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                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                                 ---------------
                                    FORM 10-K

     (MARK ONE)
        [X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
               THE SECURITIES EXCHANGE ACT OF 1934

               FOR THE FISCAL YEAR ENDED AUGUST 27, 1999

                                 OR

        [ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
               THE SECURITIES EXCHANGE ACT OF 1934

               FOR THE TRANSITION PERIOD FROM ____________ TO _____________

                         COMMISSION FILE NUMBER 33-68412

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

                              AVONDALE INCORPORATED
             (Exact name of registrant as specified in its charter)

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

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

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

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

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

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

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

         The aggregate market value of the Class A Common Stock held by
non-affiliates of the registrant as of November 1, 1999 (based upon the book
value per share of Class A Common Stock as of October 1, 1999) was $14,146,916.

         As of November 1, 1999, the registrant had 11,702,384 and 978,939
shares of Class A Common Stock and Class B Common Stock outstanding,
respectively.
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                               INDEX TO FORM 10-K

                              AVONDALE INCORPORATED

<TABLE>
<CAPTION>
                                                                                              PAGE
                                                                                           REFERENCE
                                                                                           ---------

                                     PART I

<S>        <C>                                                                             <C>
Item 1.    Business.................................................................          2
Item 2.    Properties...............................................................          9
Item 3.    Legal Proceedings........................................................          9
Item 4.    Submission of Matters to a Vote of Security Holders......................         10

                                    PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters....         11
Item 6.    Selected Financial Data..................................................         12
Item 7.    Management's Discussion and Analysis of Financial Condition and
            Results of Operations...................................................         14
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk...............         21
Item 8.    Financial Statements and Supplementary Data..............................         22
Item 9.    Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure................................................         39


                                   Part III

Item 10.   Directors and Executive Officers of the Registrant.......................         40
Item 11.   Executive Compensation...................................................         44
Item 12.   Security Ownership of Certain Beneficial Owners and Management...........         49
Item 13.   Certain Relationships and Related Transactions...........................         52

                                    PART IV

Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K..........         53
</TABLE>


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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's predecessor was founded in 1895 by the family of G.
Stephen Felker, the Company's Chairman, President and Chief Executive Officer.
Prior to 1986, the Company's predecessor primarily manufactured and marketed
greige fabrics. In July 1986, the Company's predecessor, together with Mr.
Felker and certain other investors, acquired Avondale Mills, Inc., now a wholly
owned subsidiary of the Company ("Avondale Mills"). The acquisition of Avondale
Mills expanded the Company's product line to include yarns and finished fabrics
and significantly increased the Company's revenue base.

         In April 1996, pursuant to an asset purchase agreement with Triarc
Companies, Inc. and Graniteville Company, the Company acquired the assets of the
textile business of Graniteville Company and its subsidiaries ("Graniteville").
The acquisition of Graniteville, founded in 1845, enhanced the Company's
manufacturing and marketing of cotton and cotton-blend finished fabrics.

DESCRIPTION OF THE BUSINESS

Products

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

         The Company is a leading manufacturer of indigo-dyed denim fabrics used
in the production of branded and private label men's, women's and children's
fashion apparel as well as casual jeans, sportswear and outerwear. The Company
develops and manufactures new and innovative colors, textures, weaves and
finishes for its customers, which has helped make the Company's denim fabrics a
leader in the branded and private label, fashion-oriented segment of the apparel
market. Denim sales accounted for 36%, 34% and 34%, respectively, of the
Company's net sales in fiscal 1997, 1998 and 1999.

         The Company is one of the largest domestic manufacturers and marketers
of fabrics used in the manufacture of utility wear (principally uniforms and
other occupational apparel) for the U.S. rental and retail markets. The
Company's utility wear fabric customers require durable fabrics characterized by
long wear and easy care. The Company works closely with customers to develop
fabrics with these and other enhanced performance characteristics. utility wear
fabric sales accounted for 21%, 21% and 22%, respectively, of the Company's net
sales in fiscal 1997, 1998 and 1999.

         The Company is a leading manufacturer and marketer of woven cotton
piece-dyed fabrics used in the manufacture of men's, women's and children's
sportswear, casual wear and outerwear. Fabrics are produced for customers in a
wide variety of styles, colors, textures and weights according to individual
customer specifications. The Company's product design staff develops fabric
designs that are presented to customers and, once approved, are produced into
fabrics to meet customers' specifications. Sportswear fabric sales accounted for
12%, 12% and 16%, respectively, of the Company's net sales in fiscal 1997, 1998
and 1999.



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<PAGE>   4

         Greige Fabrics. The Company produces undyed, unfinished cotton and
cotton-blend fabrics that are marketed to apparel, home furnishing and
industrial products manufacturers. The Company capitalizes on its manufacturing
flexibility by altering its overall product mix to meet changing customer needs
while maintaining high production efficiencies. The Company's product design
staff works with greige fabric customers to create new fabric styles and
constructions.

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

         Yarns. The Company is one of the largest domestic producers and
marketers of cotton and cotton-blend yarns, which are used internally in the
production of woven fabrics or marketed to outside customers in the knitting and
weaving industries. The Company's yarns are used in the manufacture of a broad
range of items, including apparel (primarily T-shirts, underwear, hosiery,
knitted outerwear, denim, and woven and fleece sportswear) and home furnishings.
Yarn sales accounted for approximately 25%, 26% and 21%, respectively, of the
Company's net sales in fiscal 1997, 1998 and 1999.

Sales and Marketing

         The Company sold apparel fabrics (including denim, utility wear fabrics
and sportswear fabrics), greige and specialty fabrics, and yarns to
approximately 1,400, 200 and 500 customers, respectively, in fiscal 1999. The
Company believes it is the leading supplier of denim to V.F. Corporation (the
maker of Lee(R), Rider(R), Wrangler(R), Rustler(R), Brittania(R), and
HealthTex(R) brand jeans), with total sales of denim, other fabrics and yarns to
V.F. Corporation accounting for 16% of the Company's net sales in fiscal 1999.
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 1999.

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

Manufacturing

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

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

         The Company's yarn manufacturing operations involve spinning raw cotton
and synthetic fibers into cotton and cotton-blend yarns. The Company uses
advanced carding, drawing, combing and open-end spinning equipment. The Company
maintains ring spinning capability and offers a full line of yarns to



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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 into fabric.
Woven fabrics may be piece-dyed and finished according to customer
specifications. The Company uses modern, high-speed looms in its weaving plants
which enable the Company to manufacture fabrics that have a variety of widths
and weaves. The Company's dyeing and finishing facilities use a wide range of
technologies, including sophisticated computer monitoring and control systems.
These systems allow the Company to continuously monitor and control each phase
of the dyeing and finishing process, which helps to improve productivity,
efficiency, consistency and quality.

         Manufacturing Facilities. The Company currently operates 24
manufacturing facilities in the U.S. Of the Company's manufacturing facilities,
fifteen produce yarn, six manufacture fabrics, four are dyeing facilities and
four are engaged in fabric finishing.

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

         -        1994 -- Completed construction of an additional indigo-dyeing
                  range, continued replacement of earlier generation projectile
                  looms with technologically advanced projectile looms, and
                  installed a caustic recovery system;

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

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

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

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

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

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



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<PAGE>   6


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

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

         -        1999 -- Began replacement of sixty-seven earlier generation
                  air jet looms with forty new, high speed air jet looms, to be
                  completed by November 1999.

Raw Materials

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

         Because the importation of cotton into the U.S. has generally been
prohibited, historically imbalances between the domestic and world price of
cotton have occurred. In recent years, Congress has passed a series of
legislative initiatives to ensure that U.S. cotton was priced competitively with
world markets. The Food, Agriculture, Conservation and Trade Act of 1990 (the
"1990 Trade Act") and the regulations promulgated thereunder established a
three-step competitiveness program designed to make domestic cotton prices
approximate world cotton prices. This program includes a mechanism that triggers
tariff free quotas for the importation of cotton if U.S. prices exceed world
prices for an extended period of time. This legislation and the increased
availability of cotton worldwide has reduced the imbalance between world and
domestic cotton prices, but there can be no assurance that this will continue to
be the case.

         In addition, the Federal Agricultural Improvement and Reform Act of
1996 established certain support programs that, among other things, continue
through the year 2002 the three-step competitiveness program established under
the 1990 Trade Act. In fiscal 1997, 1998 and 1999, the Company received payments
from the U.S. Department of Agriculture under these support programs
representing the differential between domestic cotton prices and world cotton
prices. However, these payments ceased as of December 15, 1998 as financing for
the program was exhausted, and tariff-free quotas for the importation of cotton
opened in March 1999.

         On October 22, 1999 the Fiscal 2000 Agriculture Appropriations Bill was
signed into law, restoring funding for payments under the three-step
competitiveness program. Accordingly, the Company expects to begin receiving
renewed payments from the U.S. Department of Agriculture for the differential
between domestic cotton prices and world cotton prices on cotton consumed on or
after the effective date of the bill.

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



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needed to satisfy customers' orders depending upon such factors as the Company's
outlook for the cotton market.

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

         The principal man-made fiber purchased by the Company is polyester. The
Company currently purchases substantially all of the man-made fibers used in its
products from one supplier, but such fibers are readily available from other
suppliers. The Company maintains a limited supply of such fibers in inventory.
The Company has never experienced difficulty in obtaining sufficient quantities
of man-made fibers. The Company also purchases dyes and chemicals used in its
dyeing and finishing processes, and these dyes and chemicals normally have been
available in adequate supplies through a number of suppliers. In connection with
the acquisition of Graniteville, the Company entered into a 10-year supply
agreement (the "Supply Agreement") with C.H. Patrick & Co., Inc. ("Patrick").
The Supply Agreement generally stipulates that Patrick will have the opportunity
to provide certain dyes and chemicals utilized by the Company if Patrick meets
certain conditions, including competitive pricing and the ability to provide the
applicable dyes and chemicals in accordance with the Company's specifications
and delivery requirements. The Supply Agreement is terminable by the Company
prior to the end of the 10-year term in the event of a pattern of repeated,
material failures by Patrick to satisfy its obligations with respect to product
specifications, delivery schedules or other material terms.

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 denims, piece-dyed fabrics for utility wear and
sportswear, and cotton and cotton-blend yarns. The Company's competitors include
large, vertically integrated textile companies and numerous smaller companies.
In recent years there has been a trend toward consolidation within certain
markets of the textile industry and, within the Company's markets, increases in
manufacturing capacity. The primary competitive factors in the textile industry
are price, product styling and differentiation, quality, manufacturing
flexibility, delivery time and customer service. The importance of these factors
is determined by the needs of particular customers and the characteristics of
particular products. The failure of the Company to compete effectively with
respect to any of these key factors or to keep pace with rapidly changing
markets could have a material adverse effect on the Company's results of
operations and financial condition.

         Increases in domestic capacity and imports of foreign-made textile and
apparel products are a significant source of competition for many domestic
textile manufacturers. The U.S. government attempts to regulate the growth of
certain textile and apparel imports by establishing quotas on imports from
countries that historically account for significant shares of U.S. imports.
Although imported apparel represents a significant portion of the U.S. apparel
market, in recent years, a significant portion of import growth has been
attributable to imports of apparel products manufactured outside the U.S. of (or
using) domestic textile components. During fiscal 1998 and 1999, imports of
certain textile products into the U.S. increased primarily as a result of
declines in consumer demand within Asia, heightened liquidity requirements of
Asian textile producers and devaluation of Asian currencies vis-a-vis the U.S.
dollar.

