |   |  |   | (0.5  | ) |  |   | (0.1  | )
|                                    | Income (loss) before income taxes                                                         |  |                                                 | 16.3  |      |  |      | 51.6  |      |  |             | 1.8   |   |  |   | (0.3  | ) |  |   | (12.2 | )
|                                    | Provision for (benefit of) income taxes                                                   |  |                                                 | 6.3   |      |  |      | 18.6  |      |  |             | 0.5   |   |  |   | (0.2  | ) |  |   | (4.5  | )
|                                    | Net income (loss)                                                                         |  |                                                 | 10.0  |      |  |      | 33.0  |      |  |             | 1.3   |   |  |   | (0.1  | ) |  |   | (7.7  | )
|Per Share Data:                     |                                                                                           |  |                                                 |       |      |  |      |       |      |  |             |       |   |  |   |       |   |  |   |      
|                                    | Net income (loss)  basic                                                                 |  | $                                               | 0.79  |      |  | $    | 2.61  |      |  | $           | 0.10  |   |  | $ | (0.01 | ) |  | $ | (0.62 | )
|                                    | Net income (loss)  diluted                                                               |  |                                                 | 0.77  |      |  |      | 2.57  |      |  |             | 0.10  |   |  |   | (0.01 | ) |  |   | (0.62 | )
|                                    | Dividends declared                                                                        |  |                                                 | 0.40  |      |  |      | 0.40  |      |  |             | 0.40  |   |  |   | 0.30  |   |  |   | 0.40  |  
|                                    | Weighted average number of shares outstanding  basic                                     |  |                                                 | 12.7  |      |  |      | 12.7  |      |  |             | 12.5  |   |  |   | 12.5  |   |  |   | 12.5  |  
|                                    | Weighted average number of shares outstanding  diluted                                   |  |                                                 | 12.9  |      |  |      | 12.8  |      |  |             | 12.7  |   |  |   | 12.5  |   |  |   | 12.5  |  
|Balance Sheet Data (at period end): |                                                                                           |  |                                                 |       |      |  |      |       |      |  |             |       |   |  |   |       |   |  |   |      
|                                    | Total assets                                                                              |  | $                                               | 439.7 |      |  | $    | 438.7 |      |  | $           | 453.0 |   |  | $ | 397.4 |   |  | $ | 359.5 |  
|                                    | Long-term debt, including current portion                                                 |  |                                                 | 219.5 |      |  |      | 187.7 |      |  |             | 230.1 |   |  |   | 170.0 |   |  |   | 167.8 |  
|                                    | Shareholders equity                                                                      |  |                                                 | 109.0 |      |  |      | 134.5 |      |  |             | 130.0 |   |  |   | 130.3 |   |  |   | 116.0 |  
|Other Data:                         |                                                                                           |  |                                                 |       |      |  |      |       |      |  |             |       |   |  |   |       |   |  |   |      
|                                    | Capital expenditures                                                                      |  | $                                               | 50.1  |      |  | $    | 30.5  |      |  | $           | 91.1  |   |  | $ | 13.1  |   |  | $ | 16.7  |  
|                                    | Depreciation and amortization                                                             |  |                                                 | 42.8  |      |  |      | 42.8  |      |  |             | 46.4  |   |  |   | 45.5  |   |  |   | 42.2  |  
|                                    | EBITDA(1)                                                                                 |  |                                                 | 93.9  |      |  |      | 115.5 |      |  |             | 75.5  |   |  |   | 67.9  |   |  |   | 60.3  |  
|                                    | Ratio of EBITDA to interest expense, net and discount
and expenses on sale of receivables |  |                                                 | 3.3   | x    |  |      | 4.5   | x    |  |             | 3.0   | x |  |   | 3.5   | x |  |   | 2.8   | x
|                                    | Ratio of earnings to fixed charges(2)                                                     |  |                                                 | 1.5   | x    |  |      | 2.9   | x    |  |             | 1.1   | x |  |   |      |   |  |   |      |  



---

|(1) |  | EBITDA is a supplemental non-GAAP financial measure. The Company defines
EBITDA as net income (loss) plus (i) provision for income taxes, (ii)
interest expense, net, (iii) loss on extinguishment of debt, (iv) discount
and expenses on sale of receivables, (v) depreciation and amortization,
(vi) non-cash portion of facility restructuring charges and other
equipment disposals, 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 because management believes that it is a
widely accepted financial indicator of a companys ability to service
indebtedness and is used by investors and analysts to evaluate companies
in this industry. EBITDA is also used
as a measure for certain covenants under the Companys receivables
securitization facility, revolving credit facility, equipment note and the
indenture governing the notes.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | However, EBITDA: (a) does not represent net income or cash flow from
operations as defined by generally accepted accounting principles; (b) is
not necessarily indicative of cash available to fund the Companys cash flow
needs; (c) should not be considered as an alternative to operating income,
net income or cash flows from operating activities as determined in
accordance with generally accepted accounting principles; and (d) should not
be construed as a measure of the Companys operating performance,
profitability or liquidity. EBITDA as calculated by the Company is not
necessarily comparable to similarly titled measures reported by other
companies.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The following table reconciles EBITDA on a consolidated basis to the line on
our consolidated statement of income entitled net income (loss) for the
periods presented in the table above:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                                                                                    |  |             |      |      |  |      |       |      |  |      |      |  |  |   |      |   |  |   |      |  
|----------------------------------------------------------------------------------- |  | ----------- | ---- | ---- |  | ---- | ----- | ---- |  | ---- | ---- |  |  | - | ---- | - |  | - | ---- | -
|                                                                                    |  | Fiscal Year
|                                                                                    |  |            
|                                                                                    |  | 1999        |      | 2000 |  | 2001 |       | 2002 |  | 2003
|                                                                                    |  |             |      |      |  |      |       |      |  |     
|Net income (loss)                                                                   |  | $           | 10.0 |      |  | $    | 33.0  |      |  | $    | 1.3  |  |  | $ | (0.1 | ) |  | $ | (7.7 | )
|Interest expense, net                                                               |  |             | 23.0 |      |  |      | 20.2  |      |  |      | 20.4 |  |  |   | 18.5 |   |  |   | 19.0 |  
|Discount and expenses on sales of
receivables                                       |  |             | 5.6  |      |  |      | 5.6   |      |  |      | 4.9  |  |  |   | 1.1  |   |  |   | 2.6  |  
|Loss on extinguishment of debt                                                      |  |             |     |      |  |      |      |      |  |      |     |  |  |   |     |   |  |   | 3.2  |  
|Provision for (benefit of) income taxes                                             |  |             | 6.3  |      |  |      | 18.6  |      |  |      | 0.5  |  |  |   | (0.2 | ) |  |   | (4.5 | )
|Depreciation and amortization                                                       |  |             | 42.8 |      |  |      | 42.8  |      |  |      | 46.4 |  |  |   | 45.5 |   |  |   | 42.2 |  
|Facility restructuring and other
equipment disposals (non-cash portion)             |  |             | 6.2  |      |  |      |      |      |  |      |     |  |  |   | 5.3  |   |  |   | 4.2  |  
|Adjustment of carrying value of
inventories to LIFO basis, net of
market adjustment |  |             |     |      |  |      | (4.7  | )    |  |      | 2.0  |  |  |   | (2.2 | ) |  |   | 1.3  |  
|                                                                                    |  |             |      |      |  |      |       |      |  |      |      |  |  |   |      |   |  |   |      |  
|EBITDA                                                                              |  | $           | 93.9 |      |  | $    | 115.5 |      |  | $    | 75.5 |  |  | $ | 67.9 |   |  | $ | 60.3 |  
|                                                                                    |  |             |      |      |  |      |       |      |  |      |      |  |  |   |      |   |  |   |      |  



|(2) |  | The ratio of earnings to fixed charges is computed by dividing income
before income taxes plus fixed charges, by fixed charges. Fixed charges
include interest, whether expensed or capitalized, amortization of
deferred financing costs, loss on extinguishment of debt, discount and
expenses on sale of receivables and the portion of capital lease payments
that is representative of interest or financing charges. For fiscal 2002
and 2003, earnings were insufficient to cover fixed charges by $0.4
million and $12.2 million, respectively.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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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.

Overview

The Company is a leading domestic manufacturer and marketer of cotton and
cotton-blend fabrics and yarns used in the production of casual apparel and, to
a lesser extent, home furnishings and industrial products. The Company designs,
manufactures and markets a broad line of indigo-dyed denim for both branded and
private label apparel producers of denim jeans, slacks, shorts, skirts and
jackets as well as non-apparel producers of denim luggage, bags and other
products. The Company also designs and manufactures an extensive line of
piece-dyed sportswear and workwear fabrics. The Companys sportswear fabrics
are marketed to both branded and private label producers of casual, or khaki,
slacks, shorts and skirts. The Companys workwear fabrics are marketed to
producers of uniforms, career apparel and other workwear (shirts, slacks and
jackets) that are distributed through either the rental or retail channels.
The Company manufactures cotton and cotton-blend yarns, which are sold to
knitters and weavers of apparel fabrics. The Company also manufactures greige
and specialty fabrics, which are sold to the apparel, home furnishings and
industrial markets. In fiscal 2003, the Company sold fabrics and yarns to
approximately 1,000 customers, including many of the worlds leading apparel
companies.

General business conditions in the textile industry continue to be
challenging, reflecting weak consumer demand and a general decline in consumer
confidence reflective of the uncertainties presented by the current economic
and political environment. In addition, the Company believes the strength of
the United States dollar in comparison to the Chinese yuan and currencies of
other Asian countries continues to promote the importation of goods from those
countries by United States retailers, exacerbating the already highly
competitive market conditions resulting from the imbalance of global supply and
demand for textile and apparel products. In fiscal 2003, the Company had net
sales, EBITDA and net loss of $590.9 million, $60.3 million and ($7.7) million,
respectively. See Selected Consolidated Financial and Other Data for a
discussion of EBITDA and the reconciliation of EBITDA to net income (loss).

The Company believes many of the factors affecting its operating
performance during fiscal 2003, including weak retail sales of apparel, global
over-supply of textile and apparel products and the relative strength of the
U.S. dollar compared to the Chinese yuan and currencies of other Asian
countries, will continue into fiscal 2004. Raw material costs are also expected
to increase during fiscal 2004. While the Company remains focused on cost
reduction initiatives, new product development and working capital management,
it does not expect near term improvement in the highly competitive market
conditions or resulting net sales or EBITDA.

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Results of Operations

The Company operates principally in three segments: apparel fabrics, yarns
and other sales.

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

|                                              |  |                      |       |   |             |      |       |   |       |      |       |   |       |      |  |  |  |  | 
|--------------------------------------------- |  | -------------------- | ----- | - | ----------- | ---- | ----- | - | ----- | ---- | ----- | - | ----- | ---- |  |  |  |  | 
|                                              |  |                      |       |   | Fiscal Year
|                                              |  |                      |       |   |            
|                                              |  |                      |       |   | 2001        |      | 2002  |   | 2003  |      |       |   |      
|                                              |  |                      |       |   |             |      |       |   |       |      |       |   |      
|Net sales                                     |  |                      | 100.0 | % |             |      | 100.0 | % |       |      | 100.0 | %
|                                              |  | Apparel fabric sales |       |   | 80.8        |      |       |   | 84.1  |      |       |   | 85.1  |     
|                                              |  | Yarn sales           |       |   | 30.7        |      |       |   | 28.7  |      |       |   | 28.4  |     
|                                              |  | Other sales          |       |   | 10.1        |      |       |   | 10.7  |      |       |   | 11.2  |     
|                                              |  | Intersegment sales   |       |   | (21.6       | )    |       |   | (23.5 | )    |       |   | (24.7 | )   
|Cost of goods sold:                           |  |                      |       |   |             |      |       |   |       |      |       |  
|                                              |  | Raw materials        |       |   | 39.9        |      |       |   | 34.8  |      |       |   | 30.7  |     
|                                              |  | Conversion costs     |       |   | 46.3        |      |       |   | 50.2  |      |       |   | 55.3  |     
|                                              |  |                      | Total |   |             | 86.2 |       |   |       | 85.0 |       |   |       | 86.0 | 
|Depreciation                                  |  |                      | 5.9   |   |             |      | 6.8   |   |       |      | 7.1   |  
|Selling and administrative expenses           |  |                      | 4.3   |   |             |      | 4.3   |   |       |      | 4.4   |  
|Facility restructuring charges                |  |                      |      |   |             |      | 1.1   |   |       |      | 0.4   |  
|Operating income                              |  |                      | 3.6   |   |             |      | 2.8   |   |       |      | 2.1   |  
|Interest expense, net                         |  |                      | 2.6   |   |             |      | 2.8   |   |       |      | 3.2   |  
|Discount and expenses on sales of receivables |  |                      | 0.6   |   |             |      | 0.2   |   |       |      | 0.4   |  
|Loss on extinguishment of debt                |  |                      |      |   |             |      |      |   |       |      | 0.6   |  
|Provision for income taxes                    |  |                      | 0.1   |   |             |      | (0.0  | ) |       |      | (0.8  | )
|Net income                                    |  |                      | 0.2   |   |             |      | (0.0  | ) |       |      | (1.3  | )

Fiscal 2003 Compared to Fiscal 2002

Net Sales.Net sales decreased 10.4% to $590.9 million for fiscal 2003
from $659.7 million for fiscal 2002, as the Company experienced intensely
competitive conditions in its markets. The decline in net sales in fiscal 2003
primarily reflected lower unit volume in all segments, as domestic retail sales
of apparel continued to reflect weak consumer demand. Selling prices remained
very competitive reflecting the significant uncertainties presented by the
economic and political environment, the imbalance of global supply and demand
for textile and apparel products and the financial duress experienced by many
of the Companys domestic competitors. In addition, the manipulation of the
Chinese yuan and currencies of other Asian countries relative to the U.S.
dollar and other trade distorting practices employed by those countries create
competitive advantages which continue to promote the importation of goods from
those countries by U.S. retailers, exacerbating the already highly competitive
market conditions

Operating Income. Operating income decreased 32.6% to $12.6 million for
fiscal 2003 from $18.7 million for fiscal 2002. The decrease in operating
income primarily reflected the decline in unit volume and corresponding
reductions in unit cost absorption and operating efficiencies, as well as the
$2.5 million facility restructuring charge recorded in the third quarter of
fiscal 2003. The effects of the reduced volume were partially offset during
the first three fiscal quarters of 2003 by lower raw material costs. However,
raw material costs trended upward late in fiscal 2003, contributing to
substantially lower operating income in the fourth quarter. Consumption of
internally produced yarns and greige fabrics in the production of finished
apparel fabrics in lieu of outside purchases continued to provide higher
overall capacity utilization. Cost of goods sold decreased 9.5% to $507.8
million for fiscal 2003 from $560.8 million for fiscal 2002, primarily
reflecting the reduction in unit sales. Cost of goods sold as a percentage of
net sales increased to 86.0% for fiscal 2003 from 85.0% for fiscal 2002,
primarily reflecting the diminished unit cost absorption.

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Results of Operations (continued)

Selling and administrative expenses decreased 7.8% to $26.1 million for
fiscal 2003 from $28.3 million for fiscal 2002 reflecting a reduction in
certain associate benefits and performance based incentives. Selling and
administrative expenses increased to 4.4% of net sales for fiscal 2003 from
4.3% for fiscal 2002, primarily due to the decline in net sales.

Segment Performance. Apparel fabric sales decreased 9.4% to $502.9
million for fiscal 2003 from $555.0 million for fiscal 2002. The decline in
sales reflected a 9.8% decrease in yards sold as demand for denim and other
bottom-weight fabrics weakened, while average selling price increased slightly
reflecting an enhanced product mix. Operating income for apparel fabrics
decreased 28.8% to $28.5 million for fiscal 2003 from $40.0 million for fiscal
2002, primarily due to the reduced unit volume.

Yarn sales, including intra-company sales to the apparel fabric operation,
decreased 11.4% to $167.5 million for fiscal 2003 from $189.1 million for
fiscal 2002. This reflects a 10.0% decrease in pounds sold and a 1.6% decrease
in average selling price. Market pricing for sales yarns remained very
competitive, reflecting continued excess production capacity within the
domestic industry and importation of yarns and knitted apparel, predominately
from Asia. Yarn operating income was $46,000 for fiscal 2003 compared to an
operating loss of ($4.3) million for fiscal 2002, primarily due to lower raw
material costs in the first three fiscal quarters of fiscal 2003 and a
reduction in sales of commodity open-end yarns following the closure of yarn
manufacturing facilities during fiscal 2002 and 2003.

Other sales, which include sales of greige and specialty fabrics and
revenue from the Companys trucking operation, decreased 6.5% to $66.1 million
for fiscal 2003 from $70.7 million for fiscal 2002. The decrease in sales
reflected a 3.4% decrease in units sold, a 3.4% decrease in average selling
price, primarily reflecting weakened demand in the greige and specialty fabrics
markets, and the impact of reduced yarn and fabric volume on the Companys
trucking operation. Operating income for other sales increased 7.3% to $4.4
million for fiscal 2003 from $4.1 million for fiscal 2002, reflecting lower raw
material costs in the first three fiscal quarters of fiscal 2003.

Intersegment sales decreased 6.0% percent to $145.7 million for fiscal
2003 from $155.0 million for fiscal 2002, primarily reflecting a decrease in
consumption of internally produced yarns by the apparel fabrics operation.

Interest Expense, Net.Interest expense, net increased 3.3% to $19.0
million for fiscal 2003 from $18.4 million for fiscal 2002. Although average
outstanding borrowings were lower during the majority of fiscal 2003, the
increase reflected higher average interest rates applicable to the revolving
credit agreement, as amended, and additional interest incurred in July 2003
while the 10.25% Senior Subordinated Notes due 2006 (the 2006 Notes) and the
2013 Notes were both outstanding. For discussion, see Note 10. Long-term Debt
in the Notes to Consolidated Financial Statements included in Item 8 of this
Annual Report on Form 10-K. In addition, net interest expense for fiscal 2002
was reduced by $1.7 million for interest received in conjunction with a refund
of income taxes. For discussion of the income tax refund, see Note 9. Income
Taxes in the Notes to Consolidated Financial Statements included in Item 8 of
this Annual Report on Form 10-K.

Discount and Expenses on Sale of Receivables.Discount and expenses on
sale of receivables were $2.6 million for fiscal 2003 compared to $1.1 million
for fiscal 2002. This increase was attributable to higher interest rates and
enhanced eligibility under the securitization facility, as amended.

Loss on Extinguishment of Debt. During the fourth quarter of fiscal 2003,
the Company recorded a loss on early extinguishment of debt of $3.2 million
related to the redemption of its 2006 Notes. The loss consisted of a $2.1
million prepayment premium and the write-off of $1.1 million of unamortized
financing costs related to the original issuance of the notes. Funding of the
redemption was provided through the issuance at par of the 2013 Notes.

Provision for Income Taxes.An income tax benefit of ($4.5) million was
recorded for fiscal 2003 compared to an income tax benefit of ($0.2) million
for fiscal 2002, reflecting the increased loss before income taxes. The
Companys effective tax rate for fiscal 2003 was 36.7% of the pre-tax loss,
compared to 63.6% of the pre-

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Results of Operations (continued)

tax income for fiscal 2002. The fiscal 2002
effective tax rate reflected minor permanent differences affecting the fiscal
2002 provision for income taxes and the nominal level of the fiscal 2002
operating loss.

Facility Restructuring.In response to the deterioration of domestic and
regional demand for heather and stock-dyed open-end yarns, in May 2003, the
Company completed the closing of an open-end yarn manufacturing facility
located in Alabama. Continued operation of this facility could not be justified
given the diminished volume and pricing for these products. Production of
stock-dyed yarns for internal consumption by the apparel fabrics operation was
shifted to another manufacturing facility within the Company. In connection
with this action, the Company recorded facility restructuring charges and other
non-operating costs of approximately $2.5 million during the third quarter of
fiscal 2003.

At August 29, 2003, one of the North Carolina yarn plants closed in
January 2002 and the Alabama yarn plant closed in May 2003 remain unsold and
are included at estimated net realizable values in assets held for sale in the
Consolidated Balance Sheets included in Item 8 of this Annual Report on Form
10-K.

Fiscal 2002 Compared to Fiscal 2001

Net Sales.Net sales decreased 14.6% to $659.7 million for fiscal 2002
from $772.8 million for fiscal 2001, as the Company experienced intensely
competitive conditions in its markets. Retail sales of apparel continued to be
slow during the first half of fiscal 2002, reducing demand for apparel fabrics
and yarns as retailers and apparel producers exercised tighter management of
their supply chains and the U.S. consumer reacted to the tragic events of
September 11, 2001 and subsequent developments. Financial difficulties of
several yarn and apparel fabric manufacturers served to further depress selling
prices through distressed sales of inventory during the year. The Company
experienced a rebound in sales in the second half of fiscal 2002 as lean
inventories were restocked by retailers and apparel producers. However, sales
slowed near the end of fiscal 2002 as inventories were replenished and retail
sales of apparel continued their weakness into the back to school season. In
addition, the strength of the U.S. dollar in comparison to the currencies of
many Asian countries continued to promote the importation of goods from those
countries by U.S. retailers, exacerbating the already highly competitive market
conditions resulting from the imbalance of global supply and demand for textile
and apparel products.

Operating Income. Operating income decreased 33.0% to $18.7 million for
fiscal 2002 from $27.9 million for fiscal 2001, reflecting declines in unit
volume and average selling prices and the negative impact on overall unit cost
absorption of the reduced unit volumes. These factors were somewhat mitigated
by declining raw material costs during fiscal 2002. The Company continued its
consumption of internally produced yarns and greige fabrics in the production
of finished apparel fabrics to maintain higher capacity utilization and sales
rationalization. Cost of goods sold decreased 15.8% to $560.8 million for
fiscal 2002 from $666.2 million for fiscal 2001, reflecting the reduction in
unit sales, lower costs of raw materials and reduced purchases of outside yarns
and greige fabrics. Cost of goods sold as a percentage of net sales decreased
to 85.0% for fiscal 2002 from 86.2% for fiscal 2001.

Selling and administrative expenses decreased 14.2% to $28.3 million for
fiscal 2002 from $33.0 million for fiscal 2001. This decrease reflected
reductions in selling, general and administrative staffing and related expenses
implemented in September 2001, and a reduction in certain associate benefits
and performance based incentives corresponding to the decline in operating
income for fiscal 2002. Selling and administrative expenses represented 4.3% of
net sales for fiscal 2002, the same percentage as for fiscal 2001, despite the
decline in net sales.

Segment Performance. Apparel fabric sales decreased 11.1% to $555.0
million for fiscal 2002 from $624.1 million for fiscal 2001. The decline in
sales reflected a 9.0% decrease in yards sold and a 2.3% decrease in average
selling prices, as demand for denim and other bottom-weight fabrics weakened
significantly in the first
half of fiscal 2002. Operating income for apparel fabrics decreased 14.9% to
$40.0 million for fiscal 2002 from $47.0 million for fiscal 2001, primarily due
to the lower selling prices and reduced unit volume.

Yarn sales, including intracompany sales to the apparel fabric operation,
decreased 20.1% to $189.1 million for fiscal 2002 from $236.8 million for
fiscal 2001, reflecting a 13.0% decrease in pounds sold, as two open-end

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Results of Operations (continued)

yarn
plants in North Carolina were closed, and an 8.3% decrease in average selling
price. Market pricing for sales yarns remained very competitive, reflecting
continued excess production capacity within the domestic industry and continued
imports of yarns and knitted apparel, predominately from Asia and South
America. An operating loss of ($4.3) million was experienced by the yarns
operation for fiscal 2002 compared to a loss of ($0.4) million for fiscal 2001,
primarily due to the lower selling prices and reduced unit volume.

Other sales, which include sales of greige and specialty fabrics and
revenue from the Companys trucking operation, decreased 10.1% to $70.7 million
for fiscal 2002 from $78.6 million for fiscal 2001. The decrease in sales
reflected an 8.7% decrease in units sold, a 1.4% decrease in average selling
price, primarily reflecting weakened demand in the greige and specialty fabrics
markets, and the impact of reduced yarn and fabric volume on the Companys
trucking operation. Operating income for other sales increased 20.6% to $4.1
million for fiscal 2002 from $3.4 million for fiscal 2001, reflecting lower raw
material costs and continued intracompany sales of yarn and greige fabric
production to the apparel fabric operation.

Intersegment sales decreased 7.1% percent to $155.0 million for fiscal
2002 from $166.8 million for fiscal 2001, primarily reflecting a decrease in
consumption of internally produced yarns by the apparel fabrics operation.

Interest Expense, Net.Interest expense, net decreased 9.8% to $18.4
million for fiscal 2002 from $20.4 million for fiscal 2001. This decrease
reflected lower average outstanding borrowings during fiscal 2002, partially
offset by higher average interest rates applicable to the revolving credit
agreement, as amended. In addition, net interest expense for fiscal 2002 was
reduced by $1.7 million for interest received in conjunction with a refund of
income taxes. For discussion of the income tax refund, see Note 9. Income
Taxes in the Notes to Consolidated Financial Statements included in Item 8 of
this Annual Report on Form 10-K.

Discount and Expenses on Sale of Receivables.Discount and expenses on
sale of receivables were $1.1 million for fiscal 2002 compared to $4.9 million
for fiscal 2001. This decrease was 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, and lower market interest rates and the
resulting decline in discounts incurred on the receivables sold.

Provision for Income Taxes.An income tax benefit of ($0.2) million was
recorded for fiscal 2002 compared to a provision for income taxes of $0.5
million for fiscal 2001, reflecting the loss before income taxes. The Companys
effective tax rate for fiscal 2002 was 63.5% of the pre-tax loss, compared to
30.1% of the pre-tax income for fiscal 2001. The fiscal 2002 effective rate
reflected minor permanent differences affecting the fiscal 2002 provision for
income taxes and the nominal level of the fiscal 2002 operating loss.

Facility Restructuring.In response to highly competitive market
conditions and continued oversupply of open-end yarns, in January 2002, the
Company completed the closing of two separate open-end yarn manufacturing
facilities located in North Carolina. In connection with these closings, the
Company recorded facility restructuring charges and other non-operating costs
of approximately $5.8 million during fiscal 2002. Additionally, the Company
implemented reductions in certain manufacturing overhead costs and selling,
general and administrative expenses in September 2001. In conjunction with
these actions and the two plant closings, the Company recorded expense of
approximately $1.2 million related to the termination of approximately 70
associates holding manufacturing, marketing and administrative positions.

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Liquidity and Capital Resources

General

The Company has funded its working capital requirements and capital
expenditures with cash generated from operations, borrowings under its
revolving credit facility and equipment note, and proceeds received in
connection with sales of trade receivables and issuance of equity and debt
securities. At August 29, 2003, the Company had no borrowings outstanding under
the revolving credit facility and $60.6 million of borrowing availability
thereunder. In addition, at August 29, 2003, $17.8 million of the equipment
note and $150 million aggregate principal amount of the 2013 Notes (which are
fully and unconditionally guaranteed by the Company on a senior subordinated
basis) were outstanding.

Revolving Credit Facility

On March 28, 2003, the Company completed a restructuring of its senior
secured revolving credit facility, which provided aggregate borrowing
availability of a maximum of $62 million through March 27, 2006. Borrowings
under the revolving credit facility included revolving loans provided by a
group of lenders and up to $10 million of revolving swing loans provided by
Wachovia Bank, National Association. With respect to revolving loans, the
Company could designate an interest rate tied to the Eurodollar rate (adjusted
for any reserves) plus a specified number of basis points or the base rate
(which is the higher of Wachovias prime rate or one-half of one percent over
the overnight federal funds rate) plus a specified number of basis points.
Interest accrued on revolving swing loans at the Companys option at either the
base rate plus a specified number of basis points or at an interest rate to be
mutually determined by the Company and Wachovia at the time such loan was made.
A commitment fee was payable quarterly on the average daily unused portion of
the revolving credit commitment. The revolving credit facility was secured by
substantially all of the Companys assets. The Company was required to pay
certain administration and funding fees relating to the revolving credit
facility. Covenants of the revolving credit facility, among other things,
required that the Company maintain a minimum cash flow and certain financial
ratios, and contained restrictions on payment of dividends.

The Company did not expect to meet the minimum cash flow requirement of
the revolving credit facility as of August 29, 2003 and therefore initiated
discussions with several lenders to amend or replace the facility. As a
result, a new senior secured revolving credit facility was executed with
General Electric Capital Corporation (GECC) on November 7, 2003. See Note
14. Subsequent Events in the Notes to Consolidated Financial Statements
included in Item 8 of this Annual Report on Form 10-K. The new revolving
credit facility has less restrictive financial covenants than the previous
facility, requiring certain minimum cash flows and fixed charge ratios only in
the event that unused availability under the new facility falls below a
specified level.

Swap Agreements

The Company has used interest rate swap agreements to effectively fix the
interest rate with respect to the borrowings outstanding under the revolving
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 revolving credit
facility. The related amount payable to or receivable from counterparties is
included in other liabilities or assets. At August 29, 2003, the Company had
swap agreements with notional amounts aggregating $35 million, providing an
effective weighted average interest rate of 5.3%. These swap agreements mature
in November 2003.

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Liquidity and Capital Resources (continued)

Equipment Note

The equipment note, a secured five-year installment loan, was executed
with The CIT Group/Equipment Financing, Inc. on July 30, 2002 in the amount of
$20.0 million. The equipment note is to be repaid in 53 monthly payments of
approximately $360,000 commencing March 1, 2003 and a final payment of
approximately $896,000 on August 1, 2007. Interest accrues on the unpaid
principal balance of the equipment note at a rate established annually on
August 1 at LIBOR plus a specified number of basis points, and is paid monthly
commencing September 1, 2002 through the final payment date. The Company may,
at its one time option, elect a fixed interest rate for the remaining term of
the equipment note based on the Federal Reserve Interest Rate Swap rate of
interest, as quoted for the term closest to the remaining term of the equipment
note, plus a specified number of basis points. The equipment note is secured by
a senior lien on substantially all of the equipment of two plant locations,
which had a carrying value of approximately $ 33.6 million at August 29, 2003.
The equipment note contains customary covenants, including requirements to
maintain certain financial covenants, and includes provisions relating to cross
acceleration to other debt obligations of the Company.

Receivables Securitization Facility

On August 30, 2002, the Company and its wholly-owned, special purpose
subsidiary, Avondale Funding, LLC (Funding), entered into an arrangement
(Receivables Securitization Facility) with GECC and Redwood Receivables
Corporation (Redwood), an issuer of commercial paper, to provide financing of
up to $90 million through the sale of certain trade receivables (Receivables)
originated by the Company. On July 3, 2003, GECC purchased Redwoods investment
and agreed to continue the funding of the receivables securitization facility
until the earlier of 90 days before the specified final purchase date, August
29, 2007, or certain specified termination dates. The Receivables
Securitization Facility replaced a previous receivables securitization program
with Bank One. The Company has been engaged by Funding and GECC to service the
receivables.

Funding is a separate corporate entity with its own creditors who, in the
event of Fundings liquidation, will be entitled to a claim on Fundings assets
prior to any distribution to the Company.

Pursuant to the Receivables Securitization Facility, the Company sells, or
transfers as a contribution of capital, the Receivables, at a discount and
without recourse, to Funding, whose sole business is the acquisition and
financing of the Receivables. Funding sells an undivided interest in a
specified portion of the Receivables to GECC to provide the funds required by
Funding to purchase the Receivables from the Company. Proceeds from the
collection of the Receivables are used by Funding to purchase additional
Receivables from the Company, repay GECC in the event that sufficient
additional Receivables are not available to maintain GECCs investment, or pay
fees and expenses. At August 29, 2003, the outstanding amount of GECCs
investment in the Receivables was $52.9 million.

The discount rate on the Receivables purchased from the Company by Funding
is based on the fair market value of the receivables. The discount rate on the
undivided interest in the Receivables purchased by GECC from Funding is tied to
GECCs commercial paper rate plus a specified number of basis points. Funding
is required to pay certain unused availability fees under the Receivables
Securitization Facility.

The Receivables Securitization Facility contains customary covenants,
including requirements to maintain certain financial ratios, and includes
provisions relating to cross defaults to other debt obligations of the Company.
In conjunction with the execution of a new senior secured revolving credit
facility with GECC on November 7, 2003, the Company executed an amendment to
the Receivables Securitization Facility adopting the same financial covenants
as provided in the new revolving credit facility. In addition, the amendment to
the Receivables Securitization Facility also reduced the size of the facility
from $90 million to $75 million. See Note 14. Subsequent Events in the Notes
to Consolidated Financial Statements included in Item 8 of this Annual Report
on Form 10-K.

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Liquidity and  Resources (continued)

Senior Subordinated Notes

On June 30, 2003, the Company issued at par $150 million of 2013 Notes in
a private placement to qualified institutional buyers. The 2013 Notes, which
mature on July 1, 2013, are unsecured and subordinated to all existing and
future senior indebtedness of the Company. Interest on the 2013 Notes is due
semiannually, on January 1 and July 1, commencing January 1, 2004. Proceeds
from the sale of the 2013 Notes were used to redeem the Companys 2006 Notes,
to repay indebtedness outstanding under the revolving credit facility and for
general corporate purposes.

The Company in agreement with Wachovia Securities, LLC, the original
purchaser of the 2013 Notes, filed a registration statement with the Securities
and Exchange Commission on September 16, 2003, with respect to an offer to
exchange the unregistered notes for freely tradable notes that have
substantially identical terms. All unregistered notes were tendered for
exchange prior to expiration of the exchange offer on October 21, 2003.

The 2013 Notes contain a redemption feature allowing the Company, at any
time prior to July 1, 2006, to redeem up to an aggregate of $52.5 million of
the principal amount of the 2013 Notes with the proceeds of one or more public
equity offerings, at a redemption price of 110.25% plus accrued interest to the
redemption date, provided that at least $97.5 million aggregate principal
amount of the 2013 Notes remains outstanding after such redemption. On or after
July 1, 2008, the 2013 Notes are redeemable at the Companys option, in whole
or in part, at a redemption price of 105.125%, which declines in intervals to
100% in 2011 and thereafter.

The indenture under which the 2013 Notes were issued contains, among other
things, certain restrictive covenants applicable to issuance of additional
debt, payment of dividends, retirement of  stock or indebtedness,
purchase of investments, sales or transfers of assets, certain consolidations
or mergers and certain transactions with affiliates.

Capital Expenditures and Cash Flows Analysis

The Companys capital expenditures aggregated $16.7 million for fiscal
2003. These expenditures were used primarily for the installation of an
automated dye mixing and dispensing system at a fabric finishing facility in
South Carolina, the purchase of new roving equipment for a ring spinning
facility in Alabama, and general maintenance of facilities and equipment.
Management estimates that capital expenditures for fiscal 2004 will be
approximately $12.0 million, and that such amounts will be used primarily for
general maintenance of facilities and equipment.

Net cash provided by operating activities was $35.3 million in fiscal
2003. Principal working capital changes included a $35.4 million decrease in
accounts receivable and $21.3 million decrease in accounts receivable sold
under the securitization facilities, a $4.1 million reduction in inventories,
and a $15.2 million decrease in accounts payable and accrued expenses. The
Companys investing activities were primarily the capital improvements
described above and proceeds from the disposal of manufacturing equipment of
approximately $3.9 million. Net cash used by financing activities aggregated
$11.6 million, including the issuance of senior subordinated notes due 2013 of
$150.0 million, redemption of senior subordinated notes due 2006 of $127.1
million, including prepayment premium, a net decrease in the revolving credit
facility and other long term debt of $27.2 million, payment of $5.0 million in
dividends on outstanding common stock and the purchase and retirement of
treasury stock of $2.3 million.

Net cash provided by operating activities was $71.7 million in fiscal
2002. Principal working capital changes included a $9.1 million increase in
accounts receivable and $12.4 million increase in accounts receivable sold
under the securitization facilities, a $12.7 million reduction in inventories,
and a $2.6 million increase in accounts payable and accrued expenses. The
Companys investing activities were primarily capital improvements of $13.0
million. Net cash used by financing activities aggregated $59.4 million,
including issuance of the equipment

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Liquidity and Capital Resources (continued)

note of $20.0 million, a net decrease in the revolving credit facility and
other long term debt of $80.2 million and $3.8 million used to pay dividends on
common stock.

Net cash provided by operating activities was $48.1 million in fiscal
2001. Principal working capital changes included a $28.0 million decrease in
accounts receivable and corresponding $20.0 million decrease in accounts
receivable sold under the securitization facility, a $6.3 million decrease in
inventories, a $14.7 million decrease in other assets, primarily deposits on
equipment orders, a $23.1 million decrease in accounts payable and accrued
expenses, and a $9.1 million decrease in income taxes payable. The Companys
investing activities were primarily capital improvements of $91.1 million. Net
cash provided by financing activities aggregated $37.3 million, including a net
increase in the revolving credit facility and other long-term debt of $42.5
million, and $5.0 million used to pay dividends on common stock.

The table below summarizes the Companys outstanding contractual
obligations as of August 29, 2003, and the effect such obligations are expected
to have on liquidity and cash flow in future periods (amounts in thousands).

|                             |       |       |                        |         |  |       |           |        |       |         |       |        |       |   |       |       |  |   |         |         | 
|---------------------------- | ----- | ----- | ---------------------- | ------- |  | ----- | --------- | ------ | ----- | ------- | ----- | ------ | ----- | - | ----- | ----- |  | - | ------- | ------- | 
|                             |       |       | Payments Due by Period
|                             |       |       |                       
|                             |       |       |                        |         |  |       | Less than |        | 1  3 |         | 3  5 |        | After
|Contractual Obligations      |       | Total |                        | 1 year  |  | years |           | years  |       | 5 years
|                             |       |       |                        |         |  |       |           |        |       |        
|Long-term Debt               |       | $     | 167,837                |         |  | $     | 4,325     |        |       | $       | 8,651 |        |       | $ | 4,861 |       |  | $ | 150,000 |        
|Operating Leases             |       |       | 7,772                  |         |  |       | 2,331     |        |       |         | 3,762 |        |       |   | 1,679 |       |  |   |        |        
|Equipment purchase
orders    |       |       | 4,900                  |         |  |       | 4,900     |        |       |         |      |        |       |   |      |       |  |   |        |        
|Raw material purchase
orders |       |       | 68,900                 |         |  |       | 68,900    |        |       |         |      |        |       |   |      |       |  |   |        |        
|                             |       |       |                        |         |  |       |           |        |       |         |       |        |       |   |       |       |  |   |         |        
|                             | Total |       | $                      | 249,409 |  |       | $         | 80,456 |       |         | $     | 12,413 |       |   | $     | 6,540 |  |   | $       | 150,000 | 
|                             |       |       |                        |         |  |       |           |        |       |         |       |        |       |   |       |       |  |   |         |        

For discussion related to contractual obligations, see Note 10. Long-Term
Debt and Note 13. Commitments and Contingencies in the Notes to Consolidated
Financial Statements included in Item 8, Financial Statement and Supplemental
Data of this Annual Report on Form 10-K.

Management believes that cash generated from operations, together with
borrowings available under the new senior secured revolving credit facility
(See Note 14. Subsequent Events in the Notes to Consolidated Financial
Statements included in Item 8 of this Annual Report on Form 10-K) 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.

Refund of Prior Year Income Taxes

A net benefit of $4.5 million, related to receipt of an income tax refund
resulting from a settlement with the Internal Revenue Service Appeals Division
in the fourth quarter of fiscal 2002, is included as an addition to retained
earnings for fiscal 2002 on the consolidated statement of shareholders equity.
The claim for the refund was filed in fiscal 1997 utilizing tax basis
deductions against fiscal 1994 taxable income, related to consideration paid in
the repurchase of treasury stock. Given the technical nature of the claim and
resulting uncertainty of recovery, recognition of the refund claim was deferred
until successful resolution in fiscal 2002. Interest received in conjunction
with the refund of approximately $1.7 million is included as a reduction in
interest expense, net for fiscal 2002 on the consolidated statements of income.

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Liquidity and Capital Resources (continued)

Adjustment of Deferred Income Taxes

Following the successful settlement of the refund claim noted above, the
Company reassessed the balance of certain deferred income taxes. Based on this
evaluation, the Company determined that the estimates used to establish
deferred taxes prior to fiscal 1998 were too conservative and resulted in an
overstatement of deferred income tax liabilities. Accordingly, an adjustment of
$4.0 million was recorded as an addition to the balance of retained earnings at
August 27, 1999.

Off-Balance Sheet Financing Arrangements

The receivables securitization facility is the Companys only off-balance
sheet financing arrangement. The Company generates funds through the sale of
trade receivables to Funding, whose sole business purpose is the ongoing
acquisition and resale of specified trade receivables generated by the Company.
Funding retains no interest in the investment in the receivables sold GECC, and
has not experienced any gains or losses on the sale of the investment in
Receivables. The Company believes minimal counter party risk exists due to the
financial strength of GECC.

Seasonality

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

Critical Accounting Policies

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

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

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

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

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

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

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

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

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

For discussion of a certain legal proceeding to which the Company is a
party, see Item 3 Legal Proceedings of this Annual Report on Form 10-K for
the fiscal year ended August 29, 2003. The Company is not currently a party to
litigation that management, in consultation with legal counsel, believes would
have a material adverse effect on the Companys financial condition or results
of operations.

New Accounting Standards

The Company adopted the provisions of Statement of Financial Accounting
Standard No. 142, Goodwill and Other Intangible Assets, effective August 31,
2002, and ceased amortization of goodwill on that date. The Company completed
the transitional goodwill impairment test as required by Statement No. 142
during the thirteen weeks ended November 29, 2002 and determined that no
impairment of goodwill should be recorded. In accordance with the provisions of
Statement No. 142, the adoption of this accounting policy is reflected
prospectively. Had the Company accounted for goodwill in accordance with this
policy in fiscal 2001 and 2002, net income would have been $1.5 million or $.12
per share-basic and $.12 per share-diluted for fiscal 2001 and $0.1 million or
$.01 per share-basic and $.01 per share-diluted for fiscal 2002.

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Effective August 31, 2002, the Company adopted the provisions of
Statements of Financial Accounting Standard No. 141 - Business Combinations,
No. 143 - Accounting for Asset Retirement Obligations, No. 144 - Impairment or
Disposal of Long-lived Assets, No. 145 - Rescission of Statements No. 4, 44,
and 64, Amendment of Statement No. 13, and Technical Corrections, and No. 146 -
Accounting for Costs Associated with Exit or Disposal Activities. Statement No.
145 requires gains and losses on extinguishment of debt to be classified as
income or loss from continuing operations rather than as extraordinary items as
previously required. See Note 3. Loss on Extinguishment of Debt in the Notes
to Consolidated Financial Statements included in Item 8, Financial Statements
and Supplemental Data of this Annual Report on Form 10-K, for discussion
related to loss on extinguishment of debt in fiscal 2003. The adoption of these
Statements, other than Statement No. 145, had no impact on the Companys
consolidated financial statements.

In December 2002, Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure,
established accounting and disclosure requirements pertaining to a change from
the intrinsic value method to the fair value method of accounting for
stock-based compensation, and revised disclosure requirements for companies
continuing to apply the intrinsic value method. The Company adopted the
provisions of this statement during the third quarter of fiscal 2003, electing
to continue its use of the intrinsic value method. Accordingly, no stock-based
compensation has been recorded, as all options granted under the existing plan
have an exercise price equal to the market value of the underlying common stock
on the date of grant.

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

In April 2003, the Financial Accounting Standards Board issued Statement
No. 149, Amendments of Statement No. 133 on Derivative Instruments and Hedging
Activities, which requires certain contracts to be treated as either
derivatives or hybrid instruments, on a consistent basis. Statement No. 149 is
effective for contracts and hedging transactions executed or modified after
June 30, 2003. The adoption of the provisions of Statement No. 149 in the
fourth quarter of fiscal 2003 had no impact on the Companys consolidated
financial statements.

In May 2003, the Financial Accounting Standards Board issued Statement No.
150, Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity, which requires certain financial instruments that were
previously presented on the consolidated balance sheets as equity or temporary
equity to be presented as liabilities. Such instruments include mandatory
redeemable preferred and common stock, and certain options and warrants.
Statement No. 150 is effective for mandatory redeemable financial instruments
of nonpublic entities for fiscal periods beginning after December 15, 2003. The
Company is currently evaluating the impact of Statement No. 150 on its
consolidated financial statements.

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Forward Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within
the meaning of the federal securities laws. Statements that are not historical
facts, including statements about our beliefs and expectations, are
forward-looking statements. Forward-looking statements include statements
generally preceded by, followed by or that include the words believe,
expect, anticipate, plan, estimate or similar expressions. These
statements include, among others, statements regarding business outlook,
anticipated financial and operating results, strategies, contingencies, working
capital requirements, expected sources of liquidity, estimated amounts and
timing of capital expenditures, estimated environmental compliance costs and
other expenditures, and expected outcomes of litigation.

Forward-looking statements reflect managements current expectations and
are not guarantees of performance. These statements are based on managements
beliefs and assumptions, which in turn are based on currently available
information. Important assumptions relating to these forward-looking
statements include, among others, assumptions regarding product demand, selling
prices, raw material costs, timing and cost of capital expenditures, cost of
environmental compliance, outcomes of pending litigation, competitive
conditions and general economic conditions. These assumptions could prove
inaccurate. Forward-looking statements also involve risks and uncertainties,
which could cause actual results to differ materially from those contained in
any forward-looking statement. Many of these factors are beyond our ability to
control or predict. Such factors include, but are not limited to, all the
risks described under the heading Risk Factors in the Companys Current
Report on Form 8-K dated June 20, 2003 and the following:



| |  |  | cyclical and competitive nature of the textile industry;                               
| | - |  | ---------------------------------------------------------------------------------------
|
| |  |  | pressures on selling prices due to competitive and economic conditions;                
|
| |  |  | deterioration of relationships with, or loss of, significant customers;                
|
| |  |  | strength of the U.S. dollar versus the currencies of other textile producing countries;
|
| |  |  | changes in trade policies, including textile quotas and tariffs;                       
|
| |  |  | ability to identify and respond to fashion trends;                                     
|
| |  |  | availability and pricing of cotton and other raw materials;                            
|
| |  |  | changes in government policies affecting raw material costs;                           
|
| |  |  | availability and desirability of technological advancements;                           
|
| |  |  | retention of key management personnel;                                                 
|
| |  |  | continued availability of financial resources;                                         
|
| |  |  | changes in environmental, health and safety regulations; and                           
|
| |  |  | political or military responses to terrorist activities.                               

You should not place undue reliance on any forward-looking statements,
which are based on current expectations. Further, forward-looking statements
speak only as of the date they are made, and we undertake no obligation to
update publicly any of them in light of new information or future events.

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Other Data

EBITDA is a supplemental non-GAAP financial measure. EBITDA is presented
because management believes that it is a widely accepted financial indicator of
a companys ability to service indebtedness and is used by investors and
analysts to evaluate companies in this industry. EBITDA is also used as a
measure for certain covenants under the Companys receivables securitization
facility, revolving credit facility, equipment note and the indenture governing
the notes, and is calculated by the Company as follows (amounts in thousands):

|                                                                                    |  |             |        |      |  |      |        |   |  |   |        |  
|----------------------------------------------------------------------------------- |  | ----------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                                    |  | Fiscal Year
|                                                                                    |  |            
|                                                                                    |  | 2001        |        | 2002 |  | 2003
|                                                                                    |  |             |        |      |  |     
|Net income (loss)                                                                   |  | $           | 1,257  |      |  | $    | (130   | ) |  | $ | (7,738 | )
|Interest expense, net                                                               |  |             | 20,396 |      |  |      | 18,449 |   |  |   | 19,034 |  
|Discount and expenses on
sales of receivables                                       |  |             | 4,935  |      |  |      | 1,117  |   |  |   | 2,596  |  
|Loss on extinguishment of debt                                                      |  |             |       |      |  |      |       |   |  |   | 3,236  |  
|Provision for income taxes                                                          |  |             | 540    |      |  |      | (227   | ) |  |   | (4,495 | )
|Depreciation and amortization                                                       |  |             | 46,399 |      |  |      | 45,538 |   |  |   | 42,204 |  
|Facility restructuring and other equipment disposals (non-cash portion)             |  |             |       |      |  |      | 5,330  |   |  |   | 4,140  |  
|Adjustment of carrying value of inventories
to LIFO basis, net of market adjustment |  |             | 1,950  |      |  |      | (2,150 | ) |  |   | 1,335  |  
|                                                                                    |  |             |        |      |  |      |        |   |  |   |        |  
|EBITDA                                                                              |  | $           | 75,477 |      |  | $    | 67,927 |   |  | $ | 60,312 |  
|                                                                                    |  |             |        |      |  |      |        |   |  |   |        |  

However, EBITDA: (a) does not represent net income or cash flow from
operations as defined by generally accepted accounting principles; (b) is not
necessarily indicative of cash available to fund the Companys cash flow needs;
(c) should not be considered as an alternative to operating income, net income
or cash flows from operating activities as determined in accordance with
generally accepted accounting principles; and (d) should not be construed as a
measure of the Companys operating performance, profitability or liquidity.
EBITDA as calculated by the Company is not necessarily comparable with
similarly titled measures presented by other companies.

Subsequent Event

On November 7, 2003, Avondale Mills, Inc. and its subsidiary Avondale
Mills Graniteville Fabrics, Inc. entered into a new senior secured revolving
credit facility with GECC, as agent and sole lender. The new revolving credit
facility provides aggregate borrowing availability up to $40 million, including
letter of credit availability up to $10 million. The new revolving credit
facility replaced the revolving credit facility previously provided by a group
of lenders.

The term of the new revolving credit facility extends through the earlier
of August 29, 2007, or the date at which the Receivables Securitization
Facility terminates, unless replaced by another securitization facility with
GECC or an affiliate of GECC. Borrowing availability under the new revolving
credit facility is based on specified percentages of Avondale Mills raw
material, work in process, greige fabric and finished good inventories, less
applicable reserves. The new revolving credit facility is secured by the
Companys inventories, equipment other than that securing the equipment note,
accounts receivable (not sold under the Receivables Securitization Facility),
certain of the Companys deposit and investment accounts, and the capital stock
and limited liability company interests of all

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subsidiaries of the Company. The Company and Avondale Mills Graniteville
Fabrics, Inc. have guaranteed the obligations of Avondale Mills under the
revolving credit facility.

With respect to advances drawn under the new revolving credit facility,
the Company can designate interest rates equal to the Eurodollar rate (adjusted
for reserves) plus a specified number of basis points or the reported prime
rate plus a specified number of basis points. A commitment fee is payable
monthly on the average unused portion of the new revolving credit facility. The
Company is required to pay certain audit and administrative fees relating to
the new revolving credit facility, and is subject to specified prepayment
premiums if the facility commitment is reduced or terminated prior to the
second anniversary of the closing date.

Covenants of the new revolving credit facility require the Company to
maintain certain minimum cash flow amounts and fixed charge coverage ratios in
the event that average unused borrowing availability falls below $20 million
for a period of four weeks. These covenants limit the Companys ability to pay
dividends.

In conjunction with the execution of the new revolving credit facility,
the Company also executed an amendment to the Receivables Securitization
Facility adopting the same financial covenants as provided in the new revolving
credit facility and reducing the size of the Receivables Securitization
Facility from $90 million to $75 million.




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 29, 2003 remain in effect throughout fiscal 2004, a 10% change in the
effective average interest rate would not have a material effect on the
Companys pretax earnings for fiscal 2004. 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 $6.0 to $9.2 million.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

AVONDALE INCORPORATED

CONSOLIDATED FINANCIAL STATEMENTS

Years Ended August 31, 2001, August 30, 2002
and August 29, 2003

|                                                |  |      |    | 
|----------------------------------------------- |  | ---- | -- | 
|                                                |  | Page
|                                                |  |     
|Reports of Independent Public Accountants       |  |      | 31 | 
|Consolidated Balance Sheets                     |  |      | 33 | 
|Consolidated Statements of Income               |  |      | 34 | 
|Consolidated Statements of Shareholders Equity |  |      | 35 | 
|Consolidated Statements of Cash Flows           |  |      | 36 | 
|Notes to Consolidated Financial Statements      |  |      | 37 | 

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Avondale Incorporated:

We have audited the accompanying consolidated balance sheets of Avondale
Incorporated and subsidiaries as of August 29, 2003 and August 30, 2002, and
the related consolidated statements of income, shareholders equity and cash
flows for the years then ended. These consolidated 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. The consolidated statements of income,
shareholders equity and cash flows and the schedule referred to below for the
year ended August 31, 2001 were audited by other auditors who have ceased
operations. Those auditors expressed an unqualified opinion on those financial
statements and schedule, prior to the restatement as described in Note 9, in
their report dated October 9, 2001.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 2003 and 2002 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Avondale Incorporated and subsidiaries as of August 29, 2003 and
August 30, 2002, and the results of their operations and their cash flows for
the years then ended in conformity with accounting principles generally
accepted in the United States of America.