         The extent of import protection afforded by the U.S. government to
domestic textile producers has been, and is likely to remain, subject to
considerable domestic political deliberation and foreign considerations. In
January 1995, a new multilateral trade organization, the World Trade
Organization (the



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

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

         In 1986, the United States initiated the Special Access Program with
the Caribbean Basin Initiative ("CBI"). The program provided that apparel made,
using U.S. fabrics, by the 24 Caribbean and Central American countries,
excluding Cuba, would not be subject to quotas but only to tariffs. There has
been subsequent U.S. legislation proposed to grant CBI nations trade status
equal to the NAFTA countries, but such legislation has not been adopted to date.
Management believes that NAFTA parity for the CBI region would be favorable for
the Company as it would provide greater access to lower cost labor for apparel
assembly, making the U.S. a more attractive location for textile sourcing.

Backlog

         The Company's order backlog was approximately $340 million at August
27, 1999, as compared to approximately $375 million at August 28, 1998. Orders
on hand are not necessarily indicative of total future sales. Substantially all
of the orders outstanding at August 27, 1999 are expected to be filled by the
end of fiscal 2000.

  Governmental Regulation

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

         The Company's operations are also governed by laws and regulations
relating to workplace safety and worker health, principally the Occupational
Safety and Health Act and regulations thereunder which, among other things,
establish cotton dust, formaldehyde, asbestos and noise standards, and regulate
the



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use of hazardous chemicals in the workplace. The Company uses resins containing
formaldehyde in processing some of its products. Although the Company does not
use asbestos in the manufacture of its products, some of its facilities contain
some structural asbestos that management believes is properly contained.

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

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

         As a result of the acquisition of Graniteville, the Company owns a nine
acre site in Aiken County, South Carolina, which was operated jointly by
Graniteville and Aiken County as a landfill from approximately 1950 through
1973. DHEC conducted a site screening investigation in 1990. The United States
Environmental Protection Agency conducted a site investigation in 1991 and an
Expanded Site Inspection in January 1994. Graniteville conducted a groundwater
quality investigation in 1992 and a supplemental site assessment in 1994. Based
on these investigations, DHEC requested that Graniteville 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 two environmentally related
lawsuits, described under Item 3, legal proceedings.

Associates

         At August 27, 1999, the Company had approximately 6,800 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.



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<PAGE>   10


ITEM 2.  PROPERTIES

         The Company currently operates 24 manufacturing facilities in the U.S.,
of which eight are located in Alabama, three are located in North Carolina, four
are located in Georgia and nine are located in South Carolina. The Company owns
22 of these facilities and leases two facilities in connection with its prior
issuance of industrial revenue bonds. Of the Company's manufacturing facilities,
fifteen produce yarn, six manufacture fabrics, four are dyeing facilities, and
four are engaged in fabric finishing. Additionally, the Company operates six
warehouses.

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

ITEM 3.  LEGAL PROCEEDINGS

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

         On November 17, 1998, the court handed down a verdict of $155,200 in
compensatory damages and $52,398,000 in punitive damages against the Alabama
Power Company, Russell Corporation and the Company, on a joint and several
basis, in favor of the plaintiffs. The Company believes that there are numerous
grounds on which the verdict can be appealed and that the verdict was not
supported by the evidence. An appeal of the verdict is in progress, and the
Company intends to pursue such appeal vigorously.

         Although the Company believes that it should be successful in its
appeal of the verdict, there can be no assurance regarding the outcome of the
appeal. If the Company is not successful in its appeal of the verdict, the
Company anticipates that its share of the liability incurred in connection with
the verdict could have a material adverse effect on its results of operations
for the fiscal quarter and year in which the liability is incurred; however, it
does not believe the outcome of this matter will have a material adverse effect
on its financial condition.

         On February 28, 1999, a case was filed in the Circuit Court of
Jefferson County, Alabama by Chris and Regina Christian against Russell
Corporation, Russell Lands, Inc., Alabama Power, the Company and certain other
parties. The complaint alleges that the Company, among others, negligently
and/or wantonly caused or permitted the discharge and disposal of sewage sludge
and contaminants into the lake adjacent to the plaintiffs' property, which
allegedly interfered with the plaintiffs' use of the property. As a result of
these alleged actions, the plaintiffs claim that the value of their property has
been diminished and that they suffered mental anguish, bodily injury and other
pecuniary loss. The complaint seeks compensatory and punitive damages in an
undisclosed amount. The Company intends to vigorously defend this case and
believes that it has a number of defenses available to it. While the outcome of
this



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

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

         The Company is also a party to other litigation incidental to its
business from time to time. The Company is not currently a party to any
litigation other than the Sullivan and Gould case disclosed above, 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.









                                       10
<PAGE>   12


                                     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 27, 1999 there were 130 and one holders of record of Class A Common Stock
and Class B Common Stock, respectively. The Company paid dividends aggregating
$5.2 million and $5.1 million in respect of its outstanding Common Stock during
fiscal 1998 and 1999, respectively. During fiscal 1998, approximately 592,000
shares of Class A Common Stock were repurchased pursuant to a tender offer
distributed by the Company to all shareholders and vested stock option holders
of Class A Common Stock.

         The Company has issued and outstanding $125 million aggregate principal
amount of 10 1/4% Senior Subordinated Notes due 2006 (the "Notes") under an
Indenture dated as of April 23, 1996 among the Company, Avondale Mills and The
Bank of New York, as trustee (the "Indenture"). The Indenture contains certain
covenants that could indirectly restrict the Company's ability to pay dividends.
The Company maintains a $200 million revolving credit facility under a loan
agreement among Avondale Mills and a syndicate of banks (the "Credit Facility").
The Credit Facility contains certain covenants that could indirectly restrict
the Company's ability to pay dividends.











                                       11
<PAGE>   13


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 27, 1999. 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 27, 1999 are included
elsewhere in this Annual Report. The selected consolidated financial data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto of the Company included elsewhere in this
Annual Report.

<TABLE>
<CAPTION>
                                                                                              FISCAL YEAR
                                                                      ------------------------------------------------------
                                                                        1995       1996       1997       1998         1999
                                                                      -------     ------    --------   --------    ---------
                                                                         (IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)

<S>                                                                    <C>        <C>       <C>         <C>         <C>
Statement of Income Data:
    Net sales ...................................................      $538.7     $706.2    $1,049.5    $1,056.1    $ 880.9
    Gross profit ................................................        71.2       76.9       126.2       137.3       89.7
    Facility restructuring ......................................          --         --          --         2.7        6.2
    Operating income ............................................        47.6       44.9        79.0        86.6       45.3
    Interest expense, net .......................................        14.3       18.5        26.2        23.3       23.0
    Discount and expenses on sale of receivables ................          --        3.7         6.6         7.3        5.6
    Loss attributable to investment in Oneita ...................          --         --         7.5          --         --
    Other (income) expense, net .................................        (0.8)        --         0.8         0.5        0.5
    Income before income taxes ..................................        34.0       22.7        37.9        55.4       16.3
    Provision for income taxes ..................................        13.1        9.0        15.0        21.1        6.3
    Net income ..................................................        20.9       13.6        22.9        34.3       10.0

Per Share Data:
    Net income - basic ..........................................      $ 1.89     $ 1.16     $  1.73   $    2.62    $  0.79
    Net income - diluted ........................................        1.88       1.15        1.70        2.58       0.77
    Dividends declared ..........................................        0.28       0.28        0.28        0.40       0.40
    Weighted average number of shares outstanding - basic .......        11.1       11.8        13.3        13.0       12.7
    Weighted average number of shares outstanding - diluted .....        11.1       11.9        13.5        13.3       12.9

Balance Sheet Data (at period end):
    Total assets ................................................      $257.4     $493.1    $  461.2    $  463.6    $ 439.7
    Long-term debt, including current portion ...................       169.9      303.1       251.3       246.8      219.5
    Shareholders' equity ........................................        18.0       67.5        86.4       100.0      105.0

Other Data:
    Capital expenditures ........................................      $ 15.8     $ 33.4        32.0    $   66.3    $  50.1
    Depreciation and amortization ...............................        23.8       30.4        40.8        39.9       42.8
    EBITDA(1) ...................................................        75.1       73.4       113.3       126.6       93.9
    Ratio of EBITDA to interest expense, net and
      discount and expenses on sale of receivables ..............         5.2x       3.3x        3.5x        4.1x       3.3x
    Ratio of earnings to fixed charges(2) .......................         3.4x       2.0x        2.1x        2.8x       1.5x
</TABLE>

----------


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


                                       12

<PAGE>   14

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

















                                       13
<PAGE>   15


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

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

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                                         Fiscal Year
                                                               --------------------------------
                                                                1997         1998         1999
                                                               --------    ---------    --------
<S>                                                            <C>         <C>          <C>
Net sales........................................                100.0%       100.0%     100.0%
    Apparel fabric sales.............................             68.4         67.4       72.8
    Greige and specialty fabric sales ...............              6.5          6.6        6.6
    Yarn sale........................................             25.1         26.0       20.6
Cost of goods sold:
    Raw materials....................................             47.2         46.3       44.3
    Conversion costs.................................             36.9         37.0       40.7
        Total.......................................              84.1         83.3       85.0
Depreciation.....................................                  3.9          3.7        4.8
Selling and administrative expenses..............                  4.5          4.5        4.3
Facility restructuring...........................                   --          0.3        0.7
Operating income.................................                  7.5          8.2        5.2
Interest expense, net............................                  2.5          2.2        2.6
Discount and expenses on sale of receivables.....                  0.6          0.7        0.6
Loss attributable to investment in Oneita........                  0.7           --         --
Provision for income taxes.......................                  1.4          2.0        0.7
Net income.......................................                  2.2          3.3        1.1
</TABLE>



Fiscal 1999 Compared to Fiscal 1998

         Net Sales. Net sales decreased 16.6% to $880.9 million for fiscal 1999
from $1,056.1 million for fiscal 1998, as the Company experienced intensely
competitive conditions in its markets. Global supply continued to surpass demand
as weak foreign economies directed their production to the U.S. consumer. In
response, the Company was able to employ its sourcing flexibility to increase
its consumption of internally produced yarns and greige fabrics in the
production of finished fabrics and thereby minimize the detrimental effects of
underutilized manufacturing capacity. The Company expects these conditions to
continue for several months, adversely impacting sales in the first and second
quarters of fiscal 2000.

         Apparel fabric sales decreased 9.9% to $641.2 million for fiscal 1999
from $711.4 million for fiscal 1998. This decrease in sales reflected a 5.5%
decrease in yards sold and a 4.7% decline in average selling prices for those
yards. Although reports of retail sales and consumer preferences indicate that
domestic sales of denim jeans continued to demonstrate growth during fiscal
1999, the substantial increase in denim productive capacity worldwide in recent
years has caused the global supply of denim to far exceed demand. As a result,
the market for denim fabrics has become very competitive and selling prices have
declined accordingly. These declines in denim sales were partially offset during
fiscal 1999 by growing demand for khaki and other pant-weight fabrics.

         Greige and specialty fabric sales decreased 16.2% to $58.1 million for
fiscal 1999 from $69.3 million for fiscal 1998. This decrease reflected an 11.7%
decrease in units sold and a 5.1% decrease in



                                       14
<PAGE>   16

average selling prices for those units. The decrease in units sold and average
selling prices was primarily the result of softening demand during fiscal 1999
for greige and specialty fabrics in the apparel, tent and marine products
industries. The Company also increased its consumption of internally produced
greige fabrics in the production of finished apparel fabrics.

         Yarn sales decreased 34.1% to $181.6 million for fiscal 1999 from
$275.4 million for fiscal 1998. This decrease reflected a 25.5% decrease in
pounds sold and an 11.5% decrease in average selling prices. The decrease in
pounds sold was partly the result of the Company's decision to significantly
increase its consumption of internally produced yarn within the Company's
weaving facilities, thereby reducing dependence on outside yarn sourcing, and to
discontinue the operation of higher cost production equipment. Continuing its
yarn restructuring efforts, the Company also announced the closing of the yarn
spinning operation at its Sibley plant located in Augusta, Georgia. Market
demand and pricing for sales yarn remained very competitive during fiscal 1999,
reflecting continued excess productive capacity within the industry, a condition
that has persisted for several years, and increased imports of yarn and knitted
apparel from Asia during fiscal 1998 and 1999.

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

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

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

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

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

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

Fiscal 1998 Compared to Fiscal 1997

         Net Sales. Net sales increased 0.6% to $1,056.1 million for fiscal 1998
from $1,049.5 million for fiscal 1997, primarily as a result of improved yarn
sales.



                                       15
<PAGE>   17

         Apparel fabric sales decreased 0.9% to $711.4 million for fiscal 1998
from $717.7 million for fiscal 1997. This decrease in sales reflected a 4.3%
increase in yards sold, which was offset by a 5.0% decline in average selling
prices. The decline in average selling prices resulted from softening market
prices caused by excess inventories of fabric and garments within the industry,
as well as increased production capacity of domestic and international
suppliers.

         Greige and specialty fabric sales increased 1.2% to $69.3 million for
fiscal 1998 from $68.5 million for fiscal 1997. This increase in sales reflected
strong demand for greige fabrics by the apparel, home furnishing, luggage and
shoe industries.

         Yarn sales increased 4.6% to $275.4 million for fiscal 1998 from $263.3
million for fiscal 1997. This increase reflected a 7.1% increase in pounds sold
to outside customers, which was offset in part by a 2.4% decrease in average
selling prices for those pounds. Market prices for sales yarns remained very
competitive, reflecting continued excess production capacity within the industry
and increased imports of yarn and knitted apparel from Asia during fiscal 1998.

         Cost of Goods Sold. Cost of goods sold decreased 0.4% to $879.3 million
for fiscal 1998 from $882.8 million for fiscal 1997. Cost of goods sold as a
percentage of net sales decreased to 83.3% for fiscal 1998 from 84.1% for fiscal
1997, primarily due to improved capacity utilization and lower raw material
costs, which mitigated the impact of generally lower selling prices.

         Selling and Administrative Expenses. Selling and administrative
expenses increased 1.7% to $48.1 million for fiscal 1998 from $47.2 million for
fiscal 1997, reflecting increased accrual of certain associate benefit expenses
and compensation expense related to the redemption of stock options by certain
current and former associates of the Company. Selling and administrative
expenses as a percentage of net sales remained constant at 4.5% for fiscal 1998
and for fiscal 1997.

         Interest Expense, Net. Interest expense, net decreased 11.0% to $23.3
million for fiscal 1998 from $26.2 million for fiscal 1997. This decrease
reflected lower interest rates and a lower average balance of outstanding
borrowings during fiscal 1998.

         Discount and Expenses on Sale of Receivables. Discount and expenses on
sale of receivables were $7.3 million for fiscal 1998 compared to $6.6 million
for fiscal 1997. This increase was primarily attributable to the payment of bank
fees relating to the receivables securitization facility as well as a net
increase in the amount of accounts receivable sold under the facility.

         Facility Restructuring. Charges incurred to consolidate facilities and
dispose of certain inefficient equipment in the Company's Graniteville, South
Carolina operations were $2.7 million for fiscal 1998.

         Provision for Income Taxes. Provision for income taxes increased to
$21.1 million for fiscal 1998 from $15.0 million for fiscal 1997, reflecting the
increase in income before income taxes. The Company's effective tax rate was
38.1% for fiscal 1998 compared to 39.5% for fiscal 1997.





                                       16
<PAGE>   18





LIQUIDITY AND CAPITAL RESOURCES

  General

         The Company has funded its working capital requirements and capital
expenditures with cash generated from operations, borrowings under its Credit
Facility, proceeds received in connection with sales of trade receivables and
proceeds received in connection with the issuance of equity and debt securities.
At August 27, 1999, the Company had borrowings of $86.3 million outstanding
under the Credit Facility and $113.7 million of borrowing availability
thereunder. Such borrowings bore interest at a weighted average rate of 6.5% per
annum at August 27, 1999. In addition, at August 27, 1999, $125 million
aggregate principal amount of the Notes (which are fully and unconditionally
guaranteed by the Company) issued by Avondale Mills during fiscal 1996 were
outstanding.

Credit Facility

         The Credit Facility consists of a five-year revolving line of credit of
up to $200 million. Borrowings under the Credit Facility include revolving loans
to be provided by the lenders ("Revolver Loans") and up to $5 million of
revolving swing loans ("Swing Revolver Loans") to be provided by Wachovia Bank,
N.A. ("Wachovia"). Interest accrues on Revolver Loans (i) at the Company's
option at either LIBOR (adjusted for reserves) plus a specified number of basis
points or the base rate, which is the higher of Wachovia's prime rate and the
overnight federal funds rate plus 0.5%, or (ii) if the Company and the lenders
under the Credit Facility (the "Lenders") agree, at the "set" rate, which shall
be an interest rate agreed to by the Company and the Lenders at the time such
Revolver Loan is made. In addition, the Company is required to pay certain
structuring, administration and funding fees under the Credit Facility. The
Credit Facility is secured by substantially all of the Company's assets. The
Credit Facility contains customary covenants, including requirements to maintain
certain financial ratios.

Swap Agreements

         The Company has used interest rate swap agreements to effectively fix
the interest rate with respect to a portion of the borrowings outstanding under
the Credit Facility, which otherwise bear interest at floating rates. Such
agreements involve the receipt of floating rate amounts in exchange for fixed
rate interest payments during the term of such agreements without an exchange of
the underlying principal amounts. The differential to be paid or received is
accrued as interest rates change and recognized as an adjustment to interest
expense related to the borrowings outstanding under the Credit Facility. The
related amount payable to or receivable from counterparties is included in other
liabilities or assets. At August 27, 1999, the Company had swap agreements with
notional amounts aggregating $70.0 million, providing an effective weighted
average interest rate of 5.6% on that equivalent portion of the outstanding
Revolver Loans.

Receivables Securitization Facility

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

         Under the Receivables Securitization Facility, the Company transfers
Receivables to a wholly owned, limited-purpose subsidiary of the Company (the
"Receivables Company"), which sells the



                                       17
<PAGE>   19

Receivables to a trust (the "Trust"). The Trust issues variable funding
certificates to lending or financial institutions or other investors evidencing
undivided interests in the assets of the Trust (the "Certificates"). The
Receivables Securitization Facility permits draws and repayments on a revolving
basis prior to November 15, 2002 or such earlier time as certain events occur
(the "Amortization Commencement Date"). The Certificates, which represent
beneficial interests in the Trust, entitle the holders thereof to (i) receipt of
collections from the Receivables, (ii) all rights of the Company or the
Receivables Company in goods, the sale of which gave rise to the Receivables,
(iii) all collateral and other arrangements supporting the Receivables, (iv) all
rights to proceeds of any of the foregoing held in lock-boxes and bank accounts
of the Company or the Receivables Company, (v) rights and interests of the
Receivables Company under the documents for the Receivables Securitization
Facility and (vi) all collections and other proceeds of the assets described
above. The Certificates represent beneficial interests in the Trust only, and do
not represent obligations of, or interests in, and are not guaranteed or insured
by, the Receivables Company or the Company. At August 27, 1999, certificates of
$93.0 million were outstanding.

         The rate of interest on the Receivables Securitization Facility is the
Eurodollar rate (adjusted for any reserves) plus 0.40% or Bank One's alternate
base rate. The final maturity of the Certificates is expected to occur six
months after the Amortization Commencement Date. All collections attributable to
the Certificates will be set aside commencing on the Amortization Commencement
Date to repay the Certificates in full. Amounts set aside will be applied on a
monthly basis to repay the Certificates in full.

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

Capital Expenditures and Cash Flows Analysis

         The Company's capital expenditures aggregated $50.1 million for fiscal
1999. These expenditures were primarily to complete the expansion of an existing
greige weaving facility, upgrade fabric finishing ranges and purchase other
equipment. Management estimates that capital expenditures for fiscal 2000 will
be approximately $45 million, and that such amounts will be used primarily to
improve fabric finishing and yarn spinning facilities.

         Net cash provided by operating activities was $99.4 million in fiscal
1999. Principal working capital changes included a $31.5 million decrease in
accounts receivable, an $8.1 million decrease in inventories and a $7.0 million
decrease in accounts payable and accrued expenses. The Company's investing
activities were primarily the capital improvements described above. Net cash
used in financing activities aggregated $51.4 million, including $5.1 million
used to pay dividends on Common Stock, net reduction in revolver loan and other
long term debt of $27.3 million, and a $19.0 million decrease in accounts
receivable sold under the securitization facility.

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


                                       18
<PAGE>   20


         Net cash provided by operating activities was $83.2 million in fiscal
1997. Principal working capital changes included an $8.7 million decrease in
accounts receivable, a $6.8 million decrease in inventories and a $6.9 million
decrease in accounts payable and accrued expenses. The Company's investing
activities were primarily expenditures for capital improvements of $32.0 million
and the receipt of the $7.3 million due from Triarc upon finalization of the
purchase price for Graniteville. Net cash used in financing activities
aggregated $57.9 million, including $51.8 million used to repay long-term
indebtedness and $3.7 million used to pay dividends on Common Stock.

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

SEASONALITY

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

YEAR 2000

         The Company utilizes computer systems and related software which
process dates using two digits to define specific years. Such systems may not be
able to distinguish the year 2000 from the year 1900, resulting in system
failures or miscalculations which may disrupt operations and other activities.
During the past three years, the Company has identified those systems which are
not Year 2000 compliant and developed plans to modify or replace them. Execution
of these plans has been substantially completed and remediation of all systems
is anticipated by December 1, 1999.

         Costs associated with remediation of the affected systems are being
expensed as incurred. The Company estimates that it has incurred costs of
approximately $5 million through fiscal 1999 to achieve Year 2000 compliant
systems and will incur additional costs of approximately $0.5 million in fiscal
2000 to complete the remediation.

         The Company has conducted limited surveys of its major suppliers and
customers and found that those contacted are aware of the Year 2000 problem and
their own remediation requirements. However, the Company has no means of
assuring that its suppliers and customers will be Year 2000 compliant, and their
inability to complete required remediations in a timely manner could have an
adverse effect on the Company.

         The Company has developed contingency plans for possible Year 2000
issues, including the use of backup systems as well as manual processes to
ensure continuity of business operations.

         While management believes that its estimates of the costs to achieve
Year 2000 compliance and the related completion dates are reasonable and
achievable, there can be no assurance that actual results will not differ
significantly from management's plans.