Our audits were made for the purpose of forming an opinion on the 2003 and
2002 basic consolidated financial statements taken as a whole. The schedule
listed in the Index at Item 15(a) has been subjected to the auditing procedures
applied in the audits of the basic consolidated financial statements and, in
our opinion, the financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the 2003 and 2002 information set forth therein.

As discussed above, the consolidated financial statements for the year
ended August 31, 2001 were audited by other auditors who have ceased
operations. As described in Note 9, retained earnings at August 25, 2000 and
August 31, 2001 have been restated from the original amounts reported upon by
such other auditors. We audited the adjustments to those balances of retained
earnings as described in Note 9. In our opinion, such adjustments are
appropriate and have been properly applied. However, we were not engaged to
audit, review, or apply any other procedures to the 2001 consolidated financial
statements of the Company other than with respect to such adjustments and,
accordingly, we do not express an opinion or any other form of assurance on the
2001 consolidated financial statements taken as a whole.

CRISP HUGHES EVANS LLP

Atlanta, Georgia
October 3, 2003, except for note 14 as to which          the
date is November 7, 2003

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The report that appears below is a copy of the report issued by the
Companys previous independent accountants, Arthur Andersen, LLP (Andersen)
and the report has not been reissued by Andersen. That firm has discontinued
performing auditing and accounting services. The Andersen report refers to
financial statements as of August 25, 2000 and August 31, 2001 and for the two
fiscal years ending August 25, 2000, which are no longer included in the
accompanying financial statements. Further, the Andersen report refers to the
schedule listed in the Index at Item 14(a), such schedule is included as Item
15(a) in this Annual Report on Form 10-K.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Avondale Incorporated:

We have audited the accompanying consolidated balance sheets of Avondale
Incorporated as of August 25, 2000 and August 31, 2001, and the related
consolidated statements of income, shareholders equity and cash flows for each
of the three years in the period ended August 31, 2001. 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 as of August 25, 2000 and August 31, 2001, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended August 31, 2001 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 9, 2001

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AVONDALE INCORPORATED

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

|                                                      |                                                                                                |                                                                                                                              |                            |          |     |            |         |            |     |         |  | 
|----------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | -------------------------- | -------- | --- | ---------- | ------- | ---------- | --- | ------- |  | 
|                                                      |                                                                                                |                                                                                                                              |                            |          |     | August 30, |         | August 29,
|                                                      |                                                                                                |                                                                                                                              |                            |          |     | 2002       |         | 2003      
|                                                      |                                                                                                |                                                                                                                              |                            |          |     |            |         |           
|ASSETS                                                |                                                                                                |                                                                                                                              |                            |          |     |            |         |           
|Current assets                                        |                                                                                                |                                                                                                                              |                            |          |     |            |         |           
|                                                      | Cash and cash equivalents                                                                      |                                                                                                                              | $                          | 2,859    |     |            | $       | 13,769     |    
|                                                      | Accounts receivable, less allowance for doubtful accounts of
$2,199 in 2002 and $1,867 in 2003 |                                                                                                                              |                            | 43,305   |     |            |         | 29,157     |    
|                                                      | Inventories                                                                                    |                                                                                                                              |                            | 86,946   |     |            |         | 82,887     |    
|                                                      | Prepaid expenses                                                                               |                                                                                                                              |                            | 385      |     |            |         | 1,980      |    
|                                                      | Income taxes refundable                                                                        |                                                                                                                              |                            | 6,550    |     |            |         | 2,825      |    
|                                                      |                                                                                                |                                                                                                                              |                            |          |     |            |         |           
|                                                      |                                                                                                |                                                                                                                              | Total current assets       |          |     | 140,045    |         |            |     | 130,618 | 
|Assets held for sale                                  |                                                                                                |                                                                                                                              | 3,645                      |          |     |            | 2,640   |           
|Property, plant and equipment                         |                                                                                                |                                                                                                                              |                            |          |     |            |         |           
|                                                      | Land                                                                                           |                                                                                                                              |                            | 6,634    |     |            |         | 6,484      |    
|                                                      | Buildings                                                                                      |                                                                                                                              |                            | 81,823   |     |            |         | 79,647     |    
|                                                      | Machinery and equipment                                                                        |                                                                                                                              |                            | 526,897  |     |            |         | 497,213    |    
|                                                      |                                                                                                |                                                                                                                              |                            |          |     |            |         |           
|                                                      |                                                                                                |                                                                                                                              | 615,354                    |          |     |            | 583,344 |           
|                                                      | Less accumulated depreciation                                                                  |                                                                                                                              |                            | (369,728 | )   |            |         | (367,759   | )  
|                                                      |                                                                                                |                                                                                                                              |                            |          |     |            |         |           
|                                                      |                                                                                                |                                                                                                                              | 245,626                    |          |     |            | 215,585 |           
|Other assets                                          |                                                                                                |                                                                                                                              | 5,146                      |          |     |            | 7,712   |           
|Goodwill                                              |                                                                                                |                                                                                                                              | 2,951                      |          |     |            | 2,951   |           
|                                                      |                                                                                                |                                                                                                                              |                            |          |     |            |         |           
|                                                      |                                                                                                | $                                                                                                                            | 397,413                    |          |     | $          | 359,506 |           
|                                                      |                                                                                                |                                                                                                                              |                            |          |     |            |         |           
|LIABILITIES AND SHAREHOLDERS EQUITY                  |                                                                                                |                                                                                                                              |                            |          |     |            |         |           
|Current liabilities                                   |                                                                                                |                                                                                                                              |                            |          |     |            |         |           
|                                                      | Accounts payable                                                                               |                                                                                                                              | $                          | 30,591   |     |            | $       | 18,724     |    
|                                                      | Accrued compensation, benefits and related expenses                                            |                                                                                                                              |                            | 10,369   |     |            |         | 9,280      |    
|                                                      | Accrued interest                                                                               |                                                                                                                              |                            | 4,576    |     |            |         | 2,726      |    
|                                                      | Other accrued expenses                                                                         |                                                                                                                              |                            | 10,207   |     |            |         | 9,785      |    
|                                                      | Long-term debt due in one year                                                                 |                                                                                                                              |                            | 2,523    |     |            |         | 4,325      |    
|                                                      |                                                                                                |                                                                                                                              |                            |          |     |            |         |           
|                                                      |                                                                                                |                                                                                                                              | Total current liabilities  |          |     | 58,266     |         |            |     | 44,840  | 
|Long-term debt                                        |                                                                                                |                                                                                                                              | 167,477                    |          |     |            | 163,512 |           
|Deferred income taxes and other long-term liabilities |                                                                                                |                                                                                                                              | 41,415                     |          |     |            | 35,203  |           
|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  11,552 shares in 2002 and 11,402 shares in 2003 |                            |          | 115 |            |         |            | 114 |        
|                                                      |                                                                                                | Class B, $.01 par value; 5,000 shares authorized; issued and
outstanding  979 shares in 2002 and 2003                       |                            |          | 10  |            |         |            | 10  |        
|                                                      | Capital in excess of par value                                                                 |                                                                                                                              |                            | 39,669   |     |            |         | 39,194     |    
|                                                      | Accumulated other comprehensive loss                                                           |                                                                                                                              |                            | (889     | )   |            |         | (151       | )  
|                                                      | Retained earnings                                                                              |                                                                                                                              |                            | 91,350   |     |            |         | 76,784     |    
|                                                      |                                                                                                |                                                                                                                              |                            |          |     |            |         |            |    
|                                                      |                                                                                                |                                                                                                                              | Total shareholders equity |          |     | 130,255    |         |            |     | 115,951 | 
|                                                      |                                                                                                |                                                                                                                              |                            |          |     |            |         |           
|                                                      |                                                                                                | $                                                                                                                            | 397,413                    |          |     | $          | 359,506 |           
|                                                      |                                                                                                |                                                                                                                              |                            |          |     |            |         |           

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

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AVONDALE INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)

|                                               |                                     |                             |         |                   |        |            |         |            |        |   |         |         |        |  
|---------------------------------------------- | ----------------------------------- | --------------------------- | ------- | ----------------- | ------ | ---------- | ------- | ---------- | ------ | - | ------- | ------- | ------ | -
|                                               |                                     |                             |         | Fiscal Year Ended
|                                               |                                     |                             |         |                  
|                                               |                                     |                             |         | August 31,        |        | August 30, |         | August 29,
|                                               |                                     |                             |         | 2001              |        | 2002       |         | 2003      
|                                               |                                     |                             |         |                   |        |            |         |           
|Net sales                                      |                                     | $                           | 772,768 |                   |        | $          | 659,735 |            |        | $ | 590,862 |        
|Operating costs and expenses                   |                                     |                             |         |                   |        |            |         |            |        |   |         |        
|                                               | Cost of goods sold                  |                             |         | 666,205           |        |            |         | 560,794    |        |   |         | 507,846 |       
|                                               | Depreciation                        |                             |         | 45,681            |        |            |         | 44,956     |        |   |         | 41,842  |       
|                                               | Selling and administrative expenses |                             |         | 32,989            |        |            |         | 28,289     |        |   |         | 26,143  |       
|                                               | Facility restructuring charges      |                             |         |                  |        |            |         | 7,000      |        |   |         | 2,450   |       
|                                               |                                     |                             |         |                   |        |            |         |            |        |   |         |        
|                                               |                                     | Operating income            |         |                   | 27,893 |            |         |            | 18,696 |   |         |         | 12,581 |  
|Interest expense, net                          |                                     |                             | 20,396  |                   |        |            | 18,449  |            |        |   | 19,034  |        
|Discounts and expenses on sales of receivables |                                     |                             | 4,935   |                   |        |            | 1,117   |            |        |   | 2,596   |        
|Loss on extinguishment of debt                 |                                     |                             |        |                   |        |            |        |            |        |   | 3,236   |        
|Other expenses (income), net                   |                                     |                             | 765     |                   |        |            | (513    | )          |        |   | (52     | )      
|                                               |                                     |                             |         |                   |        |            |         |            |        |   |         |        
|                                               | Income (loss) before income taxes   |                             |         | 1,797             |        |            |         | (357       | )      |   |         | (12,233 | )     
|Provision for (benefit of) income taxes        |                                     |                             | 540     |                   |        |            | (227    | )          |        |   | (4,495  | )      
|                                               |                                     |                             |         |                   |        |            |         |            |        |   |         |        
|                                               |                                     | Net income (loss)           |         | $                 | 1,257  |            |         | $          | (130   | ) |         | $       | (7,738 | )
|                                               |                                     |                             |         |                   |        |            |         |            |        |   |         |        
|Per share data                                 |                                     |                             |         |                   |        |            |         |            |        |   |         |        
|                                               |                                     | Net income (loss)  basic   |         | $                 | .10    |            |         | $          | (.01   | ) |         | $       | (.62   | )
|                                               |                                     |                             |         |                   |        |            |         |            |        |   |         |        
|                                               |                                     | Net income (loss)  diluted |         | $                 | .10    |            |         | $          | (.01   | ) |         | $       | (.62   | )
|                                               |                                     |                             |         |                   |        |            |         |            |        |   |         |        

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

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AVONDALE INCORPORATED

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(In thousands, except per share data)

|                           |                                                                         |  |              |      |            |   |               |    |             |   |              |      |        |   |      |      |   |   |        |        |   |   |         |        |  
|-------------------------- | ----------------------------------------------------------------------- |  | ------------ | ---- | ---------- | - | ------------- | -- | ----------- | - | ------------ | ---- | ------ | - | ---- | ---- | - | - | ------ | ------ | - | - | ------- | ------ | -
|                           |                                                                         |  | Common Stock |      |            |   |               |    | Accumulated |   |              |      |        |   |      |      |  
|                           |                                                                         |  | Issued       |      | Capital in |   | Other         |    |             |   |              |      | Total 
|                           |                                                                         |  |              |      | Excess of  |   | Comprehensive |    | Retained    |   | Shareholders
|                           |                                                                         |  | Shares       |      | Amount     |   | Par Value     |    | Loss        |   | Earnings     |      | Equity
|                           |                                                                         |  |              |      |            |   |               |    |             |   |              |      |       
|Balance at August 25, 2000 |                                                                         |  | 12,544       |      |            | $ | 125           |    |             | $ | 39,696       |      |        | $ |     |      |   | $ | 94,684 |        |   | $ | 134,505 |       
|                           | Net income                                                              |  |              |     |            |   |               |   |             |   |              |     |        |   |      |     |   |   |        | 1,257  |   |   |         | 1,257  |  
|                           | Cumulative effect of adoption of
Statement No. 133, net of
income taxes |  |              |     |            |   |               |   |             |   |              |     |        |   |      | 427  |   |   |        |       |   |   |         | 427    |  
|                           | Change in fair value of interest rate
swaps, net of income taxes        |  |              |     |            |   |               |   |             |   |              |     |        |   |      | (988 | ) |   |        |       |   |   |         | (988   | )
|                           | Cash dividends ($0.40 per share)                                        |  |              |     |            |   |               |   |             |   |              |     |        |   |      |     |   |   |        | (5,015 | ) |   |         | (5,015 | )
|                           | Common stock issued                                                     |  |              | 1    |            |   |               |   |             |   |              | 20   |        |   |      |     |   |   |        |       |   |   |         | 20     |  
|                           | Purchase and retirement of treasury stock                               |  |              | (14  | )          |   |               |   |             |   |              | (47  | )      |   |      |     |   |   |        | (158   | ) |   |         | (205   | )
|                           |                                                                         |  |              |      |            |   |               |    |             |   |              |      |        |   |      |      |   |   |        |        |   |   |         |       
|Balance at August 31, 2001 |                                                                         |  | 12,531       |      |            |   | 125           |    |             |   | 39,669       |      |        |   | (561 | )    |   |   | 90,768 |        |   |   | 130,001 |       
|                           | Refund of prior year income taxes                                       |  |              |     |            |   |               |   |             |   |              |     |        |   |      |     |   |   |        | 4,471  |   |   |         | 4,471  |  
|                           | Net loss                                                                |  |              |     |            |   |               |   |             |   |              |     |        |   |      |     |   |   |        | (130   | ) |   |         | (130   | )
|                           | Change in fair value of interest rate
swaps, net of income taxes        |  |              |     |            |   |               |   |             |   |              |     |        |   |      | (328 | ) |   |        |       |   |   |         | (328   | )
|                           | Cash dividends ($0.30 per share)                                        |  |              |     |            |   |               |   |             |   |              |     |        |   |      |     |   |   |        | (3,759 | ) |   |         | (3,759 | )
|                           |                                                                         |  |              |      |            |   |               |    |             |   |              |      |        |   |      |      |   |   |        |        |   |   |         |       
|Balance at August 30, 2002 |                                                                         |  | 12,531       |      |            |   | 125           |    |             |   | 39,669       |      |        |   | (889 | )    |   |   | 91,350 |        |   |   | 130,255 |       
|                           | Net loss                                                                |  |              |     |            |   |               |   |             |   |              |     |        |   |      |     |   |   |        | (7,738 | ) |   |         | (7,738 | )
|                           | Change in fair value of interest rate
swaps, net of income taxes        |  |              |     |            |   |               |   |             |   |              |     |        |   |      | 738  |   |   |        |       |   |   |         | 738    |  
|                           | Cash dividends ($0.40 per share)                                        |  |              |     |            |   |               |   |             |   |              |     |        |   |      |     |   |   |        | (4,990 | ) |   |         | (4,990 | )
|                           | Purchase and retirement of treasury stock                               |  |              | (150 | )          |   |               | (1 | )           |   |              | (475 | )      |   |      |     |   |   |        | (1,838 | ) |   |         | (2,314 | )
|                           |                                                                         |  |              |      |            |   |               |    |             |   |              |      |        |   |      |      |   |   |        |        |   |   |         |       
|Balance at August 29, 2003 |                                                                         |  | 12,381       |      |            | $ | 124           |    |             | $ | 39,194       |      |        | $ | (151 | )    |   | $ | 76,784 |        |   | $ | 115,951 |       
|                           |                                                                         |  |              |      |            |   |               |    |             |   |              |      |        |   |      |      |   |   |        |        |   |   |         |       

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

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AVONDALE INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

|                                                 |                                                                                         |                                                                  |                                       |                                                     |         |                   |         |            |        |            |         |          |         |         |         |  
|------------------------------------------------ | --------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ------------------------------------- | --------------------------------------------------- | ------- | ----------------- | ------- | ---------- | ------ | ---------- | ------- | -------- | ------- | ------- | ------- | -
|                                                 |                                                                                         |                                                                  |                                       |                                                     |         | Fiscal Year Ended
|                                                 |                                                                                         |                                                                  |                                       |                                                     |         |                  
|                                                 |                                                                                         |                                                                  |                                       |                                                     |         | August            |         | August 30, |        | August 29,
|                                                 |                                                                                         |                                                                  |                                       |                                                     |         | 2001              |         | 2002       |        | 2003      
|                                                 |                                                                                         |                                                                  |                                       |                                                     |         |                   |         |            |        |           
|Operating activities                             |                                                                                         |                                                                  |                                       |                                                     |         |                   |         |            |        |            |         |         
|                                                 | Net income (loss)                                                                       |                                                                  | $                                     | 1,257                                               |         |                   | $       | (130       | )      |            | $       | (7,738   | )      
|                                                 | Adjustments to reconcile net income (loss) to net cash
provided by operating activities |                                                                  |                                       |                                                     |         |                   |         |            |        |            |         |          |        
|                                                 |                                                                                         | Depreciation and amortization                                    |                                       |                                                     | 46,399  |                   |         |            | 45,538 |            |         |          | 42,204  |        
|                                                 |                                                                                         | Provision for deferred income taxes                              |                                       |                                                     | 6,543   |                   |         |            | 3,534  |            |         |          | (4,913  | )      
|                                                 |                                                                                         | Loss on disposal of equipment and facility
restructuring charges |                                       |                                                     | 640     |                   |         |            | 5,379  |            |         |          | 2,175   |        
|                                                 |                                                                                         | Loss on extinguishment of debt                                   |                                       |                                                     |        |                   |         |            |       |            |         |          | 3,236   |        
|                                                 |                                                                                         | Sales of accounts receivable, net                                |                                       |                                                     | (20,000 | )                 |         |            | 12,390 |            |         |          | (21,313 | )      
|                                                 |                                                                                         | Changes in operating assets and liabilities                      |                                       |                                                     |         |                   |         |            |        |            |         |          |         |        
|                                                 |                                                                                         |                                                                  | Accounts receivable                   |                                                     |         | 27,958            |         |            |        | (9,122     | )       |          |         | 35,461  |        
|                                                 |                                                                                         |                                                                  | Inventories                           |                                                     |         | 6,294             |         |            |        | 12,725     |         |          |         | 4,059   |        
|                                                 |                                                                                         |                                                                  | Other assets and liabilities, net     |                                                     |         | 11,165            |         |            |        | (1,198     | )       |          |         | (2,664  | )      
|                                                 |                                                                                         |                                                                  | Accounts payable and accrued expenses |                                                     |         | (23,069           | )       |            |        | 2,559      |         |          |         | (15,229 | )      
|                                                 |                                                                                         |                                                                  | Income taxes payable                  |                                                     |         | (9,096            | )       |            |        |           |         |          |         |        |        
|                                                 |                                                                                         |                                                                  |                                       |                                                     |         |                   |         |            |        |            |         |         
|                                                 |                                                                                         |                                                                  |                                       | Net cash provided by operating activities           |         |                   | 48,091  |            |        |            | 71,675  |          |         |         | 35,278  |  
|Investing activities                             |                                                                                         |                                                                  |                                       |                                                     |         |                   |         |            |        |            |         |         
|                                                 | Purchase of property, plant and equipment                                               |                                                                  |                                       | (91,139                                             | )       |                   |         | (13,086    | )      |            |         | (16,703  | )      
|                                                 | Proceeds from sale of property, plant and equipment                                     |                                                                  |                                       | 875                                                 |         |                   |         | 739        |        |            |         | 3,938    |        
|                                                 |                                                                                         |                                                                  |                                       |                                                     |         |                   |         |            |        |            |         |         
|                                                 |                                                                                         |                                                                  |                                       | Net cash used in investing activities               |         |                   | (90,264 | )          |        |            | (12,347 | )        |         |         | (12,765 | )
|Financing activities                             |                                                                                         |                                                                  |                                       |                                                     |         |                   |         |            |        |            |         |         
|                                                 | Payments on long-term debt                                                              |                                                                  |                                       | (10,000                                             | )       |                   |         | (2,500     | )      |            |         | (129,299 | )      
|                                                 | Advances (payments) on revolving line of credit, net                                    |                                                                  |                                       | 52,475                                              |         |                   |         | (77,650    | )      |            |         | (25,000  | )      
|                                                 | Issuance of long-term debt                                                              |                                                                  |                                       |                                                    |         |                   |         | 20,000     |        |            |         | 150,000  |        
|                                                 | Refund of prior year income taxes                                                       |                                                                  |                                       |                                                    |         |                   |         | 4,471      |        |            |         |         |        
|                                                 | Issuance of common stock                                                                |                                                                  |                                       | 20                                                  |         |                   |         |           |        |            |         |         |        
|                                                 | Purchase and retirement of treasury stock                                               |                                                                  |                                       | (205                                                | )       |                   |         |           |        |            |         | (2,314   | )      
|                                                 | Dividends paid                                                                          |                                                                  |                                       | (5,015                                              | )       |                   |         | (3,759     | )      |            |         | (4,990   | )      
|                                                 |                                                                                         |                                                                  |                                       |                                                     |         |                   |         |            |        |            |         |         
|                                                 |                                                                                         |                                                                  |                                       | Net cash provided by (used in) financing activities |         |                   | 37,275  |            |        |            | (59,438 | )        |         |         | (11,603 | )
|                                                 |                                                                                         |                                                                  |                                       |                                                     |         |                   |         |            |        |            |         |         
|Increase (decrease) in cash and cash equivalents |                                                                                         |                                                                  | (4,898                                | )                                                   |         |                   | (110    | )          |        |            | 10,910  |         
|Cash and cash equivalents at beginning of year   |                                                                                         |                                                                  | 7,867                                 |                                                     |         |                   | 2,969   |            |        |            | 2,859   |         
|                                                 |                                                                                         |                                                                  |                                       |                                                     |         |                   |         |            |        |            |         |         
|                                                 |                                                                                         |                                                                  |                                       | Cash and cash equivalents at end of year            |         | $                 | 2,969   |            |        | $          | 2,859   |          |         | $       | 13,769  |  
|                                                 |                                                                                         |                                                                  |                                       |                                                     |         |                   |         |            |        |            |         |         

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

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AVONDALE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 29, 2003

1. Basis of Presentation:The accompanying consolidated financial
statements include the accounts of Avondale Incorporated and its wholly owned
subsidiary, Avondale Mills, Inc. (Avondale Mills) and, prior to its
dissolution on August 30, 2002, Avondale Receivables Company, a special purpose
subsidiary of Avondale Mills, (collectively, the Company). All significant
intercompany accounts and transactions have been eliminated. Certain prior year
financial statement amounts have been reclassified to conform to the current
years presentation. 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, and may contain 52 or 53 weeks.

As described in Note 7, on August 30, 2002, Avondale Funding, LLC
(Funding), a special purpose subsidiary of Avondale Mills, was established to
replace Avondale Receivables Corporation, and to provide financing through the
sale of accounts receivable generated by the Company. The Company accounts for
its investment in Funding using the equity method of accounting.

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

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

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

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.

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 $0.1
million for fiscal 2001 and $0.4 million for fiscal 2003. Due

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primarily to a decline in vested values under provisions of the deferred
compensation plan, these plans yielded a net credit or reversal of expense of
$0.8 million for fiscal 2002 .

Self-insurance Programs:The Company maintains self-insurance programs
which provide workers compensation benefits, long-term disability benefits for
claims incurred prior to January 1, 2001, and medical and dental benefits for
its associates. Workers compensation insurance is purchased to provide
coverage up to statutory limits, in excess of a self-insurance retention of
$350,000 per occurrence. Long-term disability benefits for claims incurred
subsequent to January 1, 2001 are covered by a purchased insurance policy.

Self-insurance reserves for workers compensation benefits are recorded
based on actuarial estimates. Self-insurance reserves for long-term disability
benefits relating to claims incurred prior to January 1, 2001 and medical and
dental benefits are recorded based on the estimates of management taking into
consideration claims payment experience and current conditions which may affect
future experience. Actual experience may differ from those estimates.

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. Prior to fiscal 2003, goodwill was 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 30, 2002 and
August 29, 2003. See Notes 6. and 10. for disclosures related to the fair
values of interest rate swap agreements and long-term debt.

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. For fiscal 2002 and 2003, employee and
director options are not considered due to their antidilutive effect. Share
information is summarized as follows (in thousands):

|                                              |         |  |      |        |      |  |      |        |  |  |   |        | 
|--------------------------------------------- | ------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                              |         |  | 2001 |        | 2002 |  | 2003
|                                              |         |  |      |        |      |  |     
|Weighted average shares outstanding -         |         |  |      |        |      |  |      |        |  |  |   |       
|                                              | Basic   |  |      | 12,536 |      |  |      | 12,531 |  |  |   | 12,458 | 
|Effect of employee and director stock options |         |  | 128  |        |      |  |     |        |  |  |  |       
|                                              |         |  |      |        |      |  |      |        |  |  |   |       
|Weighted average shares outstanding -         |         |  |      |        |      |  |      |        |  |  |   |       
|                                              | Diluted |  |      | 12,664 |      |  |      | 12,531 |  |  |   | 12,458 | 
|                                              |         |  |      |        |      |  |      |        |  |  |   |       

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. 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. See Note 12. for disclosure related to the expiration of
the employee Stock Option Plan, and the effect on results of operations had the
Company computed compensation in accordance with the fair value method as
provided in Statement No. 123.

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 (7%, 7% and 7% of total revenues in fiscal 2001, 2002 and
2003, 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 are consistent with all other
sales by the Company.

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The credit status of each customer is approved and monitored by the
Company. Sales to V.F. Corporation and its affiliates represented 17% of net
sales for fiscal 2001, 20% of net sales for fiscal 2002 and 16% of net sales
for fiscal 2003.