NEW ACCOUNTING STANDARDS

         In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards



                                       19
<PAGE>   21

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

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

FORWARD LOOKING STATEMENTS

         Statements herein regarding the Company's anticipated capital
expenditures, Year 2000 compliance and anticipated performance in future periods
constitute forward looking statements within the meaning of the Securities Act
of 1993 and Securities Act of 1934. Such statements are subject to certain risks
and uncertainties that could cause actual amounts to differ materially from
those projected. With respect to anticipated capital expenditures, management
has made certain assumptions regarding, among other things, maintenance of
existing facilities and equipment, availability and desirability of new,
technologically advanced equipment, installation and start up times, cost
estimates and continued availability of financial resources. The estimated
amount of capital expenditures is subject to certain risks, including, among
other things, the risk that unexpected capital expenditures will be required and
unexpected costs and expenses will be incurred. With respect to Year 2000
compliance, management has performed certain assessments to identify remediation
needs of the Company's computer systems and related software and contacted major
suppliers and customers to assess the impact of the Year 2000 problem on their
operations. The Company's expectations regarding the impact of the Year 2000
problem and its estimate of the costs to achieve Year 2000 compliance are
subject to certain risks, including, among other things, the risk that the
assessments have not identified all required system modifications, system
modifications can not be completed in a timely manner, unexpected costs and
expenses will be incurred in connection with system modifications, and major
suppliers and customers will not successfully achieve Year 2000 compliance in a
timely manner. Further, statements herein regarding the Company's performance in
future periods are subject to risks relating to, among other things, the
cyclical and competitive nature of the textile industry in general, pressures on
sales prices due to competitive and economic conditions, deterioration of
relationships with, or loss of, significant customers, availability, sourcing
and pricing of cotton and other raw materials, technological advancements,
employee relations, continued availability of financial resources, difficulties
integrating acquired businesses and possible changes in governmental policies
affecting raw material costs. Management believes these forward looking
statements are reasonable; however, undue reliance should not be placed on such
forward looking statements, which are based on current expectations.



                                       20
<PAGE>   22

OTHER DATA

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

<TABLE>
<CAPTION>
                                                                           FISCAL YEAR
                                                           -----------------------------------------
                                                             1997             1998             1999
                                                           --------         --------         -------
         <S>                                               <C>              <C>              <C>
         Net income..................................      $ 22,937         $ 34,313         $ 10,023
         Interest expense............................        26,158           23,280           22,998
         Discount and expenses on
          sale of receivables........................         6,617            7,342            5,590
         Provision for income taxes..................        14,950           21,125            6,270
         Depreciation and amortization...............        40,822           39,887           42,801
         Loss attributable to investment in Onieta...         7,500               --               --
         Facility restructuring......................            --            2,699            6,240
         Net change in allowance to reduce carrying
           value of inventory to LIFO basis..........        (5,698)          (2,027)              --
                                                           --------         --------          -------
         EBITDA......................................      $113,276         $126,619          $93,922
                                                           ========         ========          =======
</TABLE>

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

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

         Upward or downward changes in market interest rates and their impact on
the reported interest expense of the Company's variable rate borrowings may
affect the Company's earnings. However, the Company's use of interest rate swap
agreements will limit the negative impact of higher interest rates. Assuming the
revolving credit facility and interest rate swap agreements at August 27, 1999
remain in effect throughout fiscal 2000, a 10% change in the effective average
interest rate would not have a material effect on the Company's pretax earnings
for fiscal 2000. 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 $9 to $22 million.




                                       21
<PAGE>   23


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                              AVONDALE INCORPORATED

                        CONSOLIDATED FINANCIAL STATEMENTS
                                 AUGUST 27, 1999

<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>                                                                       <C>
Report of Independent Public Accountants.....................              23

Consolidated Balance Sheets..................................              25

Consolidated Statements of Income............................              26

Consolidated Statements of Shareholders' Equity..............              27

Consolidated Statements of Cash Flows........................              28

Notes to Consolidated Financial Statements...................              29
</TABLE>













                                       22
<PAGE>   24



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Avondale Incorporated:

         We have audited the accompanying consolidated balance sheets of
Avondale Incorporated as of August 28, 1998 and August 27, 1999, and the related
consolidated statements of income, shareholders' equity and cash flows for the
two fiscal years then ended. 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. The consolidated statements of income,
shareholders' equity, cash flows and the schedule referred to below for the
fiscal year ended August 29, 1997, were audited by other auditors whose report
dated October 7, 1997, expressed an unqualified opinion on those statements and
schedule.

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

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Avondale Incorporated at August 28, 1998 and August 27, 1999, and the
consolidated results of their operations and their cash flows for the two fiscal
years ended August 27, 1999 in conformity with generally accepted accounting
principles.

         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 4, 1999



                                       23
<PAGE>   25



                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Avondale Incorporated

         We have audited the accompanying consolidated statements of income,
shareholders' equity and cash flows of Avondale Incorporated for the fiscal year
ended August 29, 1997. Our audit also included the financial statement schedule
listed in the Index at Item 14 (a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audit.

         We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Avondale Incorporated for the fiscal year ended August 29, 1997,
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

                                                               ERNST & YOUNG LLP

Atlanta, Georgia
October 7, 1997



                                       24
<PAGE>   26


                              AVONDALE INCORPORATED

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

<TABLE>
<CAPTION>
                                                                          AUGUST 28,      AUGUST 27,
                                                                             1998            1999
                                                                          ---------       ---------
<S>                                                                       <C>             <C>
                                   ASSETS
Current assets
  Cash .............................................................      $   9,259       $   8,545
  Accounts receivable, less allowance for doubtful accounts of
    $2,533 in 1998 and $2,615 in 1999 ..............................         62,497          49,948
  Inventories ......................................................        114,684         106,559
  Prepaid expenses .................................................            742           1,070
                                                                          ---------       ---------
      Total current assets .........................................        187,182         166,122
Property, plant and equipment
  Land .............................................................          8,510           8,510
  Buildings ........................................................         82,366          84,515
  Machinery and equipment ..........................................        430,629         469,274
                                                                          ---------       ---------
                                                                            521,505         562,299
  Less accumulated depreciation ....................................       (267,791)       (306,318)
                                                                          ---------       ---------
                                                                            253,714         255,981
Other assets .......................................................         22,686          17,629
                                                                          ---------       ---------
                                                                          $ 463,582       $ 439,732
                                                                          =========       =========
                    LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
  Accounts payable .................................................      $  34,839       $  30,773
  Accrued compensation, benefits and related expenses ..............         24,665          18,378
  Other accrued expenses ...........................................         18,970          22,366
  Long-term debt due in one year ...................................          2,250           3,250
  Income taxes payable .............................................          1,345           3,411
                                                                          ---------       ---------
     Total current liabilities .....................................         82,069          78,178
Long-term debt .....................................................        244,575         216,275
Deferred income taxes and other long-term liabilities ..............         36,894          40,283
Commitments and contingencies
Shareholders' equity
  Preferred Stock
   $.01 par value; 10,000 shares authorized ........................             --              --
  Common Stock
   Class A, $.01 par value; 100,000 shares authorized; issued and
     outstanding -- 11,698 shares in 1998 and 1999 .................            117             117
   Class B, $.01 par value; 5,000 shares authorized; issued and
     outstanding -- 979 shares in 1998 and 1999 ....................             10              10
Capital in excess of par value .....................................         39,835          39,835
Retained earnings ..................................................         60,082          65,034
                                                                          ---------       ---------
     Total shareholders' equity ....................................        100,044         104,996
                                                                          ---------       ---------
                                                                          $ 463,582       $ 439,732
                                                                          =========       =========
</TABLE>

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



                                       25
<PAGE>   27

                              AVONDALE INCORPORATED

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


<TABLE>
<CAPTION>
                                                                    FISCAL YEAR ENDED
                                                        ----------------------------------------
                                                        AUGUST 29,     AUGUST 28,     AUGUST 27,
                                                           1997           1998           1999
                                                        ----------     -----------    ----------
<S>                                                     <C>             <C>             <C>
Net sales ........................................      $1,049,474      $1,056,103      $880,855
Operating costs and expenses
  Cost of goods sold .............................         882,760         879,263       748,910
  Depreciation ...................................          40,508          39,497        42,271
  Selling and administrative expenses ............          47,243          48,067        38,096
  Facility restructuring .........................              --           2,699         6,240
                                                        ----------      ----------      --------
     Operating income ............................          78,963          86,577        45,338
Interest expense .................................          26,158          23,280        22,998
Discount and expenses on sale of receivables .....           6,617           7,342         5,590
Loss attributable to investment in Oneita ........           7,500              --            --
Other expense, net ...............................             801             517           457
                                                        ----------      ----------      --------
  Income before income taxes .....................          37,887          55,438        16,293
Provision for income taxes .......................          14,950          21,125         6,270
                                                        ----------      ----------      --------
     Net income ..................................      $   22,937      $   34,313      $ 10,023
                                                        ==========      ==========      ========
Per share data
     Net income - basic ..........................      $     1.73      $     2.62      $    .79
                                                        ==========      ==========      ========
     Net income - diluted ........................      $     1.70      $     2.58      $    .77
                                                        ==========      ==========      ========
</TABLE>

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





                                       26
<PAGE>   28


                              AVONDALE INCORPORATED

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


<TABLE>
<CAPTION>
                                                            COMMON STOCK
                                                               ISSUED           CAPITAL IN
                                                         ------------------      EXCESS OF      RETAINED
                                                         SHARES      AMOUNT      PAR VALUE       EARNINGS
                                                         ------      ------      ---------       --------
<S>                                                      <C>         <C>        <C>             <C>
Balance at August 30, 1996 .......................       13,291       $ 133       $ 41,844       $ 25,535
  Net income .....................................           --          --             --         22,937
  Cash dividends ($0.28 per share) ...............           --          --             --         (3,721)
  Purchase and retirement of treasury stock ......          (22)         --           (366)            --
                                                        -------       -----       --------       --------
Balance at August 29, 1997 .......................       13,269         133         41,478         44,751
  Net income .....................................           --          --             --         34,313
  Cash dividends ($0.40 per share) ...............           --          --             --         (5,249)
  Purchase and retirement of treasury stock ......         (592)         (6)        (1,643)       (13,733)
                                                        -------       -----       --------       --------
Balance at August 28, 1998 .......................       12,677         127         39,835         60,082
  Net income .....................................           --          --             --         10,023
  Cash dividends ($0.40 per share) ...............                                                 (5,071)
                                                        -------       -----       --------       --------
Balance at August 27, 1999 .......................       12,677       $ 127       $ 39,835       $ 65,034
                                                        =======       =====       ========       ========
</TABLE>

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










                                       27
<PAGE>   29


                              AVONDALE INCORPORATED

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                         FISCAL YEAR ENDED
                                                              ---------------------------------------
                                                              AUGUST 29,    AUGUST 28,      AUGUST 27,
                                                                1997           1998           1999
                                                              ---------     ---------       ---------
<S>                                                           <C>            <C>            <C>
Operating activities
 Net income ............................................      $ 22,937       $ 34,313       $ 10,023
 Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation and amortization ........................        40,822         39,887         42,801
  Loss attributable to investment in Oneita ............         7,500             --             --
  Provision for (benefit of) deferred income taxes .....          (318)         6,452         (1,852)
  Loss (gain) on sale of equipment .....................          (681)         1,877          4,183
  Changes in operating assets and liabilities:
   Accounts receivable ..................................        8,730          5,201         31,549
   Inventories ..........................................        6,838          6,173          8,125
   Prepaid expenses .....................................        1,230            819           (328)
   Other assets and liabilities, net ....................       (1,672)        (1,119)         9,767
   Accounts payable and accrued expenses ................       (6,943)        (8,339)        (6,957)
   Income taxes payable .................................        4,716         (3,459)         2,066
                                                              --------       --------       --------
    Net cash provided by operating activities ..........        83,159         81,805         99,377
Investing activities
  Due from Triarc ......................................         7,250             --             --
  Purchase of property, plant and equipment ............       (32,046)       (66,335)       (50,143)
  Proceeds from sale of property, plant and equipment ..           763            403          1,423
                                                              --------       --------       --------
    Net cash used in investing activities ..............       (24,033)       (65,932)       (48,720)
Financing activities
  Principal payments on long-term debt .................        (3,250)        (3,250)        (2,250)
  Net payments on revolving line of credit .............       (48,525)        (1,250)       (25,050)
  Sale of accounts receivable, net .....................        (2,000)        10,000        (19,000)
  Purchase and retirement of treasury stock ............          (366)       (15,382)            --
  Dividends paid .......................................        (3,721)        (5,249)        (5,071)
                                                              --------       --------       --------
    Net cash used in financing activities ..............       (57,862)       (15,131)       (51,371)
                                                              --------       --------       --------
Increase (decrease) in cash ............................         1,264            742           (714)
Cash and cash equivalents at beginning of year .........         7,253          8,517          9,259
                                                              --------       --------       --------
    Cash and cash equivalents at end of year ...........      $  8,517       $  9,259       $  8,545
                                                              ========       ========       ========
</TABLE>


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




                                       28
<PAGE>   30


                              AVONDALE INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 AUGUST 27, 1999

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

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

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

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

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

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

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

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

         Associate Benefit Plans: The Company has a discretionary profit sharing
plan covering substantially all associates. Annual contributions by the Company
are made to the plan in amounts determined by the board of directors. In
addition, the plan has 401(k) savings options that are available to all
associates. The Company matches 25% of the first 3% of compensation contributed
by each associate. The Company also has a deferred compensation plan for certain
key personnel. The related expense for these profit sharing and deferred
compensation plans is charged to operations currently and totaled $6.9 million,
$8.1 million and $3.5 million for fiscal 1997, 1998 and 1999, respectively.



                                       29
<PAGE>   31

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

         Fair Value of Financial Instruments: The carrying values of cash,
accounts receivable, certain other assets, accounts payable and accrued expenses
approximate reasonable estimates of their fair values at August 28, 1998 and
August 27, 1999. See Note 7 for disclosures related to the fair values of
long-term debt and interest rate swap agreements.

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

<TABLE>
<CAPTION>
                                                                  1997        1998        1999
                                                                 ------      ------      ------
         <S>                                                     <C>         <C>         <C>
         Weighted average shares outstanding -
            Basic .........................................      13,289      13,090      12,677
         Effect of employee and director stock options ....         180         215         257
                                                                 ------      ------      ------
         Weighed average shares outstanding -
            Diluted .......................................      13,469      13,305      12,934
                                                                 ======      ======      ======
</TABLE>


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

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

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

         Revenue Recognition: The Company records revenues principally when
products are shipped to customers. Consistent with recognized practice in the
textile industry, the Company also records revenues to a lesser extent
throughout the year (10%, 10% and 9% of total revenues in fiscal 1997, 1998 and
1999, respectively) on a bill and hold basis, invoicing goods that have been
produced, packaged and made ready



                                       30
<PAGE>   32

for shipment. These goods are effectively segregated from inventory which is
available for sale, the risks of ownership of the goods have passed to the
customer, and the remittance terms and collection experience on the related
invoicing is consistent with all other sales by the Company.

         The credit status of each customer is approved and monitored by the
Company. Sales to V.F. Corporation and its affiliates represented 18% of net
sales for fiscal 1997, 16% of net sales for fiscal 1998, and 16% of net sales
for fiscal 1999.

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

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

         3. Segment Information: During 1999, the Company adopted Statement of
Financial Accounting Standard No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which requires the reporting of certain
information for each division of the Company which engages in business activity
and whose operating results are regularly reviewed by senior management. The
Company operates principally in three segments: apparel fabrics, greige and
specialty fabrics and yarns. Apparel fabrics manufactures and sells cotton and
cotton-blend fabrics used in the manufacture of jeans, sportswear and utility
wear. Greige and specialty fabrics manufactures and sells a variety of fabrics
marketed to apparel, home furnishings, industrial, military and recreational
products manufacturers. Yarns manufactures and sells cotton and cotton-blend
yarns marketed to customers in the knitting and weaving industries. The
unallocated amounts reflect expenses, assets and capital expenditures for
centralized transportation, warehouse and administrative services functions.

<TABLE>
<CAPTION>
                                                              1997              1998             1999
                                                          -----------       -----------       ---------
         <S>                                              <C>               <C>               <C>
         Net Sales:
              Apparel fabrics ......................      $   720,678       $   711,579       $ 641,304
              Greige and specialty fabrics .........           81,942            80,931          73,699
              Yarns ................................          300,191           303,493         197,372
                                                          -----------       -----------       ---------
                                                            1,102,811         1,096,003         912,375
              Less intersegment sales ..............           53,337            39,900          31,520
                                                          -----------       -----------       ---------
                 Total .............................      $ 1,049,474       $ 1,056,103       $ 880,855
                                                          ===========       ===========       =========
         Income:
              Apparel fabrics ......................      $    82,488       $    78,847       $  72,900
              Greige and specialty fabrics .........            9,393             9,826           7,064
              Yarns ................................           12,843            30,257            (125)
              Unallocated ..........................          (25,761)          (32,353)        (34,501)
                                                          -----------       -----------       ---------
                 Total operating income ............           78,963            86,577          45,338
              Interest expense .....................           26,158            23,280          22,998
              Discount and expenses on sale of
                 receivables .......................            6,617             7,342           5,590
              Loss attributable to investment in
                 Oneita ............................            7,500                --              --
              Other expense, net ...................              801               517             457
                                                          -----------       -----------       ---------
                 Income before income taxes ........      $    37,887       $    55,438       $  16,293
                                                          ===========       ===========       =========
</TABLE>



                                       31
<PAGE>   33


<TABLE>
<CAPTION>
                                                      1997            1998           1999
                                                   ----------      ----------      --------
         <S>                                       <C>             <C>             <C>
         Identifiable Assets:
              Apparel fabrics ...............      $  307,214      $  322,222      $317,549
              Greige and specialty fabrics ..          34,552          30,600        25,336
              Yarns .........................          88,983          76,951        61,827
              Unallocated ...................          30,473          33,809        35,020
                                                   ----------      ----------      --------
                 Total ......................      $  461,222      $  463,582      $439,732
                                                   ==========      ==========      ========

         Depreciation and Amortization:
              Apparel fabrics ...............      $   19,024      $   21,738      $ 28,340
              Greige and specialty fabrics ..           2,866           2,843         3,001
              Yarns .........................          14,993          11,031         8,127
              Unallocated ...................           3,939           4,275         3,333
                                                   ----------      ----------      --------
                 Total ......................      $   40,822      $   39,887      $ 42,801
                                                   ==========      ==========      ========

         Capital Expenditures:
              Apparel fabrics ...............      $   23,135      $   56,913      $ 38,844
              Greige and specialty fabrics ..             372           1,902           868
              Yarns .........................           8,431           3,864         7,820
              Unallocated ...................             108           3,656         2,611
                                                   ----------      ----------      --------
                 Total ......................      $   32,046      $   66,335      $ 50,143
                                                   ==========      ==========      ========


         Geographic Sales Information:
              United States .................      $  979,280      $  985,078      $820,274
              All Other .....................          70,194          71,025        60,581
                                                   ==========      ==========      ========
                Total .......................      $1,049,474      $1,056,103      $880,855
                                                   ==========      ==========      ========
</TABLE>



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

         The Company retains a residual interest in the Receivables in an amount
equal to the excess of the Receivables over the certificates sold. Such residual
interest is included in accounts receivable in the Consolidated Balance Sheets.
All losses, credits or other adjustments relating to the Receivables constitute
deductions applicable to the Company's residual interest in the Receivables.
Accordingly, the Company maintains an allowance for such deductions based upon
the expected collectibility of the Receivables. At August 28, 1998 and August
27, 1999, an allowance of $4.5 million and $5.0 million, respectively, related
to the Receivables is included in other accrued expenses in the Consolidated
Balance Sheets.

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



                                       32
<PAGE>   34

         Under the Agreement, the trust may issue certificates of up to $120.0
million. Certificates of $112.0 million and $93.0 million, respectively, were
outstanding at August 28, 1998 and August 27, 1999. Accounts receivable in the
Consolidated Balance Sheets have been reduced by approximately $113.0 million
and $94.0 million, respectively, representing the face amount of the outstanding
receivables sold at those dates.

         For the fiscal years ended August 29, 1997, August 28, 1998 and August
27, 1999, discounts of $6.6 million, $7.3 million and $5.6 million,
respectively, on sales of Receivables have been included in discount and
expenses on sale of receivables in the Consolidated Statements of Income. The
Company sells the Receivables as an alternative to incurring additional debt.
Viewed on this basis, the Company's ongoing cost of the facility at August 27,
1999 is equal to the Eurodollar rate (adjusted for any reserves) plus 0.40% or
the bank's base rate of interest.

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

<TABLE>
<CAPTION>
                                                                          AUGUST 28,    AUGUST 27,
                                                                             1999         1999
                                                                          ----------    ----------
         <S>                                                              <C>           <C>
         Finished goods .............................................      $ 28,744      $ 28,519
         Work in process ............................................        49,434        44,541
         Raw materials ..............................................        23,279        20,907
         Dyes and chemicals .........................................         6,084         5,537
                                                                           --------      --------
         Inventories at FIFO ........................................       107,541        99,504
         Less allowance to reduce carrying value to LIFO basis ......            --            --
                                                                           --------      --------
                                                                            107,541        99,504
         Supplies at average cost ...................................         7,143         7,055
                                                                           --------      --------
                                                                           $114,684      $106,559
                                                                           ========      ========
</TABLE>


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

<TABLE>
<CAPTION>
                                                    1997           1998          1999
                                                  --------       --------       -------
         <S>                                      <C>            <C>            <C>
         Current:
           Federal .........................      $ 13,232       $ 13,578       $ 7,029
           State ...........................         2,036          1,095         1,093
                                                  --------       --------       -------
                                                    15,268         14,673         8,122
         Deferred:
           Federal .........................          (275)         5,506        (1,603)
           State ...........................           (43)           946          (249)
                                                  --------       --------       -------
                                                      (318)         6,452        (1,852)
                                                  --------       --------       -------
                                                  $ 14,950       $ 21,125       $ 6,270
                                                  ========       ========       =======
</TABLE>


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

<TABLE>
<CAPTION>
                                                                   1997         1998        1999
                                                                 -------      -------      ------
         <S>                                                     <C>          <C>          <C>
         Federal income taxes .............................      $13,261      $19,403      $5,702
         State income taxes, net of federal tax benefit ...        1,276        1,407         492
         Other ............................................          413          315          76
                                                                 -------      -------      ------
                                                                 $14,950      $21,125      $6,270
                                                                 =======      =======      ======
</TABLE>




                                       33
<PAGE>   35

         The Company made income tax payments of $10.4 million, $11.5 million
and $4.6 million during fiscal 1997, 1998 and 1999, respectively.