Recent Accounting Pronouncements:The Company adopted the provisions of
Statement of Financial Accounting Standard No. 142, Goodwill and Other
Intangible Assets, effective August 31, 2002, and ceased amortization of
goodwill on that date. The Company completed the transitional goodwill
impairment test as required by Statement No. 142 during the thirteen weeks
ended November 29, 2002 and determined that no impairment of goodwill should be
recorded. In accordance with the provisions of Statement No. 142, the adoption
of this accounting policy is reflected prospectively. Had the Company accounted
for goodwill in accordance with this policy in fiscal 2001 and 2002, net income
would have been $1.5 million or $.12 per share-basic and $.12 per share-diluted
for fiscal 2001 and $0.1 million or $.01 per share-basic and $.01 per
share-diluted for fiscal 2002.

Effective August 31, 2002, the Company adopted the provisions of
Statements of Financial Accounting Standard No. 141 - Business Combinations,
No. 143 - Accounting for Asset Retirement Obligations, No. 144 - Impairment or
Disposal of Long-lived Assets, No. 145 - Rescission of Statements No. 4, 44,
and 64, Amendment of Statement No. 13, and Technical Corrections, and No. 146 -
Accounting for Costs Associated with Exit or Disposal Activities. Statement No.
145 requires gains and losses on extinguishment of debt to be classified as
income or loss from continuing operations rather than as extraordinary items as
previously required. See Note 3. for discussion related to loss on
extinguishment of debt in fiscal 2003. The adoption of these Statements, other
than Statement No. 145, had no impact on the consolidated financial statements.

In December 2002, Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure,
established accounting and disclosure requirements pertaining to a change from
the intrinsic value method to the fair value method of accounting for
stock-based compensation, and revised disclosure requirements for companies
continuing to apply the intrinsic value method. The Company adopted the
provisions of this statement during the third quarter of fiscal 2003, electing
to continue its use of the intrinsic value method. Accordingly, no stock-based
compensation has been recorded, as all options granted under the existing plan
have an exercise price equal to the market value of the underlying common stock
on the date of grant.

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

In April 2003, the Financial Accounting Standards Board issued Statement
No. 149, Amendments of Statement No. 133 on Derivative Instruments and Hedging
Activities, which requires certain contracts to be treated as either
derivatives or hybrid instruments, on a consistent basis. Statement No. 149 is
effective for contracts and hedging transactions executed or modified after
June 30, 2003. The adoption of the provisions of Statement No. 149 in the
fourth quarter of fiscal 2003 had no impact on the Companys consolidated
financial statements.

In May 2003, the Financial Accounting Standards Board issued Statement No.
150, Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity, which requires certain financial instruments that were
previously presented on the consolidated balance sheets as equity or temporary
equity to be

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presented as liabilities. Such instruments include mandatory
redeemable preferred and common stock, and certain options and warrants.
Statement No. 150 is effective for mandatory redeemable financial instruments
of nonpublic entities for fiscal periods beginning after December 15, 2003. The Company is
currently evaluating the impact of Statement No. 150 on its consolidated
financial statements.

2.Facility Restructuring: In response to highly competitive market
conditions and continued oversupply of open-end yarns, in January 2002, the
Company completed the closing of two separate open-end yarn manufacturing
facilities located in North Carolina. In connection with these closings, the
Company recorded facility restructuring charges and other non-operating costs
of approximately $5.8 million during fiscal 2002. Additionally, the Company
implemented reductions in certain manufacturing overhead costs and selling,
general and administrative expenses in September 2001. In conjunction with
these actions and the two plant closings, the Company recorded expense of
approximately $1.2 million related to the termination of approximately 70
associates holding manufacturing, marketing and administrative positions.

In response to the deterioration of domestic and regional demand for
heather and stock-dyed open-end yarns, in May 2003, the Company completed the
closing of an open-end yarn manufacturing facility located in Alabama.
Continued operation of this facility could not be justified given the
diminished volume and pricing for these products. Production of stock-dyed
yarns for internal consumption by the apparel fabrics operation was shifted to
another manufacturing facility within the Company. In connection with this
action, the Company recorded facility restructuring charges and other
non-operating costs of approximately $2.5 million during fiscal 2003.

At August 29, 2003, one of the North Carolina yarn plants closed in
January 2002 and the Alabama yarn plant closed in May 2003 remain unsold and
are included at estimated net realizable values in assets held for sale in the
consolidated balance sheets.

3.
Loss on Extinguishment of Debt: During the fourth quarter of fiscal
2003, the Company recorded a loss on early extinguishment of debt of $3.2
million related to the redemption of its $125 million of 10.25% Senior
Subordinated Notes Due 2006 (2006 Notes). The loss consisted of a $2.1
million prepayment premium and the write-off of $1.1 million of unamortized
financing costs related to the original issuance of the notes. Funding of the
redemption was provided through the issuance at par of $150 million of 101/4%
Senior Subordinated Notes due 2013 (2013 Notes) as described in Note 10.

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4. Segment Information: The Company operates principally in three
segments: apparel fabrics, yarns and other sales. Apparel fabrics manufactures
and markets cotton and cotton-blend fabrics used in the manufacture of jeans,
sportswear and workwear. Yarns manufactures and markets cotton and cotton-blend
yarns to customers in the knitting and weaving industries. Other sales include
the manufacturing and marketing of a variety of greige and specialty fabrics to
apparel, home furnishings, industrial, military and recreational product
manufacturers, and revenues from the Companys trucking operation. The
unallocated amounts shown below reflect expenses, assets and capital
expenditures for centralized transportation, warehouse and administrative
services (in thousands).

|                               |                                                |  |                         |                                   |   |         |         |         |   |         |         |         |   |         |         |  
|------------------------------ | ---------------------------------------------- |  | ----------------------- | --------------------------------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | -
|                               |                                                |  |                         |                                   |   | 2001    |         | 2002    |   | 2003   
|                               |                                                |  |                         |                                   |   |         |         |         |   |        
|Revenues:                      |                                                |  |                         |                                   |   |         |         |         |   |         |         |        
|                               | Apparel fabrics                                |  | $                       | 624,172                           |   |         | $       | 554,966 |   |         | $       | 502,930 |  
|                               | Yarns                                          |  |                         | 236,842                           |   |         |         | 189,057 |   |         |         | 167,541 |  
|                               | Other                                          |  |                         | 78,570                            |   |         |         | 70,715  |   |         |         | 66,056  |  
|                               |                                                |  |                         |                                   |   |         |         |         |   |         |         |        
|                               |                                                |  | 939,584                 |                                   |   |         | 814,738 |         |   |         | 736,527 |        
|                               |                                                |  | Less intersegment sales |                                   |   | 166,816 |         |         |   | 155,003 |         |         |   | 145,665 |        
|                               |                                                |  |                         |                                   |   |         |         |         |   |         |         |        
|                               |                                                |  |                         | Total                             |   | $       | 772,768 |         |   | $       | 659,735 |         |   | $       | 590,862 |  
|                               |                                                |  |                         |                                   |   |         |         |         |   |         |         |        
|Income (loss):                 |                                                |  |                         |                                   |   |         |         |         |   |         |         |        
|                               | Apparel fabrics                                |  | $                       | 46,953                            |   |         | $       | 39,976  |   |         | $       | 28,514  |  
|                               | Yarns                                          |  |                         | (357                              | ) |         |         | (4,313  | ) |         |         | 46      |  
|                               | Other                                          |  |                         | 3,390                             |   |         |         | 4,060   |   |         |         | 4,432   |  
|                               | Unallocated                                    |  |                         | (22,093                           | ) |         |         | (21,027 | ) |         |         | (20,411 | )
|                               |                                                |  |                         |                                   |   |         |         |         |   |         |         |        
|                               |                                                |  |                         | Total operating income            |   |         | 27,893  |         |   |         | 18,696  |         |   |         | 12,581  |  
|                               | Interest expense                               |  |                         | 20,396                            |   |         |         | 18,449  |   |         |         | 19,034  |  
|                               | Discounts and expenses on sales of
receivables |  |                         | 4,935                             |   |         |         | 1,117   |   |         |         | 2,596   |  
|                               | Loss on extinguishment of debt                 |  |                         |                                  |   |         |         |        |   |         |         | 3,236   |  
|                               | Other expenses (income), net                   |  |                         | 765                               |   |         |         | (513    | ) |         |         | (52     | )
|                               |                                                |  |                         |                                   |   |         |         |         |   |         |         |        
|                               |                                                |  |                         | Income (loss) before income taxes |   | $       | 1,797   |         |   | $       | (357    | )       |   | $       | (12,233 | )
|                               |                                                |  |                         |                                   |   |         |         |         |   |         |         |        
|Identifiable assets:           |                                                |  |                         |                                   |   |         |         |         |   |         |         |        
|                               | Apparel fabrics                                |  | $                       | 298,399                           |   |         | $       | 253,348 |   |         | $       | 226,777 |  
|                               | Yarns                                          |  |                         | 92,972                            |   |         |         | 75,018  |   |         |         | 67,177  |  
|                               | Other                                          |  |                         | 23,022                            |   |         |         | 17,728  |   |         |         | 13,088  |  
|                               | Unallocated                                    |  |                         | 38,601                            |   |         |         | 51,319  |   |         |         | 52,464  |  
|                               |                                                |  |                         |                                   |   |         |         |         |   |         |         |        
|                               |                                                |  |                         | Total                             |   | $       | 452,994 |         |   | $       | 397,413 |         |   | $       | 359,506 |  
|                               |                                                |  |                         |                                   |   |         |         |         |   |         |         |        
|Depreciation and amortization: |                                                |  |                         |                                   |   |         |         |         |   |         |         |        
|                               | Apparel fabrics                                |  | $                       | 31,396                            |   |         | $       | 28,188  |   |         | $       | 26,689  |  
|                               | Yarns                                          |  |                         | 8,968                             |   |         |         | 11,019  |   |         |         | 10,133  |  
|                               | Other                                          |  |                         | 3,937                             |   |         |         | 3,597   |   |         |         | 2,282   |  
|                               | Unallocated                                    |  |                         | 2,098                             |   |         |         | 2,734   |   |         |         | 3,100   |  
|                               |                                                |  |                         |                                   |   |         |         |         |   |         |         |        
|                               |                                                |  |                         | Total                             |   | $       | 46,399  |         |   | $       | 45,538  |         |   | $       | 42,204  |  
|                               |                                                |  |                         |                                   |   |         |         |         |   |         |         |        

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|                              |                 |       |   |         |         |      |   |         |         |  |   |         |         | 
|----------------------------- | --------------- | ----- | - | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                              |                 |       |   | 2001    |         | 2002 |   | 2003   
|                              |                 |       |   |         |         |      |   |        
|Capital expenditures:         |                 |       |   |         |         |      |   |         |         |  |   |        
|                              | Apparel fabrics |       | $ | 46,302  |         |      | $ | 6,391   |         |  | $ | 9,930   |        
|                              | Yarns           |       |   | 41,855  |         |      |   | 4,820   |         |  |   | 5,440   |        
|                              | Other           |       |   | 1,994   |         |      |   | 344     |         |  |   | 371     |        
|                              | Unallocated     |       |   | 988     |         |      |   | 1,531   |         |  |   | 962     |        
|                              |                 |       |   |         |         |      |   |         |         |  |   |        
|                              |                 | Total |   | $       | 91,139  |      |   | $       | 13,086  |  |   | $       | 16,703  | 
|                              |                 |       |   |         |         |      |   |         |         |  |   |        
|Geographic sales information: |                 |       |   |         |         |      |   |         |         |  |   |        
|                              | United States   |       | $ | 723,758 |         |      | $ | 612,706 |         |  | $ | 542,192 |        
|                              | All other       |       |   | 49,010  |         |      |   | 47,029  |         |  |   | 48,670  |        
|                              |                 |       |   |         |         |      |   |         |         |  |   |        
|                              |                 | Total |   | $       | 772,768 |      |   | $       | 659,735 |  |   | $       | 590,862 | 
|                              |                 |       |   |         |         |      |   |         |         |  |   |        

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

|                                                                                                         |  |      |       |      |  |      |      |   |  |   |        |  
|-------------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ---- | - |  | - | ------ | -
|                                                                                                         |  | 2001 |       | 2002 |  | 2003
|                                                                                                         |  |      |       |      |  |     
|Net income (loss)                                                                                        |  | $    | 1,257 |      |  | $    | (130 | ) |  | $ | (7,738 | )
|Cumulative effect of adoption of Statement of
Financial Accounting Standards No.133,
net of income taxes |  |      | 427   |      |  |      |     |   |  |   |       |  
|Change in fair value of interest rate swaps,
net of income taxes                                         |  |      | (988  | )    |  |      | (328 | ) |  |   | 738    |  
|                                                                                                         |  |      |       |      |  |      |      |   |  |   |        |  
|Comprehensive income (loss)                                                                              |  | $    | 696   |      |  | $    | (458 | ) |  | $ | (7,000 | )
|                                                                                                         |  |      |       |      |  |      |      |   |  |   |        |  

6.
Derivatives: The Company has adopted Financial Accounting Standards
Board Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, which requires that derivative instruments be recorded
in the balance sheet as either assets or liabilities measured at fair value,
and that changes in the fair value of the derivative instruments be recorded as
unrealized gains or losses in either net income or other comprehensive income
depending on whether specific hedge accounting criteria are met. Upon adoption
of Statement No. 133, the Company recorded the fair value of the interest rate
swap agreements, approximately $427,000 net of income taxes, in other assets
and accumulated other comprehensive income at the beginning of fiscal 2001. For
the fiscal years ended August 31, 2001, August 30, 2002 and August 29, 2003,
increases (declines) in fair value of approximately ($988,000), ($328,000) and
$738,000, respectively, net of income taxes, were recorded as unrealized gains
(losses) in other comprehensive income (loss).

7. Receivables Securitization Facilities:On August 30, 2002, the Company
and its wholly owned, special purpose subsidiary, Funding, entered into an
arrangement (Receivables Securitization Facility) with General Electric
Capital Corporation (GECC) and an independent issuer of receivables-backed
commercial paper to provide financing of up to $90 million through the sale of
undivided interests in certain trade receivables (Receivables) originated by
the Company. The Receivables Securitization Facility extends until the earlier
of 90 days before the specified final receivables purchase date, August 29,
2007, or certain specified termination events. The Receivables Securitization
Facility replaced a previous securitization facility with a bank. The Company
has been engaged by Funding and GECC to service the receivables.

The Company sells, or transfers as a contribution of capital, the
Receivables, at a discount and without recourse, to Funding, whose sole
business purpose is the acquisition and financing of the Receivables. Funding
sells an undivided interest in a specified portion of the Receivables to GECC
to provide the funds required to purchase the

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Receivables from the Company. Proceeds from the collection of the Receivables are used by Funding to
purchase additional Receivables from the Company, repay GECC in the event
that sufficient additional Receivables are not available to maintain its
investment, and pay fees and expenses. Funding retains no interest in the
investment in the Receivables sold to GECC, and has experienced no gains or
losses on such sales. Funding is a separate corporate entity with its own
creditors who, in the event of Fundings liquidation, will be entitled to a
claim on Fundings assets prior to any distribution to the Company.

The discount rate on the Receivables purchased from the Company by Funding
is based on the fair market value of the Receivables. The discount rate on the
undivided interest in the Receivables purchased by GECC from Funding is tied to
the commercial paper rate plus a specified number of basis points. Funding is
required to pay certain unused availability fees under the Receivables
Securitization Facility.

The Receivables Securitization Facility contains customary covenants,
including requirements to maintain certain financial ratios, and includes
provisions relating to cross defaults to other debt obligations of the Company.
In conjunction with the execution of a new senior secured revolving credit
facility, the Company also executed an amendment to the Receivables
Securitization Facility effective November 7, 2003 adopting the same financial
covenants as provided in the new revolving credit facility and reducing the
size of the Receivables Securitization Facility from $90 million to $75
million, as described in Note 14.

In accordance with the provisions of Financial Accounting Standards Board
Statement No. 140, Accounting for Transfers and Servicing of Financial Assets,
the Company includes in accounts receivable in its consolidated balance sheets
the portion of Receivables sold to Funding which have not been resold by
Funding to GECC.

At August 30, 2002 and August 29, 2003, the outstanding amount of
investments by GECC or the issuer of commercial paper under the agreements was
$74.0 million and $52.9 million, respectively. Accounts receivable in the
consolidated balance sheets have been reduced by approximately $74.6 million
and $53.2 million at August 30, 2002 and August 29, 2003, respectively,
representing the face amount of the outstanding receivables sold at those
dates. During fiscal 2002 and 2003, the Company received approximately $595
million and $550 million, respectively, from sales of receivables under the
facilities. The cost to service the receivables is remitted weekly and
therefore no servicing asset or liability has been recorded.

Under the securitization agreements, discounts of $4.9 million, $1.1
million and $2.6 million for fiscal years 2001, 2002, and 2003, respectively,
have been included in discounts and expenses on sales of receivables in the
consolidated statements of income.

Under the securitization agreement in effect prior to August 30, 2002, the
Company sold an undivided interest in a defined pool of receivables held by
Avondale Receivables Company. The receivables were transferred to a trust at a
discount, and the trust then sold variable funding certificates to lending
institutions or other investors representing undivided ownership interests in a
defined portion of the receivables. Such certificates did not represent
obligations of, or interests in, and were not guaranteed or insured by, the
Company. Proceeds from the issuance of the certificates were remitted to the
Company.

The Company retained a residual interest in the receivables under the
previous securitization agreement in an amount equal to the excess of the
receivables over the certificates sold. Such residual interest was included in
accounts receivable in the consolidated balance sheets. The carrying value of
the residual interest approximated fair value due to the short period of time
required to collect the underlying receivables. All losses, credits or other
adjustments relating to the receivables were applied as deductions to the
Companys residual interest in the receivables.

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

|                                                                     |  |            |        |            |  |   |        | 
|-------------------------------------------------------------------- |  | ---------- | ------ | ---------- |  | - | ------ | 
|                                                                     |  | August 30, |        | August 29,
|                                                                     |  | 2002       |        | 2003      
|                                                                     |  |            |        |           
|Finished goods                                                       |  | $          | 27,013 |            |  | $ | 26,579 | 
|Work in process                                                      |  |            | 33,586 |            |  |   | 33,176 | 
|Raw materials                                                        |  |            | 9,042  |            |  |   | 9,072  | 
|Dyes and chemicals                                                   |  |            | 6,163  |            |  |   | 4,593  | 
|                                                                     |  |            |        |            |  |   |        | 
|                                                                     |  |            | 75,804 |            |  |   | 73,420 | 
|Adjustment of carrying value to LIFO basis,
net of market adjustment |  |            | 4,900  |            |  |   | 3,565  | 
|                                                                     |  |            |        |            |  |   |        | 
|                                                                     |  |            | 80,704 |            |  |   | 76,985 | 
|Supplies at average cost                                             |  |            | 6,242  |            |  |   | 5,902  | 
|                                                                     |  |            |        |            |  |   |        | 
|                                                                     |  | $          | 86,946 |            |  | $ | 82,887 | 
|                                                                     |  |            |        |            |  |   |        | 

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

|          |         |   |        |        |      |   |        |        |   |   |        |        |  
|--------- | ------- | - | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|          |         |   | 2001   |        | 2002 |   | 2003  
|          |         |   |        |        |      |   |       
|Current:  |         |   |        |        |      |   |        |        |   |   |        |       
|          | Federal |   | $      | (4,280 | )    |   | $      | (3,602 | ) |   | $      | 364    |  
|          | State   |   |        | (1,723 | )    |   |        | (159   | ) |   |        | 54     |  
|          |         |   |        |        |      |   |        |        |   |   |        |       
|          |         |   | (6,003 | )      |      |   | (3,761 | )      |   |   | 418    |       
|Deferred: |         |   |        |        |      |   |        |        |   |   |        |       
|          | Federal |   |        | 5,662  |      |   |        | 3,079  |   |   |        | (4,280 | )
|          | State   |   |        | 881    |      |   |        | 455    |   |   |        | (633   | )
|          |         |   |        |        |      |   |        |        |   |   |        |       
|          |         |   | 6,543  |        |      |   | 3,534  |        |   |   | (4,913 | )     
|          |         |   |        |        |      |   |        |        |   |   |        |       
|          |         | $ | 540    |        |      | $ | (227   | )      |   | $ | (4,495 | )     
|          |         |   |        |        |      |   |        |        |   |   |        |       

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

|                                              |  |      |      |      |  |      |      |   |  |   |        |  
|--------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ------ | -
|                                              |  | 2001 |      | 2002 |  | 2003
|                                              |  |      |      |      |  |     
|Federal income taxes at statutory rate        |  | $    | 629  |      |  | $    | (125 | ) |  | $ | (4,282 | )
|State income taxes, net of federal tax effect |  |      | (548 | )    |  |      | 192  |   |  |   | (376   | )
|Other                                         |  |      | 459  |      |  |      | (294 | ) |  |   | 163    |  
|                                              |  |      |      |      |  |      |      |   |  |   |        |  
|                                              |  | $    | 540  |      |  | $    | (227 | ) |  | $ | (4,495 | )
|                                              |  |      |      |      |  |      |      |   |  |   |        |  

At August 29, 2003, income taxes refundable represent the estimated tax
benefit of federal tax basis operating losses incurred in fiscal 2002 and prior
years and certain state tax basis operating losses and other items incurred in
fiscal 2003 and prior years. The Company expects to receive the refunds early
in fiscal 2004.

At August 29, 2003, the Company had available net operating loss
carryforwards for federal and certain state income tax purposes of
approximately $7.6 million, expiring in 2016 through 2023, which have been
recorded in deferred tax assets. The Company believes that it is more likely
than not that all of the net operating loss carryforwards will be utilized
prior to expiration.

The Company made income tax payments of $6.1 million during fiscal 2001.
During fiscal 2002 and 2003 the Company made no income tax payments. The
Company received a refund of approximately $5.0 million during fiscal 2002
relating to payment of estimated fiscal 2001 income taxes and a refund of
approximately $3.5 million during fiscal 2003 resulting from carryback of the
fiscal 2002 income tax operating loss.

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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):

|                             |                                 |   |            |        |            |   |        |        | 
|---------------------------- | ------------------------------- | - | ---------- | ------ | ---------- | - | ------ | ------ | 
|                             |                                 |   | August 30, |        | August 29,
|                             |                                 |   | 2002       |        | 2003      
|                             |                                 |   |            |        |           
|Deferred tax liabilities:    |                                 |   |            |        |            |   |        |       
|                             | Depreciation                    |   | $          | 28,404 |            |   | $      | 25,788 | 
|                             | Inventory valuation             |   |            | 6,631  |            |   |        | 7,523  | 
|                             | Other                           |   |            | 2,098  |            |   |        | 1,993  | 
|                             |                                 |   |            |        |            |   |        |       
|                             |                                 |   | 37,133     |        |            |   | 35,304 |       
|Deferred tax assets:         |                                 |   |            |        |            |   |        |       
|                             | Employee benefit programs       |   |            | 6,308  |            |   |        | 6,093  | 
|                             | Receivable reserves             |   |            | 2,750  |            |   |        | 2,330  | 
|                             | Net operating loss carryforward |   |            |       |            |   |        | 3,041  | 
|                             | Other                           |   |            | 474    |            |   |        | 1,152  | 
|                             |                                 |   |            |        |            |   |        |       
|                             |                                 |   | 9,532      |        |            |   | 12,616 |       
|                             |                                 |   |            |        |            |   |        |       
|Net deferred tax liabilities |                                 | $ | 27,601     |        |            | $ | 22,688 |       
|                             |                                 |   |            |        |            |   |        |       

A net benefit of $4.5 million, related to receipt of an income tax refund
resulting from a settlement with the Internal Revenue Service Appeals Division
in the fourth quarter of fiscal 2002, is included as an addition to retained
earnings for fiscal 2002 on the consolidated statement of shareholders equity.
The claim for the refund was filed in fiscal 1997 utilizing tax basis
deductions against fiscal 1994 taxable income, related to consideration paid in
the repurchase of treasury stock. Given the technical nature of the claim and
resulting uncertainty of recovery, recognition of the refund claim was deferred
until successful resolution in fiscal 2002. Interest received in conjunction
with the refund of approximately $1.7 million is included as a reduction in
interest expense, net for fiscal 2002 on the consolidated statements of income.

Following the successful settlement of the refund claim noted above, the
Company reassessed the balance of certain deferred income taxes. Based on this
evaluation, the Company determined that the estimates used to establish
deferred taxes prior to fiscal 1998 were too conservative and resulted in an
overstatement of deferred income tax liabilities. Accordingly, an adjustment of
$4.0 million was recorded as an addition to the balance of retained earnings at
August 27, 1999.

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

|                                                                                                                                                                        |  |            |         |            |  |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- | ------- | ---------- |  | - | ------- | -
|                                                                                                                                                                        |  | August 30, |         | August 29,
|                                                                                                                                                                        |  | 2002       |         | 2003      
|                                                                                                                                                                        |  |            |         |           
|Revolving credit facility, interest tied to banks base
rate or alternative rates, 3.02% - 6.50% in
2003, due March 2006                                                |  | $          | 25,000  |            |  | $ |        |  
|Equipment note, 4.61% - 5.35% in 2003, due in monthly
installments of approximately $360 beginning March 2003,
with final payment of approximately $876 due August 2007 |  |            | 20,000  |            |  |   | 17,837  |  
|Senior subordinated notes, 10.25%, due May 1, 2006                                                                                                                      |  |            | 125,000 |            |  |   |        |  
|Senior
subordinated notes, 101⁄4%, due July 1, 2013                                                                                                                       |  |            |        |            |  |   | 150,000 |  
|                                                                                                                                                                        |  |            |         |            |  |   |         |  
|                                                                                                                                                                        |  |            | 170,000 |            |  |   | 167,837 |  
|Less current portion                                                                                                                                                    |  |            | (2,523  | )          |  |   | (4,325  | )
|                                                                                                                                                                        |  |            |         |            |  |   |         |  
|                                                                                                                                                                        |  | $          | 167,477 |            |  | $ | 163,512 |  
|                                                                                                                                                                        |  |            |         |            |  |   |         |  

On March 28, 2003, the Company completed a restructuring of its senior
secured revolving credit facility, which provided aggregate borrowing
availability of a maximum of $62 million through March 27, 2006. Borrowings
under the revolving credit facility included revolving loans provided by a
group of lenders and up to $10 million of

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revolving swing loans provided by Wachovia Bank, National Association. With respect to revolving
loans, the Company could designate an interest rate tied to the Eurodollar rate
(adjusted for any reserves) plus a specified number of basis points or the base
rate (which is the higher of Wachovias prime rate or one-half of one percent
over the overnight federal funds rate) plus a specified number of basis points.
Interest accrued on revolving swing loans at the Companys option at either the
base rate plus a specified number of basis points or at an interest rate to be
mutually determined by the Company and Wachovia at the time such loan was made.
A commitment fee was payable quarterly on the average daily unused portion of
the revolving credit commitment. The revolving credit facility was secured by
substantially all of the Companys assets. The Company was required to pay
certain administration and funding fees relating to the revolving credit
facility. Covenants of the revolving credit facility, among other things,
required that the Company maintain a minimum cash flow and certain financial
ratios, and contained restrictions on payment of dividends.