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

<TABLE>
<CAPTION>
                                            AUGUST 28,   AUGUST 27,
                                               1998         1999
                                            ----------   ----------
        <S>                                 <C>          <C>
        Deferred tax liabilities:
           Depreciation .................... $25,084      $26,215
           Inventory valuation .............   6,989        5,491
           Goodwill ........................   2,496        2,355
           Other ...........................   1,804        1,600
                                             -------      -------
               Deferred tax liabilities ....  36,373       35,661
          Deferred tax assets:
           Employee benefit programs .......   8,948        9,496
           Receivable reserves .............   2,842        3,094
           Other ...........................   1,564        1,904
                                             -------      -------
               Deferred tax assets .........  13,354       14,494
                                             -------      -------
         Net deferred tax liabilities ...... $23,019      $21,167
                                             =======      =======
</TABLE>


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


<TABLE>
<CAPTION>
                                                                        AUGUST 28,      AUGUST 27,
                                                                           1998            1999
                                                                        ---------       ---------
<S>                                                                     <C>             <C>
Revolving credit facility, interest tied to banks' base rate or
 alternative rates, 5.9% - 8.5% in 1999, due October 2001 ........      $ 111,325       $  86,275
Industrial revenue bonds, floating rate, 2.3% - 4.2% in
 1999, due in various installments through 2004 ..................         10,500           8,250
Senior subordinated notes, 10.25%, due May 1, 2006 ...............        125,000         125,000
                                                                        ---------       ---------
                                                                          246,825         219,525
Less current portion .............................................         (2,250)         (3,250)
                                                                        ---------       ---------
                                                                        $ 244,575       $ 216,275
                                                                        =========       =========
</TABLE>

         The Company maintains a secured revolving credit facility with a group
of banks which provides aggregate borrowing availability of a maximum of $200
million through October 2001. Under the terms of this agreement, the Company can
designate an interest rate tied to the banks' base rate or alternative rates
negotiated with the banks, for specified time periods. A commitment fee of
0.275% per annum is payable quarterly on the average daily unused portion of the
revolving credit commitment. The revolving credit facility is secured by
substantially all of the Company's assets. Covenants of the credit agreement
require the Company to maintain certain cash flow ratios and debt to equity
ratios, and contain restrictions on payment of dividends. Under the most
restrictive of these covenants, $16.1 million of retained earnings was available
for payment of dividends at August 27, 1999.

         The Company uses interest rate swap agreements to effectively convert a
portion of its outstanding revolving credit facility to a fixed rate basis, thus
reducing the impact of interest rate changes on future income. These agreements
involve the receipt of floating rate amounts in exchange for fixed rate



                                       34
<PAGE>   36

interest payments over the lives of the agreements without an exchange of the
underlying principal amounts. The differential to be paid or received is accrued
as interest rates change and recognized as an adjustment to interest expense
related to the debt. The related amount payable to or receivable from
counterparties is included in other liabilities or assets. At August 27, 1999,
the Company had interest rate swap agreements with notional amounts aggregating
$70 million providing an effective weighted average interest rate of 5.6% on
that equivalent portion of the revolving credit facility. These interest rate
swap agreements had an unrealized loss of approximately $1 million at August 28,
1998, and no significant market value at August 27, 1999. The Company does not
anticipate realization of any gain or loss as the interest rate swap agreements
are anticipated to remain outstanding through maturity.

         Two of the industrial revenue bonds which were issued to acquire
property, plant and equipment represent capital lease obligations. These lease
obligations plus the other industrial revenue bonds are secured by letter of
credit agreements with a bank. The letter of credit agreements are, in turn,
secured by the property, plant and equipment at three plant locations, which had
a carrying value of approximately $25.5 million at August 27, 1999. Covenants of
the letter of credit agreements substantially adopt the restrictive covenant
provisions of the revolving credit facility.

         Avondale Mills has issued and outstanding $125 million of 10.25% senior
subordinated notes which mature on May 1, 2006. The notes are unsecured and the
guarantee of these notes by the Company is subordinated to all existing and
future senior indebtedness of the Company. Interest on the notes is due on May 1
and November 1 of each year. At August 28, 1998 and August 27, 1999, the market
value of the notes was approximately $131 million and $116 million,
respectively. The Company does not anticipate settlement of the notes at fair
value and currently expects the notes to remain outstanding through maturity.

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

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

         At August 27, 1999, the Company was in compliance with the covenants of
the revolving credit facility, subordinated note indenture and letter of credit
agreements.

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

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

<TABLE>
         <S>                                                          <C>
         2000 ....................................................... $  3,250
         2001 .......................................................    2,500
         2002 .......................................................   86,775
         2003 .......................................................    1,000
         2004 .......................................................    1,000
         Thereafter through 2006 ....................................  125,000
                                                                      --------
                                                                      $219,525
                                                                      ========
</TABLE>



                                       35
<PAGE>   37

         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 $25.4 million, $23.5 million and
$21.9 million in fiscal 1997, 1998 and 1999, respectively.

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

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

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

<TABLE>
<CAPTION>
                                                                             Grant Price Per Share
                                                                             ---------------------
          <S>                                                                <C>           <C>
                                                                               $12.50      $ 18.00
                                                                               ------      -------
          Stock Options outstanding at August 30, 1996...........                 590          390
            Options forfeited....................................                  --          (25)
                                                                               ------      -------
          Stock Options outstanding at August 29, 1997...........                 590          365
            Options redeemed at $24.00 to $28.00 per share.......                 (85)         (10)
            Options forfeited....................................                  --          (30)
                                                                               ------      -------
          Stock Options outstanding at August 28, 1998 and
            August 27, 1999......................................                 505          325
                                                                               ======      =======

          Average contractual life remaining in years...........                    5          6.5
                                                                               ======      =======

          Stock Options Exercisable at August 27, 1999...........                 387          193
                                                                               ======      =======
</TABLE>


The exercise prices of the options granted approximated the fair market value of
the Company's Common Stock on the dates of grant. In conjunction with the fiscal
1998 stock repurchase described above, certain participants in the Company's
Stock Option Plan redeemed options in exchange for an aggregate cash payment of
$1.2 million. The Company recorded the cost of the redemption as compensation
expense, which is included in selling and administrative expenses. Options
forfeited by employees leaving the Company are reinstated as available for
grant. All options granted vest ratably over five years and may be exercised for
a period of ten years. At August 27, 1999, there were 156,000 stock options
available for grant.

         The Company adopted a Stock Option Plan for 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



                                       36
<PAGE>   38

granted are exercisable for a period of ten years, subject to certain
limitations. During fiscal 1998 and 1999, 12,000 non-qualified options were
granted in each respective year. At August 27, 1999, 24,000 non-qualified
options remain outstanding and exercisable.

         Pro forma information regarding the effect on the Company's results of
operations, assuming employee and non-employee director stock options had been
accounted for under the fair value method of FAS 123, was calculated using the
"minimum value" method which is permitted for companies with nonpublic equity.
No options were granted during fiscal 1997. The following weighted average
assumptions were used in these calculations for options granted in fiscal 1998
and 1999:

<TABLE>
               <S>                                      <C>
               Risk free interest rate...............    6.0%
               Expected dividend yield...............    2.2%
               Expected lives........................   8 years
</TABLE>

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

<TABLE>
<CAPTION>
                                            1997            1998            1999
                                         ----------      ----------      ----------
         <S>                             <C>             <C>             <C>
         Net income:
           As reported ............      $   22,937      $   34,313      $   10,023
           Pro forma ..............          22,752          34,128           9,805
         Net income per share:
           Basic
             As reported ..........      $     1.73      $     2.62      $      .79
             Pro forma ............            1.71            2.61             .77
           Diluted
             As reported ..........      $     1.70      $     2.58      $      .77
             Pro forma ............            1.69            2.57             .76
</TABLE>

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

         9. Commitments and Contingencies: The Company is involved in certain
environmental matters and claims. The Company has provided reserves to cover
management's estimates of the 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 its future
results of operations or financial position.

         On March 3, 1993, a case was filed in the Circuit Court of Jefferson
County, Alabama by Joe and Darnell Sullivan and Tommy and Stella Fay Gould and
other parties against the Alabama Power Company, Russell Corporation, the
Company and certain other parties. The complaint alleges that the Company and
such other parties negligently or willfully discharged industrial wastewater
containing hazardous materials, which allegedly damaged the plaintiffs' real
properties and caused mental anguish to



                                       37
<PAGE>   39

the plaintiffs. The complaint seeks an award of compensatory and punitive
damages. After two years and eleven months of litigation, the plaintiffs amended
their complaint to include class action claims and treatment. Although the Trial
Court granted class certification, the Supreme Court of Alabama reversed the
class certification order, and the case proceeded as to the individual claims of
the five plaintiffs.

         On November 17, 1998, the court handed down a verdict of $155,200 in
compensatory damages and $52,398,000 in punitive damages against the Alabama
Power Company, Russell Corporation and the Company, on a joint and several
basis, in favor of the plaintiffs. The Company believes that there are numerous
grounds on which the verdict can be appealed and that the verdict was not
supported by the evidence. An appeal of the verdict is in progress, and the
Company intends to pursue such appeal vigorously.

         Although the Company believes that it should be successful in its
appeal of the verdict, there can be no assurance regarding the outcome of the
appeal. If the Company is not successful in its appeal of the verdict, the
Company anticipates that its share of the liability incurred in connection with
the verdict could have a material adverse effect on its results of operations
for the fiscal quarter and year in which the liability is incurred; however, it
does not believe the outcome of this matter will have a material adverse effect
on its financial condition.

         On February 28, 1999, a case was filed in the Circuit Court of
Jefferson County, Alabama by Chris and Regina Christian against Russell
Corporation, Russell Lands, Inc., Alabama Power, the Company and certain other
parties. The complaint alleges that the Company, among others, negligently
and/or wantonly caused or permitted the discharge and disposal of sewage sludge
and contaminants into the lake adjacent to the plaintiffs' property, which
allegedly interfered with the plaintiffs' use of the property. As a result of
these alleged actions, the plaintiffs claim that the value of their property has
been diminished and that they suffered mental anguish, bodily injury and other
pecuniary loss. The complaint seeks compensatory and punitive damages in an
undisclosed amount. The Company intends to vigorously defend this case and
believes that it has a number of defenses available to it. 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 other than the Sullivan and Gould case disclosed above, 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):

<TABLE>
                 <S>                              <C>
                 2000...........................  $1,690
                 2001...........................   1,592
                 2002...........................   1,255
                 2003...........................   1,054
                 2004...........................     989
                 Thereafter.....................   2,449
                                                  ------
                                                  $9,029
                                                  ======
</TABLE>

         Rent expense for operating leases totaled $3.5 million, $2.6 million
and $2.7 million for fiscal 1997, 1998 and 1999, respectively.



                                       38
<PAGE>   40

         Commitments for future additions to plant and equipment were
approximately $6.0 million at August 27, 1999. Commitments for the purchase of
raw materials for fiscal 2000 and 2001 were approximately $81.0 million and $1.5
million, respectively, at August 27, 1999.

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

         Not Applicable.




