The Company did not expect to meet the minimum cash flow requirement of
the revolving credit facility as of August 29, 2003 and therefore initiated
discussions with several lenders to amend or replace the facility. As a
result, a new senior secured revolving credit facility was executed with GECC
on November 7, 2003, which is discussed in Note 14.

The Company has used interest rate swap agreements to effectively fix the
interest rate with respect to the borrowings outstanding under the revolving
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 revolving credit
facility. The related amount payable to or receivable from counterparties is
included in other liabilities or assets. At August 29, 2003, the Company had
swap agreements with notional amounts aggregating $35 million, providing an
effective weighted average interest rate of 5.3%. These swap agreements mature
in November 2003.

The equipment note, a secured five-year installment loan, was executed on
July 30, 2002 in the amount of $20.0 million. The equipment note is to be
repaid in 53 monthly payments of approximately $360,000 commencing March 1,
2003 and a final payment of approximately $896,000 on August 1, 2007. Interest
accrues on the unpaid principal balance of the equipment note at a rate
established annually on August 1 based on the Eurodollar rate plus a specified
number of basis points, and is paid monthly commencing September 1, 2002
through the final payment date. The Company may, at its one time option, elect
a fixed interest rate for the remaining term of the equipment note based on the
Federal Reserve Interest Rate Swap rate of interest, as quoted for the term
closest to the remaining term of the equipment note, plus a specified number of
basis points. The equipment note is secured by a senior lien on substantially
all of the equipment at two plant locations, which had a carrying value of
approximately $33.6 million at August 29, 2003. The equipment note contains
customary covenants, including requirements to maintain certain financial
covenants, and includes provisions relating to cross acceleration to other debt
obligations of the Company.

During fiscal 2002, the Company repaid $2.5 million of industrial revenue
bonds without penalty.

On June 30, 2003, the Company issued at par $150 million of 2013 Notes in
a private placement to qualified institutional buyers. The 2013 Notes, which
mature on July 1, 2013, are unsecured and subordinated to all existing and
future senior indebtedness of the Company. Interest on the 2013 Notes is due
semiannually, on January 1 and July 1, commencing January 1, 2004. Proceeds
from the issuance of the 2013 Notes were used to redeem the Companys 2006
Notes, to repay indebtedness outstanding under the revolving credit facility
and for general corporate purposes.

The Company in agreement with Wachovia Securities, LLC, the original
purchaser of the 2013 Notes, filed a registration statement with the Securities
and Exchange Commission on September 16, 2003, with respect to an offer to
exchange the unregistered notes for freely tradable notes that have
substantially identical terms. All unregistered notes were tendered for
exchange prior to expiration of the exchange offer on October 21, 2003.

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The 2013 Notes contain a redemption feature allowing the Company, at any
time prior to July 1, 2006, to redeem up to an aggregate of $52.5 million of
the principal amount of the 2013 Notes with the proceeds of one or
more public equity offerings, at a redemption price of 110.25% plus
accrued interest to the redemption date, provided that at least $97.5 million
aggregate principal amount of the 2013 Notes remains outstanding after such
redemption. On or after July 1, 2008, the 2013 Notes are redeemable at the
Companys option, in whole or in part, at a redemption price of 105.125%, which
declines in intervals to 100% in 2011 and thereafter.

The indenture under which the 2013 Notes were issued contains, among other
things, certain restrictive covenants applicable to 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 29, 2003, the Company was in compliance with the covenants of
the equipment note, indenture of the 2013 Notes and the Receivables
Securitization Facility. See Note 14. regarding replacement of the revolving
credit facility and its covenants effective November 7, 2003. Following
execution of the new revolving credit facility, the Company is in compliance
with the covenants of that facility.

At August 29, 2003, the carrying value of the Companys equipment note
approximates fair value. At August 29, 2003, the market value of the 2013 Notes
was approximately $135 million. The Company does not anticipate settlement of
the 2013 Notes at fair value and currently expects the 2013 Notes to remain
outstanding through maturity.

Aggregate maturities of long-term debt are as follows (in thousands):

|     |  |   |         | 
|---- |  | - | ------- | 
|2004 |  | $ | 4,325   | 
|2005 |  |   | 4,325   | 
|2006 |  |   | 4,326   | 
|2007 |  |   | 4,861   | 
|2013 |  |   | 150,000 | 
|     |  |   |         | 
|     |  | $ | 167,837 | 
|     |  |   |         | 

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 $19.6 million, $18.8 million and
$18.5 million in fiscal 2001, 2002 and 2003, respectively.

11. Postretirement Benefits:The estimated cost of postretirement benefits
is recorded ratably over the service lives of the associates expected to
receive such benefits. The Company provides certain life and medical insurance
benefits granted in 1964 to a closed group of associates, the majority of whom
have retired and who were in designated positions of management and met certain
age requirements at the time of grant. Certain medical benefits are also
provided to three closed groups of early retirees as a result of the
acquisition of the textile business of Graniteville Company in fiscal 1996. In
addition, current associates (and their covered dependents) that retire on or
after age 55 with at least 15 years of service are eligible for continued
medical coverage through age 65. Benefits are paid from the general assets of
the company.

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Changes in the accumulated postretirement benefit obligation were as
follows (in thousands):

|                  |                                    |   |       |        |      |   |       |      |  
|----------------- | ---------------------------------- | - | ----- | ------ | ---- | - | ----- | ---- | -
|                  |                                    |   | 2002  |        | 2003
|                  |                                    |   |       |        |     
|Beginning balance |                                    | $ | 8,214 |        |      | $ | 7,851 |     
|                  | Service cost                       |   |       | 102    |      |   |       | 111  |  
|                  | Interest cost                      |   |       | 590    |      |   |       | 532  |  
|                  | Amortization of prior service cost |   |       | 332    |      |   |       | 332  |  
|                  | Benefits paid                      |   |       | (1,185 | )    |   |       | (979 | )
|                  | Actuarial gain                     |   |       | (202   | )    |   |       | (97  | )
|                  |                                    |   |       |        |      |   |       |     
|Ending balance    |                                    | $ | 7,851 |        |      | $ | 7,750 |     
|                  |                                    |   |       |        |      |   |       |     

Components of the accrued postretirement benefit obligation included in
other long-term liabilities in the accompanying consolidated balance sheets
were as follows (in thousands):

|                                               |  |            |        |            |  |   |        |  
|---------------------------------------------- |  | ---------- | ------ | ---------- |  | - | ------ | -
|                                               |  | August 30, |        | August 29,
|                                               |  | 2002       |        | 2003      
|                                               |  |            |        |           
|Accumulated post retirement
benefit obligation |  | $          | (7,667 | )          |  | $ | (7,980 | )
|Unrecognized prior service cost                |  |            | 1,660  |            |  |   | 1,328  |  
|Unrecognized net gain                          |  |            | (1,844 | )          |  |   | (1,098 | )
|                                               |  |            |        |            |  |   |        |  
|Accrued postretirement benefit liability       |  | $          | (7,851 | )          |  | $ | (7,750 | )
|                                               |  |            |        |            |  |   |        |  

The Company recorded postretirement benefit costs based on actuarial
calculations using a weighted average discount rate of 8% for fiscal 2001 and,
7% for fiscal 2002 and 6.25% for fiscal 2003. Net postretirement benefit costs
include the following components (in thousands):

|                                |  |      |      |      |  |      |      |   |  |   |     |  
|------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | --- | -
|                                |  | 2001 |      | 2002 |  | 2003
|                                |  |      |      |      |  |     
|Service cost                    |  | $    | 95   |      |  | $    | 102  |   |  | $ | 111 |  
|Interest cost                   |  |      | 576  |      |  |      | 590  |   |  |   | 532 |  
|Net amortization                |  |      | 332  |      |  |      | 332  |   |  |   | 332 |  
|Recognized actuarial gain       |  |      | (204 | )    |  |      | (202 | ) |  |   | (97 | )
|                                |  |      |      |      |  |      |      |   |  |   |     |  
|Net postretirement benefit cost |  | $    | 799  |      |  | $    | 822  |   |  | $ | 878 |  
|                                |  |      |      |      |  |      |      |   |  |   |     |  

A weighted average annual rate of increase in the per capita cost of
covered health care benefits of 5.5% was assumed for 2003, decreasing to 5% in
2004 and thereafter. An increase of 1% in the assumed health care cost rate of
increase would not have a significant impact on the accumulated post retirement
benefit obligation or the aggregate net periodic postretirement benefit cost.

12. 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 2001, the Company repurchased approximately 14,000 shares of
Class A Common Stock for an aggregate purchase price of $205,000 pursuant to
offers to sell made by various shareholders. During fiscal 2003, the Company
repurchased 150,000 shares of its Class A Common Stock for an aggregate
purchase price of approximately $2.3 million, pursuant to offers to sell by the
Avondale Mills, Inc. Associate Profit Sharing and

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

The Company maintained an employee Stock Option Plan that allowed for the
grant of non-qualified and incentive stock options to purchase up to 1,081,250
shares of Class A Common Stock. Under this Stock Option Plan, options were
granted to full-time employees, including executive officers of the Company.
The Stock Option Plan expired in July 2003 and, therefore, no additional
options may be granted under the plan. Activity under the plan is summarized as
follows (option shares in thousands):

|                                             |                   |  |                       |     |         |  |         |     |   |  |     |     |  
|-------------------------------------------- | ----------------- |  | --------------------- | --- | ------- |  | ------- | --- | - |  | --- | --- | -
|                                             |                   |  | Grant Price Per Share
|                                             |                   |  |                      
|                                             |                   |  | $ 12.50               |     | $ 18.00 |  | $ 19.00
|                                             |                   |  |                       |     |         |  |        
|Stock options outstanding at August 25, 2000 |                   |  | 475                   |     |         |  | 325     |     |   |  | 110 |    
|                                             | Options exercised |  |                       |    |         |  |         | (1  | ) |  |     |    |  
|                                             | Options forfeited |  |                       |    |         |  |         | (68 | ) |  |     |    |  
|                                             |                   |  |                       |     |         |  |         |     |   |  |     |    
|Stock options outstanding at August 31, 2001 |                   |  | 475                   |     |         |  | 256     |     |   |  | 110 |    
|                                             | Options exercised |  |                       |    |         |  |         |    |   |  |     |    |  
|                                             | Options forfeited |  |                       |    |         |  |         | (8  | ) |  |     | (10 | )
|                                             |                   |  |                       |     |         |  |         |     |   |  |     |    
|Stock options outstanding at August 30, 2002 |                   |  | 475                   |     |         |  | 248     |     |   |  | 100 |    
|                                             | Options exercised |  |                       | (10 | )       |  |         |    |   |  |     |    |  
|                                             | Options forfeited |  |                       |    |         |  |         |    |   |  |     |    |  
|                                             |                   |  |                       |     |         |  |         |     |   |  |     |    
|Stock options outstanding at August 29, 2003 |                   |  | 465                   |     |         |  | 248     |     |   |  | 100 |    
|                                             |                   |  |                       |     |         |  |         |     |   |  |     |    
|Average contractual life remaining in years  |                   |  | 1.3                   |     |         |  | 2.8     |     |   |  | 6.3 |    
|                                             |                   |  |                       |     |         |  |         |     |   |  |     |    
|Stock options exercisable at August 29, 2003 |                   |  | 465                   |     |         |  | 248     |     |   |  | 60  |    
|                                             |                   |  |                       |     |         |  |         |     |   |  |     |    

The exercise prices of the options granted approximated the fair market
value of the Companys Common Stock on the dates of grant. Options forfeited
by employees leaving the Company prior to expiration of the plan were
reinstated as available for grant. All options granted vest ratably over five
years and may be exercised for a period of ten years.

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 2001, 2002 and 2003, 14,000 non-qualified
options were granted in each year. Exercise prices of the grants were $19.00,
$16.50 and $15.75 per share in fiscal 2001, 2002 and 2003, respectively. At
August 29, 2003, 22,000 non-qualified options remain available for grant.

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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 Financial Accounting Standards
Board Statement No. 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 2001, 2002 and 2003:

|                        |  |         |     |         |  |         |     |   |  |  |     |  
|----------------------- |  | ------- | --- | ------- |  | ------- | --- | - |  |  | --- | -
|                        |  | 2001    |     | 2002    |  | 2003   
|                        |  |         |     |         |  |        
|Risk free interest rate |  |         | 4.8 | %       |  |         | 4.3 | % |  |  | 4.1 | %
|Expected dividend yield |  |         | 1.8 | %       |  |         | 2.4 | % |  |  | 2.5 | %
|Expected lives          |  | 8 years |     | 8 years |  | 8 years

The total values of the options granted during fiscal 2001, 2002 and 2003
were computed as approximately $53,000, $30,000 and $24,000, respectively,
which would be amortized over the vesting period of the options. If the
Company had accounted for these plans in accordance with Statement No. 123, the
reported net income (loss) and net income (loss) per share would be revised to
the following pro forma amounts (in thousands, except per share data):

|                             |             |  |             |       |      |     |      |      |      |      |   |        |   |      |  
|---------------------------- | ----------- |  | ----------- | ----- | ---- | --- | ---- | ---- | ---- | ---- | - | ------ | - | ---- | -
|                             |             |  |             |       | 2001 |     | 2002 |      | 2003
|                             |             |  |             |       |      |     |      |      |     
|Net income (loss):           |             |  |             |       |      |     |      |      |      |      |   |       
|                             | As reported |  | $           | 1,257 |      |     | $    | (130 | )    |      | $ | (7,738 | )
|                             | Pro forma   |  |             | 1,204 |      |     |      | (165 | )    |      |   | (7,773 | )
|Net income (loss) per share: |             |  |             |       |      |     |      |      |      |      |   |       
|                             | Basic       |  |             |       |      |     |      |      |      |      |   |        |  
|                             |             |  | As reported |       | $    | .10 |      |      | $    | (.01 | ) |        | $ | (.62 | )
|                             |             |  | Pro forma   |       |      | .10 |      |      |      | (.01 | ) |        |   | (.62 | )
|                             | Diluted     |  |             |       |      |     |      |      |      |      |   |        |  
|                             |             |  | As reported |       | $    | .10 |      |      | $    | (.01 | ) |        | $ | (.62 | )
|                             |             |  | Pro forma   |       |      | .10 |      |      |      | (.01 | ) |        |   | (.62 | )

Because the accounting provisions of Statement No. 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.

13. 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 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 Court subsequently dismissed
Alabama Power as a defendant in the case, based on their motion for summary
judgement. 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. After an initial
series of actions, the case was stayed by the trial court pending resolution of
an appeal in the case of Sullivan versus Russell Corporation, the Company, and
others (Sullivan case), which also involved the Raintree subdivision. On
January 12, 2001, the Alabama Supreme Court issued a final order in the
Sullivan case rendering that case in favor of the defendants. Subsequent to the
Alabama Supreme Courts actions with regard to the Sullivan case, plaintiffs
counsel, which includes attorneys who acted as co-plaintiffs counsel on

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the Sullivan case, presented arguments in a hearing before
the trial judge on May 4, 2001 based on a narrow legal
theory that the nuisance claimed in this action is sufficiently different
from the Sullivan case, and therefore, that this case should be allowed to
proceed in spite of the fact that the Sullivan case was ultimately decided in
favor of the defendants. The trial court allowed the case to proceed to the
discovery phase. On April 25, 2002, the trial court held a hearing on summary
judgement motions and, on May 22, 2002, entered judgment as a matter of law in
the Companys favor on all counts except the narrow legal theory involving
public nuisance tort. A trial on this single count, scheduled to begin in
October 2003, has been continued indefinitely based on a motion by the
plaintiffs. The Court granted the continuance to allow additional time for
summary judgement practice and the production of additional material
information in the case. The Company intends to vigorously defend this case and
believes that it has a number of defenses available to it. 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):

|     |  |   |       | 
|---- |  | - | ----- | 
|2004 |  | $ | 2,331 | 
|2005 |  |   | 2,166 | 
|2006 |  |   | 1,596 | 
|2007 |  |   | 1,414 | 
|2008 |  |   | 265   | 
|     |  |   |       | 
|     |  | $ | 7,772 | 
|     |  |   |       | 

Rent expense for operating leases totaled $2.6 million, $2.6 million and
$2.5 million for fiscal 2001, 2002 and 2003, respectively.

Commitments for future additions to plant and equipment were approximately
$4.9 million at August 29, 2003. Commitments for the purchase of raw materials
were approximately $68.9 million at August 29, 2003.

14. Subsequent Event:On November 7, 2003, Avondale Mills, Inc. and its
subsidiary Avondale Mills Graniteville Fabrics, Inc. entered into a new senior
secured revolving credit facility with GECC, as agent and sole lender. The new
revolving credit facility provides aggregate borrowing availability up to $40
million, including letter of credit availability up to $10 million. The new
revolving credit facility replaced the revolving credit facility previously
provided by a group of lenders.

The term of the new revolving credit facility extends through the earlier
of August 29, 2007, or the date at which the Receivables Securitization
Facility terminates, unless replaced by another securitization facility with
GECC or an affiliate of GECC. Borrowing availability under the new revolving
credit facility is based on specified percentages of Avondale Mills raw
material, work in process, greige fabric and finished good inventories, less
applicable reserves. The new revolving credit facility is secured by the
Companys inventories, equipment other than that securing the equipment note,
accounts receivable (not sold under the Receivables Securitization Facility),
certain of the Companys deposit and investment accounts, and the capital stock
and limited liability company interests of all subsidiaries of the Company. The
Company and Avondale Mills Graniteville Fabrics, Inc. have guaranteed the
obligations of Avondale Mills under the revolving credit facility.

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With respect to advances drawn under the new revolving credit facility,
the Company can designate interest rates equal to the Eurodollar rate (adjusted
for reserves) plus a specified number of basis points or the reported prime
rate plus a specified number of basis points. A commitment fee is payable
monthly on the average unused portion of the new revolving credit facility. The
Company is required to pay certain audit and administrative
fees relating to the new revolving credit facility, and is subject to
specified prepayment premiums if the facility commitment is reduced or
terminated prior to the second anniversary of the closing date.

Covenants of the new revolving credit facility require the Company to
maintain certain minimum cash flow amounts and fixed charge coverage ratios in
the event that average unused borrowing availability falls below $20 million
for a period of four weeks. These covenants limit the Companys ability to pay
dividends.

In conjunction with the execution of the new revolving credit facility,
the Company also executed an amendment to the Receivables Securitization
Facility adopting the same financial covenants as provided in the new revolving
credit facility and reducing the size of the Receivables Securitization
Facility from $90 million to $75 million.

15. Consolidating Guarantor and Non-Guarantor Information:The following
consolidating financial information presents balance sheets, statements of
income and statements of cash flow of the Company and its subsidiaries.
Avondale Incorporated, the parent company and sole shareholder of Avondale
Mills, has fully and unconditionally guaranteed the 2013 Notes. Avondale Mills
Graniteville Fabrics, Inc., a wholly owned subsidiary of Avondale Mills and
non-guarantor of the 2013 Notes, operates a denim manufacturing facility and
warehouse operation located in South Carolina.

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

|                                                      |                                 |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |          |         | 
|----------------------------------------------------- | ------------------------------- | ------------------------- | ------- | ----------- | ------- | ------------ | ------- | --------- | - | ------------ | ------ | ------------- | ----- | - | -------- | - | - | - | ------- | -------- | ------- | 
|                                                      |                                 |                           |         |             |         |              |         |           |   |              |        | Non-Guarantor |       |   |          |   |   |   |         |         
|                                                      |                                 |                           |         |             |         |              |         |           |   |              |        | Avondale      |       |   |          |   |   |   |         |         
|                                                      |                                 |                           |         |             |         |              |         |           |   |              |        | Mills         |       |   |          |   |   |   |         |         
|                                                      |                                 |                           |         |             |         |              |         | Guarantor |   | Graniteville |        |               |       |   |          |   |   |  
|                                                      |                                 |                           |         | Avondale    |         | Avondale     |         | Fabrics,  |   |              |        |               |       |   |          |  
|                                                      |                                 |                           |         | Mills, Inc. |         | Incorporated |         | Inc.      |   | Eliminations |        | Consolidated 
|                                                      |                                 |                           |         |             |         |              |         |           |   |              |        |              
|ASSETS                                                |                                 |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|Current Assets                                        |                                 |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|                                                      | Cash and cash equivalents       |                           | $       | 13,769      |         |              | $       |          |   |              | $      |              |       |   | $        |  |   |   | $       | 13,769   |        
|                                                      | Accounts receivable             |                           |         | 29,155      |         |              |         |          |   |              |        | 2             |       |   |          |  |   |   |         | 29,157   |        
|                                                      | Inventories                     |                           |         | 82,887      |         |              |         |          |   |              |        |              |       |   |          |  |   |   |         | 82,887   |        
|                                                      | Prepaid expenses                |                           |         | 1,980       |         |              |         |          |   |              |        |              |       |   |          |  |   |   |         | 1,980    |        
|                                                      | Income taxes refundable         |                           |         | 2,825       |         |              |         |          |   |              |        |              |       |   |          |  |   |   |         | 2,825    |        
|                                                      |                                 |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|                                                      |                                 | Total current assets      |         |             | 130,616 |              |         |           |  |              |        |               | 2     |   |          |   |  |   |         |          | 130,618 | 
|Assets held for sale                                  |                                 |                           | 2,640   |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   | 2,640   |         
|Property, plant and equipment                         |                                 |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|                                                      | Land                            |                           |         | 6,288       |         |              |         |          |   |              |        | 196           |       |   |          |  |   |   |         | 6,484    |        
|                                                      | Buildings                       |                           |         | 67,897      |         |              |         |          |   |              |        | 11,750        |       |   |          |  |   |   |         | 79,647   |        
|                                                      | Machinery and equipment         |                           |         | 459,401     |         |              |         |          |   |              |        | 37,812        |       |   |          |  |   |   |         | 497,213  |        
|                                                      |                                 |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|                                                      |                                 |                           | 533,586 |             |         |              |        |           |   |              | 49,758 |               |       |   |         |   |   |   | 583,344 |         
|                                                      | Less accumulated depreciation   |                           |         | (342,217    | )       |              |         |          |   |              |        | (25,542       | )     |   |          |  |   |   |         | (367,759 | )      
|                                                      |                                 |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|                                                      |                                 |                           | 191,369 |             |         |              |        |           |   |              | 24,216 |               |       |   |         |   |   |   | 215,585 |         
|Other assets                                          |                                 |                           | 7,712   |             |         |              |        |           |   |              |       |               |       |   |         |   |   |   | 7,712   |         
|Investment in subsidiaries                            |                                 |                           | 8,202   |             |         |              | 105,726 |           |   |              |       |               |       |   | (113,928 | ) |   |   |        |         
|Goodwill                                              |                                 |                           | 2,951   |             |         |              |        |           |   |              |       |               |       |   |         |   |   |   | 2,951   |         
|                                                      |                                 |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|                                                      |                                 | $                         | 343,490 |             |         | $            | 105,726 |           |   | $            | 24,218 |               |       | $ | (113,928 | ) |   | $ | 359,506 |         
|                                                      |                                 |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|LIABILITIES AND SHAREHOLDERS EQUITY                  |                                 |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|Current Liabilities                                   |                                 |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|                                                      | Accounts payable                |                           | $       | 17,675      |         |              | $       |          |   |              | $      | 1,049         |       |   | $        |  |   |   | $       | 18,724   |        
|                                                      | Accrued compensation, benefits  |                           |         | 9,203       |         |              |         |          |   |              |        | 77            |       |   |          |  |   |   |         | 9,280    |        
|                                                      | Accrued interest                |                           |         | 2,726       |         |              |         |          |   |              |        |              |       |   |          |  |   |   |         | 2,726    |        
|                                                      | Other accrued expenses          |                           |         | 9,784       |         |              |         |          |   |              |        | 1             |       |   |          |  |   |   |         | 9,785    |        
|                                                      | Long- term debt due in one year |                           |         | 4,325       |         |              |         |          |   |              |        |              |       |   |          |  |   |   |         | 4,325    |        
|                                                      |                                 |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|                                                      |                                 | Total current liabilities |         |             | 43,713  |              |         |           |  |              |        |               | 1,127 |   |          |   |  |   |         |          | 44,840  | 
|Long-term debt                                        |                                 |                           | 163,512 |             |         |              |        |           |   |              |       |               |       |   |         |   |   |   | 163,512 |         
|Deferred income taxes
and other long term liabilities |                                 |                           | 35,203  |             |         |              |        |           |   |              |       |               |       |   |         |   |   |   | 35,203  |         
|Due to (from) subsidiaries                            |                                 |                           | (4,664  | )           |         |              | (10,225 | )         |   |              | 14,889 |               |       |   |         |   |   |   |        |         
|Shareholders equity                                  |                                 |                           | 105,726 |             |         |              | 115,951 |           |   |              | 8,202  |               |       |   | (113,928 | ) |   |   | 115,951 |         
|                                                      |                                 |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|                                                      |                                 | $                         | 343,490 |             |         | $            | 105,726 |           |   | $            | 24,218 |               |       | $ | (113,928 | ) |   | $ | 359,506 |         
|                                                      |                                 |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         

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AVONDALE INCORPORATED
CONSOLIDATING BALANCE SHEETS
August 30, 2002
(amounts in thousands)

|                                                      |                                |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |          |         | 
|----------------------------------------------------- | ------------------------------ | ------------------------- | ------- | ----------- | ------- | ------------ | ------- | --------- | - | ------------ | ------ | ------------- | ----- | - | -------- | - | - | - | ------- | -------- | ------- | 
|                                                      |                                |                           |         |             |         |              |         |           |   |              |        | Non-Guarantor |       |   |          |   |   |   |         |         
|                                                      |                                |                           |         |             |         |              |         |           |   |              |        | Avondale      |       |   |          |   |   |   |         |         
|                                                      |                                |                           |         |             |         |              |         |           |   |              |        | Mills         |       |   |          |   |   |   |         |         
|                                                      |                                |                           |         |             |         |              |         | Guarantor |   | Graniteville |        |               |       |   |          |   |   |  
|                                                      |                                |                           |         | Avondale    |         | Avondale     |         | Fabrics,  |   |              |        |               |       |   |          |  
|                                                      |                                |                           |         | Mills, Inc. |         | Incorporated |         | Inc.      |   | Eliminations |        | Consolidated 
|                                                      |                                |                           |         |             |         |              |         |           |   |              |        |              
|ASSETS                                                |                                |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|Current Assets                                        |                                |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|                                                      | Cash and cash equivalents      |                           | $       | 2,859       |         |              | $       |          |   |              | $      |              |       |   | $        |  |   |   | $       | 2,859    |        
|                                                      | Accounts receivable            |                           |         | 43,304      |         |              |         |          |   |              |        | 1             |       |   |          |  |   |   |         | 43,305   |        
|                                                      | Inventories                    |                           |         | 83,311      |         |              |         |          |   |              |        | 3,635         |       |   |          |  |   |   |         | 86,946   |        
|                                                      | Prepaid expenses               |                           |         | 385         |         |              |         |          |   |              |        |              |       |   |          |  |   |   |         | 385      |        
|                                                      | Income taxes refundable        |                           |         | 6,550       |         |              |         |          |   |              |        |              |       |   |          |  |   |   |         | 6,550    |        
|                                                      |                                |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|                                                      |                                | Total current assets      |         |             | 136,409 |              |         |           |  |              |        |               | 3,636 |   |          |   |  |   |         |          | 140,045 | 
|Assets held for sale                                  |                                |                           | 3,645   |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   | 3,645   |         
|Property, plant and equipment                         |                                |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|                                                      | Land                           |                           |         | 6,438       |         |              |         |          |   |              |        | 196           |       |   |          |  |   |   |         | 6,634    |        
|                                                      | Buildings                      |                           |         | 70,073      |         |              |         |          |   |              |        | 11,750        |       |   |          |  |   |   |         | 81,823   |        
|                                                      | Machinery and equipment        |                           |         | 489,675     |         |              |         |          |   |              |        | 37,222        |       |   |          |  |   |   |         | 526,897  |        
|                                                      |                                |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|                                                      |                                |                           | 566,186 |             |         |              |        |           |   |              | 49,168 |               |       |   |         |   |   |   | 615,354 |         
|                                                      | Less accumulated depreciation  |                           |         | (348,200    | )       |              |         |          |   |              |        | (21,528       | )     |   |          |  |   |   |         | (369,728 | )      
|                                                      |                                |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|                                                      |                                |                           | 217,986 |             |         |              |        |           |   |              | 27,640 |               |       |   |         |   |   |   | 245,626 |         
|Other assets                                          |                                |                           | 5,146   |             |         |              |        |           |   |              |       |               |       |   |         |   |   |   | 5,146   |         
|Investment in subsidiaries                            |                                |                           | 7,901   |             |         |              | 118,520 |           |   |              |       |               |       |   | (126,421 | ) |   |   |        |         
|Goodwill                                              |                                |                           | 2,951   |             |         |              |        |           |   |              |       |               |       |   |         |   |   |   | 2,951   |         
|                                                      |                                |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|                                                      |                                | $                         | 374,038 |             |         | $            | 118,520 |           |   | $            | 31,276 |               |       | $ | (126,421 | ) |   | $ | 397,413 |         
|                                                      |                                |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|LIABILITIES AND SHAREHOLDERS EQUITY                  |                                |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|Current Liabilities                                   |                                |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|                                                      | Accounts payable               |                           | $       | 29,114      |         |              | $       |          |   |              | $      | 1,477         |       |   | $        |  |   |   | $       | 30,591   |        
|                                                      | Accrued compensation, benefits |                           |         | 10,249      |         |              |         |          |   |              |        | 120           |       |   |          |  |   |   |         | 10,369   |        
|                                                      | Accrued interest               |                           |         | 4,576       |         |              |         |          |   |              |        |              |       |   |          |  |   |   |         | 4,576    |        
|                                                      | Other accrued expenses         |                           |         | 10,206      |         |              |         |          |   |              |        | 1             |       |   |          |  |   |   |         | 10,207   |        
|                                                      | Long-term debt due in one year |                           |         | 2,523       |         |              |         |          |   |              |        |              |       |   |          |  |   |   |         | 2,523    |        
|                                                      |                                |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|                                                      |                                | Total current liabilities |         |             | 56,668  |              |         |           |  |              |        |               | 1,598 |   |          |   |  |   |         |          | 58,266  | 
|Long-term debt                                        |                                |                           | 167,477 |             |         |              |        |           |   |              |       |               |       |   |         |   |   |   | 167,477 |         
|Deferred income taxes
and other long term liabilities |                                |                           | 41,415  |             |         |              |        |           |   |              |       |               |       |   |         |   |   |   | 41,415  |         
|Due to (from) subsidiaries                            |                                |                           | (10,042 | )           |         |              | (11,735 | )         |   |              | 21,777 |               |       |   |         |   |   |   |        |         
|Shareholders equity                                  |                                |                           | 118,520 |             |         |              | 130,255 |           |   |              | 7,901  |               |       |   | (126,421 | ) |   |   | 130,255 |         
|                                                      |                                |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         
|                                                      |                                | $                         | 374,038 |             |         | $            | 118,520 |           |   | $            | 31,276 |               |       | $ | (126,421 | ) |   | $ | 397,413 |         
|                                                      |                                |                           |         |             |         |              |         |           |   |              |        |               |       |   |          |   |   |   |         |         

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AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF INCOME
For the Fiscal Year ended August 29, 2003
(amounts in thousands)

|                                                        |                                     |                                   |         |             |         |              |        |           |        |              |        |               |     |   |         |         |       |   |         |         |         |  
|------------------------------------------------------- | ----------------------------------- | --------------------------------- | ------- | ----------- | ------- | ------------ | ------ | --------- | ------ | ------------ | ------ | ------------- | --- | - | ------- | ------- | ----- | - | ------- | ------- | ------- | -
|                                                        |                                     |                                   |         |             |         |              |        |           |        |              |        | Non-Guarantor |     |   |         |         |       |   |         |        
|                                                        |                                     |                                   |         |             |         |              |        |           |        |              |        | Avondale      |     |   |         |         |       |   |         |        
|                                                        |                                     |                                   |         |             |         |              |        |           |        |              |        | Mills         |     |   |         |         |       |   |         |        
|                                                        |                                     |                                   |         |             |         |              |        | Guarantor |        | Graniteville |        |               |     |   |         |         |       |  
|                                                        |                                     |                                   |         | Avondale    |         | Avondale     |        | Fabrics,  |        |              |        |               |     |   |         |        
|                                                        |                                     |                                   |         | Mills, Inc. |         | Incorporated |        | Inc.      |        | Eliminations |        | Consolidated 
|                                                        |                                     |                                   |         |             |         |              |        |           |        |              |        |              
|Net sales, including intercompany
transfers and charges |                                     | $                                 | 590,862 |             |         | $            | 111    |           |        | $            | 89,247 |               |     | $ | (89,358 | )       |       | $ | 590,862 |        
|Operating costs and expenses                            |                                     |                                   |         |             |         |              |        |           |        |              |        |               |     |   |         |         |       |   |         |        
|                                                        | Cost of goods sold                  |                                   |         | 512,319     |         |              |        |          |        |              |        | 84,774        |     |   |         | (89,247 | )     |   |         | 507,846 |        
|                                                        | Depreciation                        |                                   |         | 37,855      |         |              |        |          |        |              |        | 3,987         |     |   |         |         |       |   |         | 41,842  |        
|                                                        | Selling and administrative expenses |                                   |         | 26,254      |         |              |        |          |        |              |        |              |     |   |         | (111    | )     |   |         | 26,143  |        
|                                                        | Facility restructuring charges      |                                   |         | 2,450       |         |              |        |          |        |              |        |              |     |   |         |        |       |   |         | 2,450   |        
|                                                        |                                     |                                   |         |             |         |              |        |           |        |              |        |               |     |   |         |         |       |   |         |        
|                                                        |                                     | Operating income                  |         |             | 11,984  |              |        |           | 111    |              |        |               | 486 |   |         |         |      |   |         |         | 12,581  |  
|Interest expense, net                                   |                                     |                                   | 19,034  |             |         |              |       |           |        |              |       |               |     |   |        |         |       |   | 19,034  |        
|Discount and expenses on sales
of receivables           |                                     |                                   | 2,596   |             |         |              |       |           |        |              |       |               |     |   |        |         |       |   | 2,596   |        
|Loss on extinguishment of debt                          |                                     |                                   | 3,236   |             |         |              |       |           |        |              |       |               |     |   |        |         |       |   | 3,236   |        
|Other, net                                              |                                     |                                   | (52     | )           |         |              |       |           |        |              |       |               |     |   |        |         |       |   | (52     | )      
|                                                        |                                     |                                   |         |             |         |              |        |           |        |              |        |               |     |   |         |         |       |   |         |        
|                                                        |                                     | Income (loss) before income taxes |         |             | (12,830 | )            |        |           | 111    |              |        |               | 486 |   |         |         |      |   |         |         | (12,233 | )
|Provision for (benefit of) income taxes                 |                                     |                                   | (4,725  | )           |         |              | 45     |           |        |              | 185    |               |     |   |        |         |       |   | (4,495  | )      
|Equity in income (loss) of subsidiary                   |                                     |                                   | 301     |             |         |              | (7,804 | )         |        |              |       |               |     |   | 7,503   |         |       |   |        |        
|                                                        |                                     |                                   |         |             |         |              |        |           |        |              |        |               |     |   |         |         |       |   |         |        
|                                                        |                                     | Net income (loss)                 |         | $           | (7,804  | )            |        | $         | (7,738 | )            |        | $             | 301 |   |         | $       | 7,503 |   |         | $       | (7,738  | )
|                                                        |                                     |                                   |         |             |         |              |        |           |        |              |        |               |     |   |         |         |       |   |         |        

55



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AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF INCOME
For the Fiscal Year ended August 30, 2002
(amounts in thousands)

|                                                        |                                     |                                   |         |             |        |              |      |           |      |              |        |               |     |   |         |         |    |   |         |         |        |  
|------------------------------------------------------- | ----------------------------------- | --------------------------------- | ------- | ----------- | ------ | ------------ | ---- | --------- | ---- | ------------ | ------ | ------------- | --- | - | ------- | ------- | -- | - | ------- | ------- | ------ | -
|                                                        |                                     |                                   |         |             |        |              |      |           |      |              |        | Non-Guarantor |     |   |         |         |    |   |         |        
|                                                        |                                     |                                   |         |             |        |              |      |           |      |              |        | Avondale      |     |   |         |         |    |   |         |        
|                                                        |                                     |                                   |         |             |        |              |      |           |      |              |        | Mills         |     |   |         |         |    |   |         |        
|                                                        |                                     |                                   |         |             |        |              |      | Guarantor |      | Graniteville |        |               |     |   |         |         |    |  
|                                                        |                                     |                                   |         | Avondale    |        | Avondale     |      | Fabrics,  |      |              |        |               |     |   |         |        
|                                                        |                                     |                                   |         | Mills, Inc. |        | Incorporated |      | Inc.      |      | Eliminations |        | Consolidated 
|                                                        |                                     |                                   |         |             |        |              |      |           |      |              |        |              
|Net sales, including intercompany
transfers and charges |                                     | $                                 | 659,735 |             |        | $            | 101  |           |      | $            | 97,121 |               |     | $ | (97,222 | )       |    | $ | 659,735 |        
|Operating costs and expenses                            |                                     |                                   |         |             |        |              |      |           |      |              |        |               |     |   |         |         |    |   |         |        
|                                                        | Cost of goods sold                  |                                   |         | 565,211     |        |              |      |          |      |              |        | 92,704        |     |   |         | (97,121 | )  |   |         | 560,794 |       
|                                                        | Depreciation                        |                                   |         | 40,839      |        |              |      |          |      |              |        | 4,117         |     |   |         |         |    |   |         | 44,956  |       
|                                                        | Selling and administrative expenses |                                   |         | 28,390      |        |              |      |          |      |              |        |              |     |   |         | (101    | )  |   |         | 28,289  |       
|                                                        | Facility restructuring charges      |                                   |         | 7,000       |        |              |      |          |      |              |        |              |     |   |         |        |    |   |         | 7,000   |       
|                                                        |                                     |                                   |         |             |        |              |      |           |      |              |        |               |     |   |         |         |    |   |         |        
|                                                        |                                     | Operating income                  |         |             | 18,295 |              |      |           | 101  |              |        |               | 300 |   |         |         |   |   |         |         | 18,696 |  
|Interest expense, net                                   |                                     |                                   | 18,449  |             |        |              |     |           |      |              |       |               |     |   |        |         |    |   | 18,449  |        
|Discount and expenses on sales
of receivables           |                                     |                                   | 1,117   |             |        |              |     |           |      |              |       |               |     |   |        |         |    |   | 1,117   |        
|Other, net                                              |                                     |                                   | (513    | )           |        |              |     |           |      |              |       |               |     |   |        |         |    |   | (513    | )      
|                                                        |                                     |                                   |         |             |        |              |      |           |      |              |        |               |     |   |         |         |    |   |         |        
|                                                        |                                     | Income (loss) before income taxes |         |             | (758   | )            |      |           | 101  |              |        |               | 300 |   |         |         |   |   |         |         | (357   | )
|Provision for (benefit of) income taxes                 |                                     |                                   | (362    | )           |        |              | 35   |           |      |              | 100    |               |     |   |        |         |    |   | (227    | )      
|Equity in income (loss) of subsidiary                   |                                     |                                   | 200     |             |        |              | (196 | )         |      |              |       |               |     |   | (4      | )       |    |   |        |        
|                                                        |                                     |                                   |         |             |        |              |      |           |      |              |        |               |     |   |         |         |    |   |         |        
|                                                        |                                     | Net income (loss)                 |         | $           | (196   | )            |      | $         | (130 | )            |        | $             | 200 |   |         | $       | (4 | ) |         | $       | (130   | )
|                                                        |                                     |                                   |         |             |        |              |      |           |      |              |        |               |     |   |         |         |    |   |         |        

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AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF INCOME (UNAUDITED)
For the Fiscal Year ended August 31, 2001
(amounts in thousands)

|                                                        |                                     |                                   |         |             |        |              |       |           |       |              |         |               |      |   |          |          |      |   |         |         |        | 
|------------------------------------------------------- | ----------------------------------- | --------------------------------- | ------- | ----------- | ------ | ------------ | ----- | --------- | ----- | ------------ | ------- | ------------- | ---- | - | -------- | -------- | ---- | - | ------- | ------- | ------ | 
|                                                        |                                     |                                   |         |             |        |              |       |           |       |              |         | Non-Guarantor |      |   |          |          |      |   |         |        
|                                                        |                                     |                                   |         |             |        |              |       |           |       |              |         | Avondale      |      |   |          |          |      |   |         |        
|                                                        |                                     |                                   |         |             |        |              |       |           |       |              |         | Mills         |      |   |          |          |      |   |         |        
|                                                        |                                     |                                   |         |             |        |              |       | Guarantor |       | Graniteville |         |               |      |   |          |          |      |  
|                                                        |                                     |                                   |         | Avondale    |        | Avondale     |       | Fabrics,  |       |              |         |               |      |   |          |         
|                                                        |                                     |                                   |         | Mills, Inc. |        | Incorporated |       | Inc.      |       | Eliminations |         | Consolidated 
|                                                        |                                     |                                   |         |             |        |              |       |           |       |              |         |              
|Net sales, including intercompany
transfers and charges |                                     | $                                 | 772,768 |             |        | $            | 107   |           |       | $            | 109,500 |               |      | $ | (109,607 | )        |      | $ | 772,768 |        
|Operating costs and expenses                            |                                     |                                   |         |             |        |              |       |           |       |              |         |               |      |   |          |          |      |   |         |        
|                                                        | Cost of goods sold                  |                                   |         | 670,091     |        |              |       |          |       |              |         | 105,614       |      |   |          | (109,500 | )    |   |         | 666,205 |       
|                                                        | Depreciation                        |                                   |         | 41,475      |        |              |       |          |       |              |         | 4,206         |      |   |          |          |      |   |         | 45,681  |       
|                                                        | Selling and administrative expenses |                                   |         | 33,096      |        |              |       |          |       |              |         |              |      |   |          | (107     | )    |   |         | 32,989  |       
|                                                        |                                     |                                   |         |             |        |              |       |           |       |              |         |               |      |   |          |          |      |   |         |        
|                                                        |                                     | Operating income (loss)           |         |             | 28,106 |              |       |           | 107   |              |         |               | (320 | ) |          |          |     |   |         |         | 27,893 | 
|Interest expense, net                                   |                                     |                                   | 20,396  |             |        |              |      |           |       |              |        |               |      |   |         |          |      |   | 20,396  |        
|Discount and expenses on sales
of receivables           |                                     |                                   | 4,935   |             |        |              |      |           |       |              |        |               |      |   |         |          |      |   | 4,935   |        
|Other, net                                              |                                     |                                   | 765     |             |        |              |      |           |       |              |        |               |      |   |         |          |      |   | 765     |        
|                                                        |                                     |                                   |         |             |        |              |       |           |       |              |         |               |      |   |          |          |      |   |         |        
|                                                        |                                     | Income (loss) before income taxes |         |             | 2,010  |              |       |           | 107   |              |         |               | (320 | ) |          |          |     |   |         |         | 1,797  | 
|Provision for (benefit of) income taxes                 |                                     |                                   | 620     |             |        |              | 40    |           |       |              | (120    | )             |      |   |         |          |      |   | 540     |        
|Equity in income (loss) of subsidiary                   |                                     |                                   | (200    | )           |        |              | 1,190 |           |       |              |        |               |      |   | (990     | )        |      |   |        |        
|                                                        |                                     |                                   |         |             |        |              |       |           |       |              |         |               |      |   |          |          |      |   |         |        
|                                                        |                                     | Net income (loss)                 |         | $           | 1,190  |              |       | $         | 1,257 |              |         | $             | (200 | ) |          | $        | (990 | ) |         | $       | 1,257  | 
|                                                        |                                     |                                   |         |             |        |              |       |           |       |              |         |               |      |   |          |          |      |   |         |        

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AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Fiscal Year ended August 29, 2003
(amounts in thousands)

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

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##### Table of Contents



AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Fiscal Year ended August 30, 2002
(amounts in thousands)

|                                                                                         |                                                                  |                                                             |       |                                           |         |             |         |              |        |           |        |              |     |              |     |        |       |   |        |        |         |   |         |  
|---------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ----------------------------------------------------------- | ----- | ----------------------------------------- | ------- | ----------- | ------- | ------------ | ------ | --------- | ------ | ------------ | --- | ------------ | --- | ------ | ----- | - | ------ | ------ | ------- | - | ------- | -
|                                                                                         |                                                                  |                                                             |       |                                           |         |             |         |              |        |           |        |              |     | Non-         |     |        |       |   |        |        |         |  
|                                                                                         |                                                                  |                                                             |       |                                           |         |             |         |              |        |           |        |              |     | Guarantor    |     |        |       |   |        |        |         |  
|                                                                                         |                                                                  |                                                             |       |                                           |         |             |         |              |        |           |        |              |     | Avondale     |     |        |       |   |        |        |         |  
|                                                                                         |                                                                  |                                                             |       |                                           |         |             |         |              |        |           |        |              |     | Mills        |     |        |       |   |        |        |         |  
|                                                                                         |                                                                  |                                                             |       |                                           |         |             |         |              |        | Guarantor |        | Graniteville |     |              |     |        |       |   |        |       
|                                                                                         |                                                                  |                                                             |       |                                           |         | Avondale    |         | Avondale     |        | Fabrics,  |        |              |     |              |     |        |       |  
|                                                                                         |                                                                  |                                                             |       |                                           |         | Mills, Inc. |         | Incorporated |        | Inc.      |        | Eliminations |     | Consolidated
|                                                                                         |                                                                  |                                                             |       |                                           |         |             |         |              |        |           |        |              |     |             
|Operating activities                                                                     |                                                                  |                                                             |       |                                           |         |             |         |              |        |           |        |              |     |              |     |        |       |   |        |       
|Net income (loss)                                                                        |                                                                  | $                                                           | (196  | )                                         |         | $           | (130    | )            |        | $         | 200    |              |     | $            | (4  | )      |       | $ | (130   | )     
|Adjustments to reconcile net income (loss)
to net cash provided by operating
activities: |                                                                  |                                                             |       |                                           |         |             |         |              |        |           |        |              |     |              |     |        |       |   |        |       
|                                                                                         | Depreciation and amortization                                    |                                                             |       | 41,421                                    |         |             |         |             |        |           |        | 4,117        |     |              |     |       |       |   |        | 45,538 |        
|                                                                                         | Provision for deferred income taxes                              |                                                             |       | 3,534                                     |         |             |         |             |        |           |        |             |     |              |     |       |       |   |        | 3,534  |        
|                                                                                         | Loss on disposal of equipment and
facility restructuring charges |                                                             |       | 5,379                                     |         |             |         |             |        |           |        |             |     |              |     |       |       |   |        | 5,379  |        
|                                                                                         | Sale of accounts receivable, net                                 |                                                             |       | 12,390                                    |         |             |         |             |        |           |        |             |     |              |     |       |       |   |        | 12,390 |        
|                                                                                         | Changes in operating assets and liabilities                      |                                                             |       | 9,253                                     |         |             |         | (66          | )      |           |        | (4,223       | )   |              |     |       |       |   |        | 4,964  |        
|                                                                                         | Dividends from subsidiary                                        |                                                             |       |                                          |         |             |         | 3,759        |        |           |        |             |     |              |     | (3,759 | )     |   |        |       |        
|                                                                                         | Equity in loss (income) of subsidiary                            |                                                             |       | (200                                      | )       |             |         | 196          |        |           |        |             |     |              |     | 4      |       |   |        |       |        
|                                                                                         |                                                                  |                                                             |       |                                           |         |             |         |              |        |           |        |              |     |              |     |        |       |   |        |       
|                                                                                         |                                                                  |                                                             |       | Net cash provided by operating
activities |         |             | 71,581  |              |        |           | 3,759  |              |     |              | 94  |        |       |   | (3,759 | )      |         |   | 71,675  |  
|Investing activities                                                                     |                                                                  |                                                             |       |                                           |         |             |         |              |        |           |        |              |     |              |     |        |       |   |        |       
|                                                                                         |                                                                  | Purchase of property, plant and equipment                   |       |                                           | (12,992 | )           |         |              |       |           |        |              | (94 | )            |     |        |      |   |        |        | (13,086 | )
|                                                                                         |                                                                  | Proceeds from sale of property, plant
and equipment         |       |                                           | 739     |             |         |              |       |           |        |              |    |              |     |        |      |   |        |        | 739     |  
|                                                                                         |                                                                  |                                                             |       |                                           |         |             |         |              |        |           |        |              |     |              |     |        |       |   |        |       
|                                                                                         |                                                                  |                                                             |       | Net cash used in investing activities     |         |             | (12,253 | )            |        |           |       |              |     |              | (94 | )      |       |   |       |        |         |   | (12,347 | )
|Financing activities                                                                     |                                                                  |                                                             |       |                                           |         |             |         |              |        |           |        |              |     |              |     |        |       |   |        |       
|                                                                                         |                                                                  | Net payments on revolving line of
credit and long term debt |       |                                           | (60,150 | )           |         |              |       |           |        |              |    |              |     |        |      |   |        |        | (60,150 | )
|                                                                                         |                                                                  | Refund of prior year income taxes                           |       |                                           | 4,471   |             |         |              |       |           |        |              |    |              |     |        |      |   |        |        | 4,471   |  
|                                                                                         |                                                                  | Dividends paid                                              |       |                                           | (3,759  | )           |         |              | (3,759 | )         |        |              |    |              |     |        | 3,759 |   |        |        | (3,759  | )
|                                                                                         |                                                                  |                                                             |       |                                           |         |             |         |              |        |           |        |              |     |              |     |        |       |   |        |       
|                                                                                         |                                                                  |                                                             |       | Net cash used in financing activities     |         |             | (59,438 | )            |        |           | (3,759 | )            |     |              |    |        |       |   | 3,759  |        |         |   | (59,438 | )
|                                                                                         |                                                                  |                                                             |       |                                           |         |             |         |              |        |           |        |              |     |              |     |        |       |   |        |       
|Increase in cash                                                                         |                                                                  |                                                             | (110  | )                                         |         |             |        |              |        |           |       |              |     |              |    |        |       |   | (110   | )     
|Cash at beginning of year                                                                |                                                                  |                                                             | 2,969 |                                           |         |             |        |              |        |           |       |              |     |              |    |        |       |   | 2,969  |       
|                                                                                         |                                                                  |                                                             |       |                                           |         |             |         |              |        |           |        |              |     |              |     |        |       |   |        |       
|Cash at end of year                                                                      |                                                                  | $                                                           | 2,859 |                                           |         | $           |        |              |        | $         |       |              |     | $            |    |        |       | $ | 2,859  |       
|                                                                                         |                                                                  |                                                             |       |                                           |         |             |         |              |        |           |        |              |     |              |     |        |       |   |        |       