                                       39
<PAGE>   41



                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

<TABLE>
<CAPTION>
NAME                                     AGE    POSITIONS HELD
----                                     ---    --------------
<S>                                      <C>    <C>
G. Stephen Felker.................        47    Chairman of the Board, President and Chief
                                                 Executive Officer of the Company and
                                                 Avondale Mills

Jack R. Altherr, Jr...............        50    Vice Chairman, Chief Financial Officer, and
                                                 Director of the Company and Avondale
                                                 Mills

T. Wayne Spraggins................        62    Vice President of Avondale Mills and President,
                                                 Manufacturing Operations

Keith M. Hull.....................        46    Vice President of Avondale Mills and
                                                 President, Marketing and Sales

Bill W. Henry.....................        65    Vice President, Raw Material Purchasing of
                                                 Avondale Mills

Craig S. Crockard.................        57    Vice President, Planning and Development of
                                                 Avondale Mills

M. Delen Boyd.....................        43    Vice President, Controller of Avondale
                                                 Mills, and Secretary of the Company
                                                 and Avondale Mills

J. Elliott Woodward...............        47    Vice President, Treasurer of Avondale
                                                 Mills, and Assistant Secretary of the Company
                                                 and Avondale Mills

Sharon L. Rodgers.................        43    Vice President, Human Resources of Avondale
                                                 Mills

Kenneth H. Callaway(1)............        44    Director of the Company and Avondale Mills

Robert B. Calhoun(1)(2)(3)........        57    Director of the Company and Avondale Mills

Harry C. Howard(2)................        70    Director of the Company and Avondale Mills

C. Linden Longino, Jr.(2).........        63    Director of the Company and Avondale Mills

Dale J. Boden(1)..................        42    Director of the Company and Avondale Mills

John P. Stevens(1)................        70    Director of the Company and Avondale Mills
</TABLE>

----------

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

       G. Stephen Felker has served as Chairman of the Board of the Company
since 1992, President and Chief Executive Officer of the Company since 1980, and
in various other capacities since 1974. Mr. Felker has served as Chairman of the
Board and Chief Executive Officer of Avondale Mills since 1986, when the Company
acquired Avondale Mills, and President of Avondale Mills since 1995. Mr. Felker
serves as Chairman of the Georgia State Advisory Board of Wachovia Bank, N.A.
and was a director of Oneita Industries, Inc. until July 1999.



                                       40
<PAGE>   42

         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. Mr. Altherr served as a
director of Oneita Industries, Inc. until July 1999.

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

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

         Bill W. Henry has served as Vice President, Raw Material Purchasing of
Avondale Mills since July 1987. Mr. Henry has served Avondale Mills in various
other capacities, including Manager of the Cotton Department, since January
1969.

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

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

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

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

         Kenneth H. Callaway has served as a director of the Company since
November 1987 and of Avondale Mills since August 1993. Mr. Callaway has been
President of Calgati Chemical Company, a specialty chemical manufacturer, since
December 1991. From 1987 through 1991, Mr. Callaway served as president of three
privately-owned retail computer businesses.

         Robert B. Calhoun has served as a director of the Company since August
1993 and of Avondale Mills since November 1991. He is presently a Managing
Director and Co-founder of Monitor Clipper



                                       41
<PAGE>   43

Partners. Mr. Calhoun is also President of Clipper Asset Management Corporation,
the sole general partner of The Clipper Group, L.P., a private investment firm,
since January 1991, and of Clipper Capital Corporation, the sole general partner
of Clipper, an affiliated private investment firm, since 1993. From 1975 to
1991, Mr. Calhoun was a Managing Director of Credit Suisse First Boston
Corporation, an investment banking firm. Mr. Calhoun is also a director of
Interstate Bakeries Corporation, Travel Centers of America, Inc., HVIDE Marine,
Inc., David's Bridal, Lord Abbett Family of Funds and Long John Silver's
Corporation until September 1999.

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

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

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

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

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

         The directors of the Company are elected annually by the shareholders
of the Company. During the fiscal year ended August 27, 1999, the Board of
Directors of the Company held four meetings.

         The Compensation Committee of the Board of Directors during fiscal 1999
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 27, 1999, the Compensation
Committee held one meeting. See Report on Executive Compensation.

         The Audit Committee of the Board of Directors during fiscal 1999
consisted of Harry C. Howard, Chairman of the Audit Committee, Robert B. Calhoun
and C. Linden Longino, Jr. None of the members of the Audit Committee is an
employee of the Company. During the fiscal year ended August 27, 1999, the Audit
Committee held two meetings.

         The Audit Committee meets with the independent public accountants,
management and internal auditors to assure that all are carrying out their
respective responsibilities. The Audit Committee reviews the performance and
fees of the independent public accountants prior to recommending their
appointment,



                                       42
<PAGE>   44

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.

         During fiscal 1999, the Company paid each non-employee director a
quarterly fee of $5,250 plus reimbursement of out-of-pocket expenses.

         The Company adopted a stock option plan for its non-employee directors,
effective September 1, 1997, under which 100,000 shares of the Company's Class A
Common Stock are reserved for issuance. Under the plan, each director will
automatically be granted annually, on the fifth day following the annual
shareholders meeting, a fully vested option to purchase 2,000 shares of Class A
Common Stock, at an option price equal to the fair market value of such stock on
the date the option is granted. Options granted are exercisable for a period of
ten years, subject to certain limitations. During fiscal 1998 and 1999, 12,000
non-qualified options were granted in each respective year. At August 27, 1999,
24,000 non-qualified options remained outstanding and exercisable.

















                                       43
<PAGE>   45


ITEM 11.  EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

         Summary Compensation Table. The table below sets forth certain
information concerning the compensation earned during fiscal 1999, 1998 and 1997
by the Company's Chief Executive Officer and its four other most highly
compensated executive officers (collectively, the "Named Executive Officers").

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                        ANNUAL COMPENSATION(1)
                                                                        ----------------------
                                                               FISCAL                                 ALL OTHER
NAME AND PRINCIPAL POSITION                                     YEAR    SALARY($)  BONUS($)(2)   COMPENSATION($)(3)
---------------------------                                     ----    ---------  -----------   ------------------
<S>                                                            <C>      <C>        <C>           <C>
G. Stephen Felker ........................................      1999      800,016      236,898           2,210
  Chairman of the Board, President and Chief .............      1998      800,016      914,326           7,039
  Executive Officer ......................................      1997      800,016    1,073,601          16,783

Jack R. Altherr, Jr ......................................      1999      326,668       54,822           5,133
  Vice Chairman and Chief Financial Officer ..............      1998      308,340      174,731          10,413
                                                                1997      291,668      197,470           8,769

T. Wayne Spraggins .......................................      1999      272,516       38,999          10,442
  Vice President and President, Manufacturing ............      1998      258,348      140,016          15,999
  Operations .............................................      1997      241,260      162,157          12,783

Keith M. Hull ............................................      1999      272,516       38,933           3,705
  Vice President and President, Marketing and Sales ......      1998      258,348      134,940           9,036
                                                                1997      240,008      160,418           7,329

Bill W. Henry ............................................      1999      133,336       16,816           1,200
 Vice President, Raw Material Purchasing .................      1998      124,180       48,054           6,232
                                                                1997      118,752       61,538           5,581
</TABLE>

----------

(1)      The aggregate amount of perquisites and other personal benefits, if
         any, did not exceed the lesser of $50,000 or 10% of the total annual
         salary and bonus reported for each Named Executive Officer and has
         therefore been omitted.
(2)      Amounts shown include cash bonuses earned under the Company's
         management incentive plan, payments received in the Company's
         distribution of cash profit sharing to all eligible associates of the
         Company, payments received in lieu of profit sharing contributions
         under the Company's Associate Profit Sharing and Savings Plan on
         compensation in excess of qualified plan limits, and such other
         payments as the Compensation Committee of the Board of Directors elects
         to make based upon the Company's and respective officer's performance.
(3)      Amounts shown reflect, for fiscal 1997, (i) matching 401(k)
         contributions made by the Company to the Company's Associate Profit
         Sharing and Savings Plan of $1,125 on behalf of each Named Executive
         Officer, (ii) profit sharing contributions made by the Company to the
         Company's Associate Profit Sharing and Savings Plan of $4,456 on behalf
         of each Named Executive Officer and (iii) life insurance premiums of
         $11,202, $3,188, $7,202 and $1,748 paid by the Company on behalf of
         Messrs. Felker, Altherr, Spraggins and Hull, respectively. Amounts
         shown reflect, for fiscal 1998, (i) matching 401(k) contributions made
         by the Company to the Company's



                                       44
<PAGE>   46

         Associate Profit Sharing and Savings Plan of $1,200 on behalf of each
         Named Executive Officer, (ii) profit sharing contributions made by the
         Company to the Company's Associate Profit Sharing and Savings Plan of
         $5,032 on behalf of each Named Executive Officer and (iii) life
         insurance premiums of $4,181, $9,767 and $2,804 paid by the Company on
         behalf of Messrs. Altherr, Spraggins and Hull, respectively and taxable
         income of $807 to Mr. Felker, in conjunction with a split dollar
         insurance agreement. Amounts shown reflect, for fiscal 1999, (i)
         matching 401(k) contributions made by the Company to the Company's
         Associate Profit Sharing and Savings Plan of $1,200 on behalf of each
         Named Executive Officer, (ii) life insurance premiums of $3,933,
         $9,242, and $2,505 paid by the Company on behalf of Messrs. Altherr,
         Spraggins and Hull, respectively and taxable income of $1,010 to Mr.
         Felker in conjunction with a split dollar insurance agreement.

         Aggregated Options Table. The table below sets forth certain
information with respect to options held at the end of fiscal 1999 by each Named
Executive Officer. No options were granted to employees during fiscal 1999.

<TABLE>
<CAPTION>
                                       AGGREGATED OPTIONS TABLE

                                              NUMBER OF                        VALUE OF
                                          SHARES UNDERLYING                  UNEXERCISED
                                             UNEXERCISED                     IN-THE-MONEY
                                             OPTIONS AT                       OPTIONS AT
                                           FISCAL YEAR END                 FISCAL YEAR END
                                            EXERCISABLE/                     EXERCISABLE/
                                           UNEXERCISABLE                  UNEXERCISABLE(1)
                                           -------------                  ----------------
<S>                                        <C>                            <C>
G. Stephen Felker................            207,000/58,000               $1,263,000/$322,000
Jack R. Altherr, Jr..............            95,000/ 30,000                  535,000/ 140,000
T. Wayne Spraggins...............            25,000/ 20,000                   80,000/  75,000
Keith M. Hull....................            51,001/ 20,000                  249,007/  75,000
Bill W. Henry....................              13,201/6,000                   57,201/  17,000
</TABLE>

----------

(1)      All options are options to purchase Class A Common Stock of Avondale
         Incorporated. There is no existing public market for the Class A Common
         Stock. The values shown are based on management's estimate of the fair
         market value of the Class A Common Stock at August 27, 1999.

         Long-Term Incentive Plans. The table below sets forth certain
information with respect to phantom units held at the end of fiscal 1999 by each
Named Executive Officer. No phantom units were awarded during fiscal 1999.



                                       45
<PAGE>   47

           LONG-TERM INCENTIVE PLANS -- UNITS HELD AT AUGUST 27, 1999

<TABLE>
<CAPTION>
                                   AGGREGATE                         ESTIMATED FUTURE
                                 PHANTOM UNITS    PERIOD UNTIL        PAYOUTS FOR ALL
NAME                                HELD(1)      PAYOUT (YEARS)    PHANTOM UNITS HELD(2)
----                                -------      --------------    ---------------------
<S>                              <C>             <C>               <C>
G. Stephen Felker.........            150              17               $1,430,199
Jack R. Altherr, Jr.......             90              15                  858,119
T. Wayne Spraggins........             50               3                  476,733
Keith M. Hull.............             90              18                  858,119
Bill W. Henry.............             60               1                  572,080

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

</TABLE>

  (1)    Each phantom unit equals 398.606 phantom shares. The value of each
         phantom share is equal to the result obtained by dividing (i) five
         times Avondale's earnings before depreciation, amortization, LIFO
         inventory adjustments, interest and income taxes for the 10 fiscal
         quarters immediately preceding such date divided by 2.5, plus (ii)
         certain "balance sheet adjustments" by the sum of (i) the aggregate
         number of outstanding phantom shares plus (ii) the aggregate number of
         outstanding shares of Class A Common Stock and Class B Common Stock of
         the Company. Phantom units vest at the rate of 5.0% per year for each
         full and uninterrupted year that the Named Executive Officer remains
         employed by the Company after August 31, 1989, and vest fully if the
         Named Executive Officer dies before his employment is terminated. The
         value of vested phantom 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, 1999, of vested and non-vested
         phantom units held at the end of fiscal 1999 based on the results of
         the Company for the 10 fiscal quarters ended August 27, 1999.