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AVONDALE INCORPORATED
CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Fiscal Year ended August 31, 2001
(amounts in thousands)

|                                                                                         |                                             |                |                                                             |                                                     |        |             |         |              |        |           |        |              |   |              |      |        |       |   |        |         |        |         |         |  
|---------------------------------------------------------------------------------------- | ------------------------------------------- | -------------- | ----------------------------------------------------------- | --------------------------------------------------- | ------ | ----------- | ------- | ------------ | ------ | --------- | ------ | ------------ | - | ------------ | ---- | ------ | ----- | - | ------ | ------- | ------ | ------- | ------- | -
|                                                                                         |                                             |                |                                                             |                                                     |        |             |         |              |        |           |        |              |   | Non-         |      |        |       |   |        |         |        |        
|                                                                                         |                                             |                |                                                             |                                                     |        |             |         |              |        |           |        |              |   | Guarantor    |      |        |       |   |        |         |        |        
|                                                                                         |                                             |                |                                                             |                                                     |        |             |         |              |        |           |        |              |   | Avondale     |      |        |       |   |        |         |        |        
|                                                                                         |                                             |                |                                                             |                                                     |        |             |         |              |        |           |        |              |   | Mills        |      |        |       |   |        |         |        |        
|                                                                                         |                                             |                |                                                             |                                                     |        |             |         |              |        | Guarantor |        | Graniteville |   |              |      |        |       |   |        |        
|                                                                                         |                                             |                |                                                             |                                                     |        | Avondale    |         | Avondale     |        | Fabrics,  |        |              |   |              |      |        |       |  
|                                                                                         |                                             |                |                                                             |                                                     |        | Mills, Inc. |         | Incorporated |        | Inc.      |        | Eliminations |   | Consolidated
|                                                                                         |                                             |                |                                                             |                                                     |        |             |         |              |        |           |        |              |   |             
|Operating activities                                                                     |                                             |                |                                                             |                                                     |        |             |         |              |        |           |        |              |   |              |      |        |       |   |        |        
|Net income (loss)                                                                        |                                             | $              | 1,190                                                       |                                                     |        | $           | 1,257   |              |        | $         | (200   | )            |   | $            | (990 | )      |       | $ | 1,257  |        
|Adjustments to reconcile net income (loss)
to net cash provided by operating
activities: |                                             |                |                                                             |                                                     |        |             |         |              |        |           |        |              |   |              |      |        |       |   |        |        
|                                                                                         | Depreciation and amortization               |                |                                                             | 42,193                                              |        |             |         |             |        |           |        | 4,206        |   |              |      |       |       |   |        | 46,399  |       
|                                                                                         | Provision for deferred income taxes         |                |                                                             | 6,543                                               |        |             |         |             |        |           |        |             |   |              |      |       |       |   |        | 6,543   |       
|                                                                                         | Loss on disposal of equipment               |                |                                                             | 640                                                 |        |             |         |             |        |           |        |             |   |              |      |       |       |   |        | 640     |       
|                                                                                         | Sale of accounts receivable, net            |                |                                                             | (20,000                                             | )      |             |         |             |        |           |        |             |   |              |      |       |       |   |        | (20,000 | )     
|                                                                                         | Changes in operating assets and
liabilities |                |                                                             | 16,593                                              |        |             |         | 118          |        |           |        | (3,459       | ) |              |      |       |       |   |        | 13,252  |       
|                                                                                         | Dividends from subsidiary                   |                |                                                             |                                                    |        |             |         | 5,015        |        |           |        |             |   |              |      | (5,015 | )     |   |        |        |       
|                                                                                         | Equity in loss (income) of subsidiary       |                |                                                             | 200                                                 |        |             |         | (1,190       | )      |           |        |             |   |              |      | 990    |       |   |        |        |       
|                                                                                         |                                             |                |                                                             |                                                     |        |             |         |              |        |           |        |              |   |              |      |        |       |   |        |        
|                                                                                         |                                             |                |                                                             | Net cash provided by operating
activities           |        |             | 47,359  |              |        |           | 5,200  |              |   |              | 547  |        |       |   | (5,015 | )       |        |         | 48,091  |  
|Investing activities                                                                     |                                             |                |                                                             |                                                     |        |             |         |              |        |           |        |              |   |              |      |        |       |   |        |        
|                                                                                         |                                             |                | Purchase of property, plant and equipment                   |                                                     |        | (90,592     | )       |              |        |          |        |              |   | (547         | )    |        |       |  |        |         |        | (91,139 | )      
|                                                                                         |                                             |                | Proceeds from sale of property, plant
and equipment         |                                                     |        | 875         |         |              |        |          |        |              |   |             |      |        |       |  |        |         |        | 875     |        
|                                                                                         |                                             |                |                                                             |                                                     |        |             |         |              |        |           |        |              |   |              |      |        |       |   |        |        
|                                                                                         |                                             |                |                                                             | Net cash used in investing activities               |        |             | (89,717 | )            |        |           |       |              |   |              | (547 | )      |       |   |       |         |        |         | (90,264 | )
|Financing activities                                                                     |                                             |                |                                                             |                                                     |        |             |         |              |        |           |        |              |   |              |      |        |       |   |        |        
|                                                                                         |                                             |                | Net advances on revolving line of
credit and long term debt |                                                     |        | 42,475      |         |              |        |          |        |              |   |             |      |        |       |  |        |         |        | 42,475  |        
|                                                                                         |                                             |                | Issue of common stock                                       |                                                     |        |            |         |              |        | 20        |        |              |   |             |      |        |       |  |        |         |        | 20      |        
|                                                                                         |                                             |                | Purchase and retirement of treasury
stock                   |                                                     |        |            |         |              |        | (205      | )      |              |   |             |      |        |       |  |        |         |        | (205    | )      
|                                                                                         |                                             | Dividends paid |                                                             |                                                     | (5,015 | )           |         |              | (5,015 | )         |        |              |  |              |      |        | 5,015 |   |        |         | (5,015 | )      
|                                                                                         |                                             |                |                                                             |                                                     |        |             |         |              |        |           |        |              |   |              |      |        |       |   |        |        
|                                                                                         |                                             |                |                                                             | Net cash provided by (used in)
financing activities |        |             | 37,460  |              |        |           | (5,200 | )            |   |              |     |        |       |   | 5,015  |         |        |         | 37,275  |  
|                                                                                         |                                             |                |                                                             |                                                     |        |             |         |              |        |           |        |              |   |              |      |        |       |   |        |        
|Decrease in cash                                                                         |                                             |                | (4,898                                                      | )                                                   |        |             |        |              |        |           |       |              |   |              |     |        |       |   | (4,898 | )      
|Cash at beginning of year                                                                |                                             |                | 7,867                                                       |                                                     |        |             |        |              |        |           |       |              |   |              |     |        |       |   | 7,867  |        
|                                                                                         |                                             |                |                                                             |                                                     |        |             |         |              |        |           |        |              |   |              |      |        |       |   |        |        
|Cash at end of year                                                                      |                                             | $              | 2,969                                                       |                                                     |        | $           |        |              |        | $         |       |              |   | $            |     |        |       | $ | 2,969  |        
|                                                                                         |                                             |                |                                                             |                                                     |        |             |         |              |        |           |        |              |   |              |      |        |       |   |        |        

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

Not applicable.




ITEM 9A. CONTROLS AND PROCEDURES

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

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

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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:

|                           |  |     |    |                |  |                                                                                                                                             
|-------------------------- |  | --- | -- | -------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|Name                       |  | Age |    | Positions Held
|                           |  |     |    |               
|G. Stephen Felker          |  |     | 51 |                |  | Chairman of the Board, President and Chief Executive
Officer of the Company and Avondale Mills                                              
|                           |  |     |    |                |  |                                                                                                                                             
|Jack R. Altherr, Jr.       |  |     | 54 |                |  | Vice Chairman, Chief Financial Officer, and
Director of the Company and Avondale Mills                                                      
|                           |  |     |    |                |  |                                                                                                                                             
|T. Wayne Spraggins         |  |     | 66 |                |  | Vice President of Avondale Mills and President,
Manufacturing Operations                                                                    
|                           |  |     |    |                |  |                                                                                                                                             
|Keith M. Hull              |  |     | 50 |                |  | Vice President of Avondale Mills and President,
Marketing and Sales                                                                         
|                           |  |     |    |                |  |                                                                                                                                             
|Craig S. Crockard          |  |     | 61 |                |  | Vice President and Assistant Secretary of the Company
and Vice President, Planning and Development and
Assistant Secretary of Avondale Mills
|                           |  |     |    |                |  |                                                                                                                                             
|M. Delen Boyd              |  |     | 47 |                |  | Vice President, Controller and Secretary of the Company
and Avondale Mills                                                                  
|                           |  |     |    |                |  |                                                                                                                                             
|Sharon L. Rodgers          |  |     | 47 |                |  | Vice President, Human Resources of Avondale Mills and
Assistant Secretary of the Company and
Avondale Mills                                 
|                           |  |     |    |                |  |                                                                                                                                             
|Dale J. Boden(1)           |  |     | 46 |                |  | Director of the Company and Avondale Mills                                                                                                  
|                           |  |     |    |                |  |                                                                                                                                             
|Kenneth H. Callaway(1)     |  |     | 48 |                |  | Director of the Company and Avondale Mills                                                                                                  
|                           |  |     |    |                |  |                                                                                                                                             
|Robert B. Calhoun(1)(2)(3) |  |     | 61 |                |  | Director of the Company and Avondale Mills                                                                                                  
|                           |  |     |    |                |  |                                                                                                                                             
|Harry C. Howard(2)         |  |     | 74 |                |  | Director of the Company and Avondale Mills                                                                                                  
|                           |  |     |    |                |  |                                                                                                                                             
|C. Linden Longino, Jr.(2)  |  |     | 67 |                |  | Director of the Company and Avondale Mills                                                                                                  
|                           |  |     |    |                |  |                                                                                                                                             
|James A. Rubright (2)      |  |     | 56 |                |  | Director of the Company and Avondale Mills                                                                                                  
|                           |  |     |    |                |  |                                                                                                                                             
|John P. Stevens(1)         |  |     | 74 |                |  | Director of the Company and Avondale Mills                                                                                                  



---



|(1) |  | Member of Compensation Committee.                                                                                                                                                                   
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Member of Audit Committee.                                                                                                                                                                          
|   
|(3) |  | Mr. Calhoun has been elected a director of the Company pursuant to that
certain shareholders agreement dated as of April 29, 1996 by and
among the Company and certain shareholders of the Company.

G. Stephen Felkerhas 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 served as Chairman of the Georgia State Advisory Board of Wachovia
Bank, National Association, from 1989 to 2000 and is currently a director of
American Fibers and Yarns, Inc. and Rock-Tenn Company.

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 Spragginshas 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

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served Avondale Mills in various other capacities, including Vice
President, Manufacturing of Avondale Mills, since that time.

Keith M. Hullhas 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. Crockardhas 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 Boydhas 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.

Sharon L. Rodgershas 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.

Dale J. Bodenhas 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.

Kenneth H. Callawayhas 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. Calhounhas 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 Capital 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
and Lord Abbett Family of Funds.

Harry C. Howardhas 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.

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.

James A. Rubrighthas served as a director of the Company since November
2000. Mr. Rubright is Chairman and Chief Executive Officer of Rock-Tenn
Company, an integrated paperboard and packaging company.Before joining
Rock-Tenn Company, Mr. Rubright served as Executive Vice President of Sonat,
Inc., an energy company. Mr. Rubright is also a director of Rock-Tenn Company
and AGL Resources, Inc.

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John P. Stevenshas 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, National Association, 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, National Association, 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 29, 2003, the Board of
Directors of the Company held six meetings.

The Compensation Committee of the Board of Directors during fiscal 2003
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 29, 2003, the
Compensation Committee held one meeting. See Report on Executive Compensation.

The Audit Committee of the Board of Directors during fiscal 2003 consisted
of Harry C. Howard, Chairman of the Audit Committee, Robert B. Calhoun, C.
Linden Longino, Jr., and James A. Rubright. None of the members of the Audit
Committee is an employee of the Company. During the fiscal year ended August
29, 2003, the Audit Committee held four meetings.

The Audit Committee meets with the independent public accountants,
internal auditors and management 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.

The Board of Directors has determined, pursuant to Item 7(d)(3)(iv)(B) of
Schedule 14A, that all of the members of the Audit Committee are independent in
accordance with Rule 4350(d)(2) and Rule 4200 of the National Association of
Securities Dealers listing standards. Additionally, the Board has determined
that all members of the Audit Committee qualify as audit committee financial
experts pursuant to Security and Exchange Commission regulations.

The Company has a code of business conduct applicable to all officers of
the Company. In addition, the Company has adopted a code of ethics for its
senior executive and financial officers.

During fiscal 2003, the Company paid each non-employee director a
quarterly fee of $6,250 plus reimbursement of out-of-pocket expenses. In
addition, the Audit Committee Chairman is paid $1,000 for each formal meeting.

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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
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 2001, 2002
and 2003, 14,000 non-qualified options were granted in each respective year. At
August 29, 2003, 22,000 non-qualified options remained available for grant.

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ITEM 11. EXECUTIVE COMPENSATION

Executive Compensation

Summary Compensation Table.The table below sets forth certain
information concerning the compensation earned during fiscal 2001, 2002 and
2003 by the Companys Chief Executive Officer and its four other most highly
compensated executive officers (collectively, the Named Executive Officers).

Summary Compensation Table

|                            |                                                   |      |                        |           |  |             |         |                    |  |  |   |         |           |  |        |        | 
|--------------------------- | ------------------------------------------------- | ---- | ---------------------- | --------- |  | ----------- | ------- | ------------------ |  |  | - | ------- | --------- |  | ------ | ------ | 
|                            |                                                   |      | Annual Compensation(1)
|                            |                                                   |      |                       
|                            |                                                   |      | Fiscal                 |           |  |             |         |                    |  |  |   |         | All Other
|Name and Principal Position |                                                   | Year |                        | Salary($) |  | Bonus($)(2) |         | Compensation($)(3)
|                            |                                                   |      |                        |           |  |             |         |                   
|G. Stephen Felker           |                                                   |      | 2003                   |           |  |             | 800,016 |                    |  |  |  |         |           |  | 4,399  |       
|                            | Chairman of the Board, President and Chief        |      |                        | 2002      |  |             |         | 800,016            |  |  |   | 400,000 |           |  |        | 1,578  | 
|                            | Executive Officer                                 |      |                        | 2001      |  |             |         | 800,016            |  |  |   |        |           |  |        | 2,983  | 
|Jack R. Altherr, Jr.        |                                                   |      | 2003                   |           |  |             | 355,008 |                    |  |  |  |         |           |  | 6,988  |       
|                            | Vice Chairman and Chief Financial Officer         |      |                        | 2002      |  |             |         | 355,008            |  |  |   | 100,000 |           |  |        | 5,760  | 
|                            |                                                   |      | 2001                   |           |  |             | 353,340 |                    |  |  |  |         |           |  | 7,577  |       
|T. Wayne Spraggins          |                                                   |      | 2003                   |           |  |             | 296,016 |                    |  |  |  |         |           |  | 13,779 |       
|                            | Vice President and President, Manufacturing       |      |                        | 2002      |  |             |         | 296,016            |  |  |   | 75,000  |           |  |        | 11,050 | 
|                            | Operations                                        |      |                        | 2001      |  |             |         | 294,680            |  |  |   |        |           |  |        | 15,875 | 
|Keith M. Hull               |                                                   |      | 2003                   |           |  |             | 298,032 |                    |  |  |  |         |           |  | 4,990  |       
|                            | Vice President and President, Marketing and Sales |      |                        | 2002      |  |             |         | 298,032            |  |  |   | 75,000  |           |  |        | 4,115  | 
|                            |                                                   |      | 2001                   |           |  |             | 296,360 |                    |  |  |  |         |           |  | 5,380  |       
|Sharon L. Rodgers           |                                                   |      | 2003                   |           |  |             | 137,088 |                    |  |  |  |         |           |  | 2,231  |       
|                            | Vice President, Human Resources                   |      |                        | 2002      |  |             |         | 127,512            |  |  |   | 26,000  |           |  |        | 1,842  | 
|                            |                                                   |      | 2001                   |           |  |             | 126,760 |                    |  |  |  |         |           |  | 1,854  |       



---



|(1) |  | The aggregate amount of perquisites and other personal benefits, if any,
did not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus reported for each Named Executive Officer and has therefore been
omitted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Amounts shown include cash bonuses earned under the Companys management
incentive plan, payments received in the Companys distribution of cash
profit sharing to all eligible associates of the Company, and such other
payments as the Compensation Committee of the Board of Directors elects to
make based upon the Companys and respective officers performance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(3) |  | Amounts shown reflect, for fiscal 2001, (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 $1,003 on behalf of Ms. Rodgers, and (ii) life insurance
premiums of $6,302, $14,600, $4,105, and $983 paid by the Company on
behalf of Messrs. Altherr, Spraggins, Hull and Ms. Rodgers, respectively,
and taxable income of $1,708 to Mr. Felker in conjunction with a split
dollar insurance agreement. Amounts shown reflect, for fiscal 2002, (i)
matching 401(k) contributions made by the Company to the Companys
Associate Profit Sharing and Savings Plan of $1,500 on behalf of Messrs.
Felker and Altherr and $1,398, $1,397 and $956 on behalf of Messrs.
Spraggins, Hull and Ms. Rodgers, respectively and (ii) life insurance
premiums of $4,260, $9,662, $2,718 and $885 paid by the Company on

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##### Table of Contents



| |  | behalf of Messrs. Altherr, Spraggins, Hull and Ms. Rodgers, respectively, and
taxable income of $78 to Mr. Felker in conjunction with a split dollar insurance agreement. Amounts
shown reflect, for fiscal 2003, (i) matching 401(k) contributions made by
the Company to the Companys Associate Profit Sharing and Savings Plan of
$1,500 on behalf of Messrs. Felker and Altherr and $1,480, $1,490 and
$1,223 on behalf of Messrs. Spraggins, Hull and Ms. Rodgers, respectively
and (ii) life insurance premiums of $5,488, $12,299, $3,500 and $1,008
paid by the Company on behalf of Messrs. Altherr, Spraggins, Hull and Ms.
Rodgers, respectively, and taxable income of $2,899 to Mr. Felker in
conjunction with a split dollar insurance agreement.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Option Grants Table.The Company did not grant any options to any Named
Executive Officers during fiscal 2003. In addition, the Companys employee
Stock Option Plan expired in July 2003.

Aggregated Options Table.The table below sets forth certain information
with respect to options held at the end of fiscal 2003 by each Named Executive
Officer.

Fiscal Year End Option Values Table

|                     |  |                   |          |                  |  |   |         |   
|-------------------- |  | ----------------- | -------- | ---------------- |  | - | ------- | --
|                     |  | Number of         |          |                  |  |  
|                     |  | Shares Underlying |          | Value of        
|                     |  | Unexercised       |          | Unexercised     
|                     |  | Options at        |          | Options at      
|                     |  | Fiscal Year End   |          | Fiscal Year End 
|                     |  | Exercisable/      |          | Exercisable/    
|                     |  | Unexercisable     |          | Unexercisable(1)
|                     |  |                   |          |                 
|G. Stephen Felker    |  |                   | 265,000/ |                 |  | $ | 48,000/ | $
|Jack R. Altherr, Jr. |  |                   | 125,000/ |                 |  |   | 20,000/ |  
|T. Wayne Spraggins   |  |                   | 45,000/  |                 |  |   | 4,000/  |  
|Keith M. Hull        |  |                   | 71,001/  |                 |  |   | 9,200/  |  
|Sharon L. Rodgers    |  |                   | 20,000/  |                 |  |   | /      |  



---



|(1) |  | All options are options to purchase Class A Common Stock of Avondale
Incorporated. There is no existing public market for the Class A Common
Stock. The values shown are based on managements estimate of the fair
market value of the Class A Common Stock at August 29, 2003.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Long-term Incentive Plans.The table below sets forth certain information
with respect to phantom units held at the end of fiscal 2003 by each Named
Executive Officer. No phantom units were awarded during fiscal 2003.

Long-term Incentive Plans  Units Held at August 29, 2003

|                     |  |               |     |                |  |                       |    |                  |  |   |         | 
|-------------------- |  | ------------- | --- | -------------- |  | --------------------- | -- | ---------------- |  | - | ------- | 
|                     |  | Aggregate     |     |                |  |                       |    | Estimated Future
|                     |  | Phantom Units |     | Period Until   |  | Payouts for All      
|Name                 |  | Held(1)       |     | Payout (Years) |  | Phantom Units Held(2)
|                     |  |               |     |                |  |                      
|G. Stephen Felker    |  |               | 150 |                |  |                       | 13 |                  |  | $ | 692,379 | 
|Jack R. Altherr, Jr. |  |               | 90  |                |  |                       | 11 |                  |  |   | 415,427 | 
|T. Wayne Spraggins   |  |               | 50  |                |  |                       |   |                  |  |   | 230,793 | 
|Keith M. Hull        |  |               | 90  |                |  |                       | 14 |                  |  |   | 415,427 | 
|Sharon L. Rodgers    |  |               |    |                |  |                       |   |                  |  |   |        | 



---



|(1) |  | Each phantom unit equals 398.606 phantom shares. The value of each
phantom share is equal to the result obtained by dividing (i) five times
Avondales earnings before depreciation, amortization, LIFO inventory
adjustments, interest and income taxes for the 10 fiscal quarters
immediately preceding such date divided by 2.5, plus (ii) certain balance
sheet adjustments by the sum of (i) the aggregate number of outstanding
phantom shares plus (ii) the aggregate number of outstanding shares of
Class A Common Stock and Class B Common Stock of the Company. Phantom
units vest at the rate of 5% per year for each full and uninterrupted year
that the Named Executive Officer remains employed by the Company after
August 31, 1989, and vest fully if the Named Executive Officer dies before
his employment is terminated. The value of vested phantom units is payable
beginning on the later of the date on which the Named Executive Officer
reaches the age of 65 or the date on which the employment of such Named
Executive Officer terminates (the Normal Payment Date), in 10 equal
annual installments, with interest equal to the one-year U.S. Treasury
Bill rate in effect on the Normal Payment Date. If the Named Executive
Officer dies before his employment with the Company is terminated, the
value of his phantom units on the date of death is payable to his
beneficiary as described above. If the Named Executive Officer dies after
his Normal Payment Date, the present value of the balance of the annual
installments is payable in a lump sum to his beneficiary. A Named
Executive Officer will forfeit all interest in his Phantom Stock Units
(whether or not vested) if he violates certain non-compete covenants
applicable during such Named Executive Officers employment and for a
period of five years after termination of such employment.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | There are no threshold, target or maximum amounts payable with respect to
phantom unit awards made by the Company. The amounts shown reflect the
future value, excluding interest payable during the installment payment
period, as of September 1, 2003, of vested and non-vested phantom units
held at the end of fiscal 2003 based on the results of the Company for the
10 fiscal quarters ended August 29, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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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 2003 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 2003, the base salary paid to each Named
Executive Officer other than the Chief Executive Officer in fiscal 2003
increased 0.0% to 13.7% over the amounts paid to each such Named Executive
Officer in fiscal 2002. 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 2003, 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 additional cash bonuses at the discretion of the Compensation Committee
of the Board of Directors based upon the Companys and the respective officers
performance, including 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 2003, the named executive
officers did not receive a bonus.

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

69



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##### Table of Contents



creation of opportunities to own stock is considered the most significant
component in an executive officers compensation package. During fiscal 2003,
no stock options were granted.

|                   
|-------------------
|John P. Stevens    
|Dale J. Boden      
|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 1933, as amended, or under the Securities Exchange
Act of 1934 as amended (together, the Acts), except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee are Messrs. Boden, Callaway,
Calhoun and Stevens. None of the members of the Compensation Committee have
ever been an officer or employee of the Company. In addition, none of the
Companys executive officers serves as a member of a Compensation Committee of
a Board of Directors of any entity that has one or more executive officers who
serves on the Companys Compensation Committee. As discussed below under the
caption Certain Relationships and Related Party Transactions, Mr. Callaway, is
president of Calgati Chemical Company, Ltd. During fiscal 2003, the Company
purchased specialty chemicals from Calgati Chemical Company, Ltd. in the
aggregate amount of approximately $862,000.

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|         |  |                                                               
|-------- |  | --------------------------------------------------------------
|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, 2003, 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.

|                                                                   |  |                      |           |                      |  |            |      |          |  |              |         |  |  |  |     |   |  |  |      |  
|------------------------------------------------------------------ |  | -------------------- | --------- | -------------------- |  | ---------- | ---- | -------- |  | ------------ | ------- |  |  |  | --- | - |  |  | ---- | -
|                                                                   |  | 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
|                                                                   |  |                      |           |                      |  |            |      |          |  |             
|G. Stephen Felker(2)                                               |  |                      | 4,338,989 |                      |  |            | 37.2 | %        |  |              | 978,939 |  |  |  | 100 | % |  |  | 73.4 | %
|Jack R. Altherr, Jr.(3)                                            |  |                      | 232,199   |                      |  |            | 2.0  | %        |  |              |        |  |  |  |    |   |  |  | *    |  
|T. Wayne Spraggins(4)                                              |  |                      | 115,000   |                      |  |            | 1.0  | %        |  |              |        |  |  |  |    |   |  |  | *    |  
|Keith M. Hull (5)                                                  |  |                      | 121,001   |                      |  |            | 1.1  | %        |  |              |        |  |  |  |    |   |  |  | *    |  
|Craig S. Crockard (6)                                              |  |                      | 14,077    |                      |  |            | *    |          |  |              |        |  |  |  |    |   |  |  | *    |  
|Dale J. Boden(7)                                                   |  |                      | 117,500   |                      |  |            | 1.0  | %        |  |              |        |  |  |  |    |   |  |  | *    |  
|Kenneth H. Callaway(8)                                             |  |                      | 22,000    |                      |  |            | *    |          |  |              |        |  |  |  |    |   |  |  | *    |  
|Robert B. Calhoun(9)(10)(11)                                       |  |                      | 2,312,823 |                      |  |            | 20.3 | %        |  |              |        |  |  |  |    |   |  |  | 7.5  | %
|Harry C. Howard(12)                                                |  |                      | 57,000    |                      |  |            | *    |          |  |              |        |  |  |  |    |   |  |  | *    |  
|C. Linden Longino, Jr.(13)                                         |  |                      | 37,250    |                      |  |            | *    |          |  |              |        |  |  |  |    |   |  |  | *    |  
|James A. Rubright (14)                                             |  |                      | 10,500    |                      |  |            | *    |          |  |              |        |  |  |  |    |   |  |  | *    |  
|John P. Stevens(15)                                                |  |                      | 115,000   |                      |  |            | 1.0  | %        |  |              |        |  |  |  |    |   |  |  | *    |  
|The Clipper Group(10)(16)                                          |  |                      | 2,277,523 |                      |  |            | 20.0 | %        |  |              |        |  |  |  |    |   |  |  | 7.4  | %
|Grayward Company(17)                                               |  |                      | 3,497,740 |                      |  |            | 30.7 | %        |  |              |        |  |  |  |    |   |  |  | 11.3 | %
|Felker Investments, Ltd.(18)                                       |  |                      | 2,093,750 |                      |  |            | 18.4 | %        |  |              |        |  |  |  |    |   |  |  | 6.8  | %
|Avondale Mills, Inc. Associate Profit
Sharing and Savings Plan(19) |  |                      | 450,000   |                      |  |            | 3.9  | %        |  |              |        |  |  |  |    |   |  |  | 1.5  | %
|All directors and executive officers
As a group (16 persons)       |  |                      | 7,524,339 |                      |  |            | 62.6 | %        |  |              | 978,939 |  |  |  | 100 | % |  |  | 82.7 | %



---

|    |  | * 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, (iii) 265,000
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, and (iv) 100
shares owned by Mr. Felkers son, for which Mr. Felker shares neither
voting nor investment power.
|   
|(3) |  | Includes 125,000 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 45,000 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

71



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##### Table of Contents



|(5)  |  | Includes 71,001 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)  |  | Includes 6,000 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Crockard, which shares are deemed
beneficially owned by Mr. Crockard under Rules 13d-3 under the Exchange
Act.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|(7)  |  | Reflects (i) 12,000 shares of Class A Common Stock issuable upon exercise
of stock options beneficially owned by Mr. Boden, which shares are deemed
beneficially owned by Mr. Boden under Rule 13d-3 under the Exchange Act,
(ii) 6,333 shares beneficially owned by Textile Capital Partners with
respect to which Mr. Boden has shared voting and investment power, (iii)
8,500 shares beneficially owned by Textile Capital Partners II with
respect to which Mr. Boden has shared voting and investment power, (iv)
90,000 shares beneficially owned by The Sterling Trust; Hilliard Lyons
Trust Co. Trustee, with respect to which Mr. Boden is a beneficiary and
has shared voting and investment power, and (v) 667 shares owned by Mr.
Bodens wife, for which Mr. Boden shares neither voting nor investment
power. Mr. Boden is the majority shareholder of Textile Capital Partners
and Textile Capital Partners II, and, consequently, is deemed to
beneficially own under Rule 13d-3 under the Exchange Act all of the shares
beneficially owned by these entities.                                                                        
|    
|(8)  |  | Includes 12,000 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Callaway, which shares are deemed
beneficially owned by Mr. Callaway under Rule 13d-3 under the Exchange
Act.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|(9)  |  | The address of Mr. Calhoun is c/o Clipper Capital Partners, LP, 650
Madison Avenue, 9th Floor, New York, New York 10022.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|(10) |  | Includes (i) 12,000 shares of Class A Common Stock issuable upon exercise
of stock options beneficially owned by Mr. Calhoun, which shares are
deemed beneficially owned by Mr. Calhoun under Rule 13d-3 under the
Exchange Act, and (ii) 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|(11) |  | 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.
|    
|(12) |  | Includes 12,000 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Howard, which shares are deemed
beneficially owned by Mr. Howard under Rule 13d-3 under the Exchange Act.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|(13) |  | Includes (i) 12,000 shares of Class A Common Stock issuable upon exercise
of stock options beneficially owned by Mr. Longino, which shares are
deemed beneficially owned by Mr. Longino under Rule 13d-3 under the
Exchange Act.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|(14) |  | Includes 6,000 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Rubright, which shares are deemed
beneficially owned by Mr. Rubright under Rules 13d-3 under the Exchange
Act.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|(15) |  | Includes (i) 13,000 shares beneficially owned by Mr. Stevens spouse, for
which Mr. Stevens shares neither voting nor investment power, and (ii)
12,000 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    
|(16) |  | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

72



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|     |  | affiliate of CS
First Boston Corporation, is the indirect 99% limited partner of Merban.
None of Merchant, Merchant Capital, CS First Boston Corporation and CS
Holding is an affiliate of Clipper or CCA.                                                                                                                                                                        
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(17) |  | 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.  
|    
|(18) |  | The address of Felker Investments, Ltd. is c/o G. Stephen Felker, 506
South Broad Street, Monroe, Georgia 30655.                                                                                                                                                                                                                                                                  
|    
|(19) |  | These shares are held by the trustee, Scudder Trust Company, P.O. Box
957, Salem, New Hampshire 03079, for the benefit of participants in the
Avondale Mills, Inc. Associate Profit Sharing and Savings Plan (the
Plan). The Company is the administrator of the trust and its Chairman
and Chief Executive Officer votes the shares held by the trust on behalf
of the Company.

Equity Compensation Plan Information

The following table gives information about the Companys Class A Common
Stock that may be issued upon exercise of options under the 1993 Avondale
Incorporated Stock Option Plan and the 1997 Avondale Incorporated Stock Option
Plan for Non-employee Directors (the only stock compensation plans of the
Company). Under the 1993 plan, which was approved by the shareholders of the
Company, options were granted to full time employees of the Company, including
executive officers.

|                                                               |  |                  |         |                   |  |                      |       |                 |  |                      |        | 
|-------------------------------------------------------------- |  | ---------------- | ------- | ----------------- |  | -------------------- | ----- | --------------- |  | -------------------- | ------ | 
|                                                               |  |                  |         |                   |  |                      |       |                 |  | (c) Number of       
|                                                               |  |                  |         |                   |  |                      |       |                 |  | Securities Remaining
|                                                               |  |                  |         |                   |  |                      |       |                 |  | Available for       
|                                                               |  | (a) Number of    |         |                   |  |                      |       | Future Issuance
|                                                               |  | Securities to be |         | (b) Weighted      |  | Under Equity        
|                                                               |  | Issued Upon      |         | Average           |  | Compensation        
|                                                               |  | Exercise of      |         | Exercise Price of |  | Plans (Excluding    
|                                                               |  | Outstanding      |         | Outstanding       |  | Securities Reflected
|Plan Category                                                  |  | Options          |         | Options           |  | in Column (a))      
|                                                               |  |                  |         |                   |  |                     
|Equity Compensation plans approved
by the security holders     |  |                  | 813,000 |                   |  | $                    | 14.98 |                 |  |                      |       | 
|Equity Compensation plans not
approved by the security holders |  |                  | 78,000  |                   |  | $                    | 18.28 |                 |  |                      | 22,000 | 

For discussion of the 1993 Avondale Incorporated Stock Option Plan, see
Note 12. Common Stock in the Notes to Consolidated Financial Statements
included in Item 8, Financial Statement and Supplementary Data of this Annual
Report on Form 10-K.

The Company adopted the Avondale Incorporated Stock Option Plan for
Non-employee Directors, effective September 1, 1997, reserving 100,000 shares
of the Companys Class A Common Stock. Under the plan, each director is
automatically granted each year, 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 the stock on
the date of the grant. Options are exercisable for a period of ten years,
subject to certain limitations. The plan did not require approval of the
shareholders of the Company. In each of fiscal 2001, 2002 and 2003, options to
purchase 14,000 shares were granted.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Kenneth H. Callaway, a director, is president of Calgati Chemical Company,
Ltd. During fiscal 2003, the Company purchased specialty chemicals from
Calgati Chemical Company, Ltd. in the aggregate amount of approximately
$862,000.




ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

In accordance with Security and Exchange Commission rules, the disclosure
requirements of this Item are not effective until the Companys fiscal year
ending after December 15, 2003.

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PART IV




|         |  |                                                                
|-------- |  | ---------------------------------------------------------------
|ITEM 15. |  | 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 Public Accountants
for the year ended August 29, 2003 are included in Part II, Item 8.



|   |  | Report of Independent Public Accountants                                                                                 
|-- |  | -------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Consolidated Balance Sheets as of August 30, 2002 and August 29, 2003                                                    
|  
|   |  | Consolidated Statements of Income  Fiscal Years Ended August 31, 2001,
August 30, 2002 and August 29, 2003              
|  
|   |  | Consolidated Statements of Shareholders Equity  Fiscal Years Ended
August 31, 2001, August 30, 2002 and August 29, 2003
|  
|   |  | Consolidated Statements of Cash Flows  Fiscal Years Ended August 31,
2001, August 30, 2002
and August 29, 2003          
|  
|   |  | Notes to Consolidated Financial Statements                                                                               
|  
|2. |  | Financial Statement Schedules of the Company.                                                                            
|  
|   |  | Schedule II  Valuation and Qualifying Accounts                                                                          
|  
|3. |  | Exhibits.                                                                                                                

|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                 |  |  |  | 
|------- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit |  |   |  |                                                                                                                                                                                                                                                                                                                                                 |  |  |  | 
|Number  |  |   |  |                                                                                                                                                                                                                                                                                                                                                 |  |  |  | 
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                 |  |  |  | 
|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 10.25% Senior Subordinated Notes due 2006 among 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).                                                             
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                
|4.3     |  |  |  | Indenture for the 10 1/4 Senior Subordinated Notes due 2013 among Avondale Incorporated,
Avondale Mills, Inc. and Wachovia Bank, National Association, as Trustee (incorporated by
reference to Exhibit 4.3 to Avondale Incorporateds Registration Statement on Form S-4, File No.
333-108353).                                               
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                
|4.5     |  |  |  | Registration Rights Agreement, dated as of June 30, 2003, among Avondale Mills, Inc., Avondale
Incorporated and Wachovia Securities, LLC. Trustee (incorporated by reference to Exhibit 4.3 to
Avondale Incorporateds Registration Statement on Form S-4, File No. 333-108353).                                                               
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                
|4.9     |  |  |  | Second Amended and Restated Credit Agreement, dated as of September 28, 2000, among Avondale
Mills, Inc., various listed banks and Wachovia Bank, National Association, as agent.
(incorporated by reference to Exhibit 4.9 to Avondale Incorporateds 2000 Annual Report on Form
10-K, File No. 33-68412)                                     
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                
|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 (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).

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|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  |  | 
|------- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  |  | 
|Number  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  |  | 
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  |  | 
|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).                                                                                                                                                                                  
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.10   |  |  |  | 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 2003 Management Incentive Plan for G. Stephen Felker.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.13   |  |  |  | Avondale Mills, Inc. Fiscal 2003 Management Incentive Plan for Jack R. Altherr, Jr.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.14   |  |  |  | Avondale Mills, Inc. Fiscal 2003 Management Incentive Plan for T. Wayne Spraggins.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.15   |  |  |  | Avondale Mills, Inc. Fiscal 2003 Management Incentive Plan for Keith Hull.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.16   |  |  |  | Avondale Mills, Inc. Fiscal 2003 Management Incentive Plan for Sharon Rodgers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.17   |  |  |  | Phantom Unit Awards to G. Stephen Felker (incorporated by reference to Exhibit 10.19 To Avondale
Incorporateds Registration Statement on Form S-4, File No.333-5455-01).                                                                                                                                                                                                                                                                                                                                                                                     
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.18   |  |  |  | Phantom Unit Awards to Jack R. Altherr, Jr. (incorporated by reference to Exhibit 10.21 to
Avondale Incorporateds Registration Statement on Form S-4, File No.333-5455-01).                                                                                                                                                                                                                                                                                                                                                                                  
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.19   |  |  |  | Phantom Unit Awards to T. Wayne Spraggins (incorporated by reference to Exhibit 10.23 to Avondale
Incorporateds Registration Statement on Form S-4, File No. 333-5455-01).                                                                                                                                                                                                                                                                                                                                                                                   
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.20   |  |  |  | Phantom Unit Awards to Keith M. Hull (incorporated by reference to Exhibit 10.19 to Avondale
Incorporated s 1996 Annual Report on Form 10-K,File No. 33-68412).                                                                                                                                                                                                                                                                                                                                                                                              
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.21   |  |  |  | Supply Agreement dated March 31, 1996 between the Company and B.F. Goodrich
(incorporated by reference to Exhibit 10.24 to Avondale Incorporateds
Registration Statement on Form S-4, File No. 33-5455-01).                                                                                                                                                                                                                                                                                                                                                  
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.22   |  |  |  | Avondale Incorporated Stock Option Plan for Non-Employee Directors, Dated April 10, 1997
(incorporated by reference to Exhibit 10.23 to Avondale Incorporateds 1997 Annual Report on Form
10-K, File No. 33-68412).                                                                                                                                                                                                                                                                                                                                          
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.23   |  |  |  | Omnibus Amendment No. 1 to Amended and Reinstated Series 1996-1 Supplement to Pooling and
Servicing Agreement, and Amended and Reinstated Certificate Purchase Agreements, dated April 25,
2000, among Avondale Receivables Company, Avondale Mills, Inc. and various banks (incorporated by
reference to Exhibit 10.23 to Avondale Incorporateds 2001 Annual Report on Form 10-K, File No.
33-68412).                                                                                                                                                       
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.24   |  |  |  | First Amendment to Second Amended and Reinstated Credit Agreement, dated as of August 30, 2001,
among Avondale Mills, Inc., various banks and Wachovia Bank, National Association, as agent
(incorporated by reference to Exhibit 10.24 to Avondale Incorporateds 2001 Annual Report on Form
10-K, File No. 33-68412).                                                                                                                                                                                                                                       
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.25   |  |  |  | Amendment No. 6 to Letter of Credit Agreement, dated August 30, 2001, between and among Avondale
Incorporated, Avondale Mills, Inc. and Suntrust Bank related to Development Authority of Walton
County Industrial Development Revenue Bonds (incorporated by reference to Exhibit 10.25 to
Avondale Incorporateds 2001 Annual Report on Form 10-K, File No. 33-68412).                                                                                                                                                                                      
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.26   |  |  |  | Consent and First Amendment between Avondale Mills, Inc. and B.F. Goodrich, Partial Assignment
and Assumption of Supply Agreement between Avondale Mills, Inc., B.F. Goodrich and Noveon, Inc.
(formerly B.F. Goodrich PMD Group) and Amendment and Partial Assignment of Supply Agreement,
between Avondale Mills, Inc., B.F. Goodrich and C.H. Patrick & Co. (formerly CHP Acquisition
Group, Inc.), all dated February 28, 2001 (incorporated by reference to Exhibit 10.26 to Avondale
Incorporateds 2001 Annual Report on Form 10-K, File No. 33-68412).

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|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |  |  | 
|------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |  |  | 
|Number  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |  |  | 
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |  |  | 
|10.27   |  |  |  | Second Amendment to Second Amended and Restated Credit Agreement, dated as of February 6, 2002,
among Avondale Mills, Inc., various listed banks and Wachovia Bank, National Association, as
agent (incorporated by reference to Exhibit 10.27 to Avondale Incorporateds quarterly report on
Form 10-Q for  the period ended March 1, 2002, File No. 33-68412)                                                                  
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.28   |  |  |  | Third Amendment to Second Amended and Restated Credit Agreement, dated as of March 1, 2002, among
Avondale Mills, Inc., various listed banks and Wachovia Bank, National Association, as agent
(incorporated by reference to Exhibit 10.28 to Avondale Incorporateds quarterly report on Form
10-Q for the period ended March 1, 2002, File No. 33-68412)                                                                       
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.29   |  |  |  | Fourth Amendment to Second Amended and Restated Credit Agreement and First Amendment to Security
Agreement dated, as of May 24, 2002, among Avondale Mills, Inc. and various listed banks and
Wachovia Bank, National Association, as agent (incorporated by reference to Exhibit 10.29 to
Avondale Incorporateds quarterly report on Form 10-Q for the period ended May 31, 2002, File No.
33-68412)                           
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.30   |  |  |  | Master Security Agreement and related documents, dated July 30, 2002, among Avondale Mills, Inc.
and The CIT Group/Equipment Financing, Inc. (incorporated by reference to Exhibit 10.30 to
Avondale Incorporateds 2002 Annual Report on Form 10-K, File No. 33-68412).                                                                                                                                                         
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.31   |  |  |  | Intercreditor Agreement, dated July 30, 2002 among Avondale Mills, Inc. The CIT Group/Equipment
Financing, Inc. and various listed banks and Wachovia Bank, National Association, as agent
(incorporated by reference to Exhibit 10.31 to Avondale Incorporateds 2002 Annual Report on Form
10-K, File No. 33-68412).                                                                                                           
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.32   |  |  |  | Sale and Contribution Agreement, dated as of August 30, 2002, among Avondale Mills, Inc.,
Avondale Incorporated and Avondale Funding, LLC (incorporated by reference to Exhibit 10.32 to
Avondale Incorporateds 2002 Annual Report on Form 10-K, File No. 33-68412).                                                                                                                                                            
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.33   |  |  |  | Receivables Purchase and Servicing Agreement, dated as of August 30, 2002, by and among Avondale
Funding, LLC, Redwood Receivables Corporation, Avondale Mills, Inc., and General Electric Capital
Corporation (incorporated by reference to Exhibit 10.33 to Avondale Incorporateds 2002 Annual
Report on Form 10-K, File No. 33-68412).                                                                                       
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.34   |  |  |  | Annex X to Sale and Contribution Agreement and Receivables Purchase and Servicing Agreement, each
dated as of August 30, 2002 (incorporated by reference to Exhibit 10.34 to Avondale
Incorporateds 2002 Annual Report on Form 10-K, File No. 33-68412).                                                                                                                                                                        
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.35   |  |  |  | Receivables Purchase Termination and Reassignment Agreement, dated August 30, 2002, among
Manufacturers and Traders Trust Company, Avondale Receivables Master Trust, Avondale Receivables
Company, Avondale Mills, Inc., Falcon Asset Securitization Corporation, and Bank One, N.A.
(incorporated by reference to Exhibit 10.35 to Avondale Incorporateds 2002 Annual Report on Form
10-K, File No. 33-68412).                
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.36   |  |  |  | Blocked Account Agreement, dated August 30, 2002, among Wachovia Bank, National Association,
Avondale Mills, Inc., Avondale Funding, LLC and General Electric Capital Corporation
(incorporated by reference to Exhibit 10.36 to Avondale Incorporateds 2002 Annual Report on Form
10-K, File No. 33-68412).                                                                                                                    
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.37   |  |  |  | Intercreditor Agreement, dated August 30, 2002, among General Electric Capital Corporation,
Wachovia Bank, National Association, Avondale Funding, LLC and Avondale Mills, Inc. (incorporated
by reference to Exhibit 10.37 to Avondale Incorporateds 2002 Annual Report on Form 10-K, File
No. 33-68412).                                                                                                                      
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.38   |  |  |  | Fifth Amendment to Second Amended and Restated Credit Agreement, dated August 30, 2002 among
Avondale Mills, Inc. , various listed banks and Wachovia Bank, National Association, as agent
(incorporated by reference to Exhibit 10.38 to Avondale Incorporateds 2002 Annual Report on Form
10-K, File No. 33-68412).                                                                                                           
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.39   |  |  |  | Borrow Pledge Agreement, dated August 30, 2002 between Avondale Mills, Inc. various listed banks
and Wachovia Bank, National Association, as agent (incorporated by reference to Exhibit 10.39 to
Avondale Incorporateds 2002 Annual Report on Form 10-K, File No. 33-68412).                                                                                                                                                   
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.40   |  |  |  | Third Amended and Restated Credit Agreement dated, as of March 28, 2003, among Avondale Mills,
Inc., various listed banks and Wachovia Bank, National Association, as agent (incorporated by
reference to Exhibit 10.40 to Avondale Incorporateds quarterly report on Form 10-Q for the
period ended May 31, 2003, File No. 33-68412).                                                                                          
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.41   |  |  |  | Amendment No. 1 to Receivables Purchase and Servicing Agreement, and Sale and Contribution
Agreement, dated as of March 28, 2003, by and among Avondale Funding, LLC, Redwood Receivables
Corporation, Avondale Mills, Inc., and General Electric Capital Corporation (incorporated by
reference to Exhibit 10.41 to Avondale Incorporateds quarterly report on Form 10-Q for the
period ended May 31, 2003, File No. 33-68412).
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.42   |  |  |  | Amendment No. 2 to Receivables Purchase and Servicing Agreement, dated as of August 30, 2002, by
and among Avondale Mills, Inc. and General Electric Capital Corporation dated July 3, 2003
(incorporated by reference to Exhibit 10.42 to Avondale Incorporateds Registration Statement on
Form S-4, File No. 333-108353).                                                                                                     
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  

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|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                               |  |  |  | 
|------- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit |  |   |  |                                                                                                                                                                                                                                                                                                                                                                               |  |  |  | 
|Number  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                               |  |  |  | 
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                               |  |  |  | 
|10.43   |  |  |  | Letter Agreement related to the Blocked Account Agreement, dated August 30, 2002, by and among
Avondale Mills, Inc., Avondale Funding, LLC, General Electric Capital Corporation and Wachovia
Bank, National Association, dated July 3, 2003 (incorporated by reference to Exhibit 10.42 to
Avondale Incorporateds Registration Statement on Form S-4, File No. 333-108353).
|10.44   |  |  |  | Credit Agreement, dated as of November 7, 2003, among Avondale Mills, Inc., Avondale Mills
Graniteville Fabrics, Inc. and General Electric Capital Corporation, GECC Capital Markets Group,
Inc., and from time to time various Lenders, and various related agreements.                                                                                                    
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                              
|10.45   |  |  |  | Amendment No. 3 to Receivables Purchase and Servicing Agreement, dated as of August 30, 2002, by
and among Avondale Mills, Inc., Avondale Funding, LLC and General Electric Capital Corporation,
dated November 7, 2003.                                                                                                                                                     
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                              
|10.46   |  |  |  | Intercreditor Agreement, dated as of November 7, 2003, by and among General Electric Capital
Corporation, Avondale Funding, LLC and Avondale Mills, Inc.                                                                                                                                                                                                                     
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                              
|12.1    |  |  |  | Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                                                                                                                                           
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                              
|14.1    |  |  |  | Code of Ethics For Senior Executive and Financial Officers.                                                                                                                                                                                                                                                                                                                  
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                              
|21.1    |  |  |  | List of Subsidiaries.                                                                                                                                                                                                                                                                                                                                                        
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                              
|31.1    |  |  |  | Certificate of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                           
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                              
|31.2    |  |  |  | Certificate of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                           
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                              
|32.1    |  |  |  | Certificate of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                            
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                              
|32.2    |  |  |  | Certificate of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                            
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                                                              
|99.1    |  |  |  | Charter of the Audit Committee of the Board of Directors, adopted effective July 13, 2000
(Incorporated by reference to Exhibit 5.1 to Avondale Incorporateds 2000 Annual Report on Form
10-K, File No. 33-68412).                                                                                                                                                          



---



| | (b) |  | Reports on Form 8-K
| | --- |  | -------------------



| | 1. |  | On June 20, 2003, the Company filed a current
report on Form 8-K regarding the launch of a private offering
of $150 million aggregate principal amount of senior
subordinated notes. 
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | On June 20, 2003, the Company filed a current
report on Form 8-K regarding recent developments and
disclosing risk factors.                                                          
|
| | 3. |  | On June 25, 2003, the Company filed a current
report on Form 8-K regarding the pricing of a private offering
of $150 million aggregate principal amount of senior
subordinated notes.



| | (c) |  | See Item 15(a)(3).
| | --- |  | ------------------

78



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##### Table of Contents






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, 2003

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:

|                                                   |  |                               |  |                  
|-------------------------------------------------- |  | ----------------------------- |  | -----------------
|Name                                               |  | Title                         |  | Date             
|                                                   |  |                               |  |                  
|/s/ G. STEPHEN FELKER                              |  | Chairman of the Board,        |  | November 10, 2003
|                                                   |  | President and Chief Executive |  |                  
|G. Stephen Felker                                  |  | Officer                       |  |                  
|                                                   |  |                               |  |                  
|Principal Financial and
Accounting Officer:        |  |                               |  |                  
|                                                   |  |                               |  |                  
|/s/ JACK R. ALTHERR, JR.                           |  | Vice Chairman, Chief          |  | November 10, 2003
|                                                   |  | Financial Officer and         |  |                  
|Jack R. Altherr, Jr.                               |  | Director                      |  |                  
|                                                   |  |                               |  |                  
|Directors:                                         |  |                               |  |                  
|                                                   |  |                               |  |                  
|/s/ DALE J. BODEN

Dale J. Boden                   |  | Director                      |  | November 10, 2003
|                                                   |  |                               |  |                  
|/s/ ROBERT B. CALHOUN

Robert B. Calhoun           |  | Director                      |  | November 10, 2003
|                                                   |  |                               |  |                  
|/s/ KENNETH H. CALLAWAY

Kenneth H. Callaway       |  | Director                      |  | November 10, 2003
|                                                   |  |                               |  |                  
|/s/ HARRY C. HOWARD

Harry C. Howard               |  | Director                      |  | November 10, 2003
|                                                   |  |                               |  |                  
|/s/ C. LINDEN LONGINO, JR.

C. Linden Longino, Jr. |  | Director                      |  | November 10, 2003
|                                                   |  |                               |  |                  
|/s/ JAMES A. RUBRIGHT

James A. Rubright           |  | Director                      |  | November 10, 2003
|                                                   |  |                               |  |                  
|/s/ JOHN P. STEVENS

John P. Stevens               |  | Director                      |  | November 10, 2003

79



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##### Table of Contents



Schedule II

AVONDALE INCORPORATED

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

|                           |  |                                    |  |        |       |            |  |            |       |         |  |    |        |        |  |         |       |  |  | 
|-------------------------- |  | ---------------------------------- |  | ------ | ----- | ---------- |  | ---------- | ----- | ------- |  | -- | ------ | ------ |  | ------- | ----- |  |  | 
|                           |  |                                    |  |        |       |            |  |            |       |         |  |    |        |        |  | (B)     |       | 
|                           |  |                                    |  |        |       |            |  |            |       | Charged |  |    |        |        |  | Balance
|                           |  |                                    |  |        |       | Balance at |  | to costs   |       |         |  |    |        | at end
|                           |  |                                    |  |        |       | Beginning  |  | and        |       | (A) (C) |  | of
|                           |  | Description                        |  | Period |       | earnings   |  | Deductions |       | Period 
|                           |  |                                    |  |        |       |            |  |            |       |        
|Year Ended August 31, 2001 |  | Allowance for doubtful    Accounts |  |        | 7,803 |            |  |            | 699   |         |  |    | (1,306 | )      |  |         | 7,196 | 
|Year Ended August 30, 2002 |  | Allowance for doubtful    Accounts |  |        | 7,196 |            |  |            | 1,442 |         |  |    | (6,439 | )      |  |         | 2,199 | 
|Year Ended August 29, 2003 |  | Allowance for doubtful    Accounts |  |        | 2,199 |            |  |            | (318  | )       |  |    | (14    | )      |  |         | 1,867 | 



---



|(A) |  | Deductions represent customer account balances written off during the
period.                                                                                                                                            
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(B) |  | At August 31, 2001, the balance at end of period includes $4,580 related
to accounts receivable sold. This amount is included in other accrued
expenses in the Consolidated Balance Sheets.                              
|   
|(C) |  | For the fiscal year ended August 30, 2002, deductions include $5,000
related to the write down of accounts receivable to net realizable value
in conjunction with the sale of those receivables to Avondale Funding,
LLC.