                                       46
<PAGE>   48


                        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 1999 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 1999, the base salary of each Named Executive
Officer other than the Chief Executive Officer was increased by 3% to 8% over
each such executive officer's fiscal 1998 base salary. Mr. Felker's base salary
has not been adjusted since November 1, 1995.

         Cash Bonuses. Each executive officer, including the Chief Executive
Officer, is eligible to receive an annual cash bonus under the management
incentive plan. The Company's management incentive plan is designed to motivate
key managers and sales people as well as executive officers and reward the
achievement of specific business plan goals. Under the Company's management
incentive plan, in fiscal 1999, certain executive officers were eligible to earn
a cash bonus in an amount from 7.5% 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 1999, the Named Executive
Officers other than the Chief Executive Officer earned bonuses ranging from 13%
to 17% of their respective base salaries. Mr. Felker's bonus was equal to 30% of
his base salary.

         Stock Options. The grant of stock options is designed to align the
interests of executive officers with those of shareholders in the Company's
long-term performance. Stock options granted have exercise prices equal to the
fair market value of the underlying shares on the date of grant so that
compensation is earned only through long-term appreciation in the fair market
value of the underlying shares. Stock options are granted from time to time if
warranted by the Company's growth and profitability and individual grants are
based on, among other things, the executive officer's responsibilities and
individual performance. To encourage an executive officer's long-term
performance, stock options generally vest over five years and terminate ten
years after the date of grant. The creation of opportunities to own stock is
considered the most significant component in an executive officer's compensation
package. During fiscal 1999, the Named Executive Officers did not receive any
stock option grants.



                                       47
<PAGE>   49

                                                     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 1993, AS AMENDED, OR UNDER THE SECURITIES
EXCHANGE ACT OF 1934 (TOGETHER, THE "ACTS"), EXCEPT TO THE EXTENT THAT THE
COMPANY SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT
OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.

















                                       48
<PAGE>   50


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 9, 1999, by (i) each
person who is known to the Company to be the beneficial owner of more than 5% of
the outstanding Class A Common Stock or Class B Common Stock, (ii) each of the
Named Executive Officers, (iii) each of the directors of the Company and (iv)
all directors and executive officers of the Company as a group. Except as set
forth below, the shareholders named below have sole voting and investment power
with respect to all shares of Common Stock shown as being beneficially owned by
them.

<TABLE>
<CAPTION>
                                                     BENEFICIAL OWNERSHIP       BENEFICIAL OWNERSHIP
                                                          OF CLASS A                 OF CLASS B           PERCENTAGE
                                                         COMMON STOCK               COMMON STOCK              OF
                                                      NUMBER      PERCENT       NUMBER       PERCENT       COMBINED
NAME OF BENEFICIAL OWNER(1)                         OF SHARES    OF CLASS     OF SHARES      OF CLASS    VOTING POWER
---------------------------                         ---------    --------     ---------      --------    ------------
<S>                                                 <C>          <C>          <C>            <C>         <C>
G. Stephen Felker(2) .....................          4,327,689       33.5%        978,939          100%       72.7%
Jack R. Altherr, Jr.(3) ..................            222,199        1.9%             --           --           *
T. Wayne Spraggins(4) ....................            105,000          *              --           --           *
Keith M. Hull (5) ........................            111,001          *              --           --           *
Bill W. Henry (6) ........................             16,201          *              --           --           *
Dale J. Boden(7) .........................            107,000          *              --           --           *
Kenneth H. Callaway(8) ...................             14,000          *              --           --           *
Robert B. Calhoun(9)(10)(11) .............          2,304,823       19.7%             --           --         7.4%
Harry C. Howard(12) ......................             49,000          *              --           --           *
C. Linden Longino, Jr.(13) ...............             29,250          *              --           --           *
John P. Stevens(14) ......................            107,000          *              --           --           *
The Clipper Group(10)(11)(15) ............          2,277,523       19.5%             --           --         7.3%
Grayward Company(16) .....................          3,497,740       29.9%             --           --        11.2%
Felker Investments, Ltd.(17) .............          2,093,750       17.9%             --           --         6.7%
Avondale Mills, Inc. Associate Profit
  Sharing and Savings Plan(18) ...........            600,000        5.1%             --           --         1.9%
All directors and executive officers
  As a group (16 persons) ................          7,449,791       56.3%        978,939          100%       81.8%
</TABLE>

----------
*  Less than 1%

(1)      Except as otherwise noted, the address of each person who is an officer
         or a director of the Company is c/o Avondale Mills, Inc., 506 South
         Broad Street, Monroe, Georgia 30655.
(2)      Includes (i) 2,093,750 shares of Class A Common Stock held of record by
         Felker Investments, Ltd., a partnership of which Mr. Felker is the
         general partner (as the general partner, Mr. Felker is deemed to
         beneficially own such shares under Rule 13d-3 under the Exchange Act),
         (ii) 978,939 shares of Class A Common Stock issuable upon conversion of
         the 978,939 shares of Class B Common Stock beneficially owned by Mr.
         Felker and (iii) 255,000 shares of Class A Common Stock issuable upon
         exercise of stock options beneficially owned by Mr. Felker, which
         shares are deemed beneficially owned by Mr. Felker under Rule 13d-3
         under the Exchange Act.
(3)      Includes 115,000 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 35,000 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.



                                       49
<PAGE>   51

(5)      Includes 61,001 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 15,201 shares of Class A Common Stock issuable upon exercise
         of stock options beneficially owned by Mr. Henry, which shares are
         deemed beneficially owned by Mr. Henry under Rule 13d-3 under the
         Exchange Act.
(7)      Reflects (i) 4,000 shares of Class A Common Stock issuable upon
         exercise of stock options beneficially owned by Mr. Boden, which shares
         are deemed beneficially owned by Mr. Boden under Rule 13d-3 under the
         Exchange Act, and (ii) 3,000 shares beneficially owned by Textile
         Capital Partners with respect to which Mr. Boden has shared voting and
         investment power, and (iii) 100,000 shares beneficially owned by The
         Sterling Trust; Hilliard Lyons Trust Co. Trustee, with respect to which
         Mr. Boden is a beneficiary and has shared voting and investment power.
         Mr. Boden is the majority shareholder of Textile Capital Partners and,
         consequently is deemed to beneficially own under Rule 13d-3 under the
         Exchange Act all of the shares beneficially owned by these entities.
(8)      Includes 4,000 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, L.P., 650
         Madison Avenue, New York, New York 10022.
(10)     Includes (i) 4,000 shares of Class A Common Stock issuable upon
         exercise of stock options beneficially owned by Mr. Calhoun, which
         shares are deemed beneficially owned by Mr. Calhoun under Rule 13d-3
         under the Exchange Act, (ii) shares beneficially owned by Clipper
         Capital Associates, L.P. ("CCA"), Clipper/Merchant Partners, L.P.,
         Clipper Equity Partners I, L.P., Clipper/Merban L.P. ("Merban"),
         Clipper/European Re, L.P. and CS First Boston Merchant Investments
         1995/96, L.P. ("Merchant"), (whose address is 650 Madison Avenue, 9th
         Floor, New York, New York 10022).
(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 4,000 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) 5,250 shares beneficially owned by Mr. Longino's spouse,
         and (ii) 4,000 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 (i) 13,000 shares beneficially owned by Mr. Stevens' spouse,
         for which Mr. Stevens shares neither voting nor investment power, and
         (ii) 4,000 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.



                                       50
<PAGE>   52

(15)     Merchant Capital, Inc. ("Merchant Capital"), an affiliate of CS First
         Boston Corporation, is the general partner of Merchant and the 99%
         limited partner of Clipper/Merchant Partners, L.P. CS Holding, an
         affiliate of CS First Boston Corporation, is the indirect 99% limited
         partner of Merban. None of Merchant, Merchant Capital, CS First Boston
         Corporation and CS Holding is an affiliate of Clipper or CCA.
(16)     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.
(17)     The address of Felker Investments, Ltd. is c/o G. Stephen Felker, 506
         South Broad Street, Monroe, Georgia 30655.
(18)     The address of the Avondale Mills, Inc. Associate Profit Sharing and
         Savings Plan (the "Plan") is c/o Scudder Trust Company, P.O. Box 957,
         Salem, New Hampshire 03079. Scudder Trust Company serves as trustee for
         the Plan and, as such, is deemed to beneficially own under Rule 13d-3
         under the Exchange Act all of the shares beneficially owned by the
         Plan.










                                       51
<PAGE>   53


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Not Applicable.




























                                       52
<PAGE>   54


                                     PART IV

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

(a) 1.   Financial Statements.

         The following Consolidated Financial Statements of the Company and its
consolidated subsidiaries and the Report of the Independent Auditors, included
in the Registrant's Annual Report to Shareholders for the year ended August 27,
1999 are included in Part II, Item 8.

         Report of Independent Public Accountants
         Consolidated Balance Sheets as of August 28, 1998 and August 27, 1999
         Consolidated Statements of Income -- Fiscal Years Ended August 29,
         1997,  August 28, 1998 and August 27, 1999
         Consolidated Statements of Shareholders' Equity -- Fiscal Years Ended
         August 29, 1997, August 28, 1998 and August 27, 1999
         Consolidated Statements of Cash Flows-- Fiscal Years Ended August 29,
         1997, August 28, 1998 and August 27, 1999
         Notes to Consolidated Financial Statements

2.       Financial Statement Schedules of the Company.

         Schedule II -- Valuation and Qualifying Accounts

3.       Exhibits.

<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER
  ------
  <S>       <C>     <C>
    2.1     --      Asset Purchase Agreement, dated March 31, 1996 among
                    Avondale Incorporated, Avondale Mills, Inc., Graniteville
                    Company and Triarc Companies, Inc. (incorporated by
                    Reference to Exhibit 2.1 to the Avondale Incorporated's
                    Registration Statement on Form S-4, File No. 333-5455-01).
    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).
    3.2     --      Bylaws of Avondale Incorporated (incorporated by
                    reference to Exhibit 3.2 to Avondale Incorporated's
                    Registration Statement on Form S-4, File No. 333-5455-01).
    4.1     --      Indenture for the Notes between Avondale Incorporated,
                    Avondale Mills, Inc. and The Bank of New York, as Trustee
                    (incorporated by reference to Exhibit 4.1 to Avondale
                    Incorporated's Registration Statement on Form S-4, File No.
                    333-5455-01).
    4.2     --      Amended and Restated Credit Agreement, dated as of April
                    29, 1996, among Avondale Mills, Inc., the Banks listed
                    therein and Wachovia Bank, N.A., as Agent (incorporated by
                    reference to Exhibit 4.3 to Avondale Incorporated's
                    Registration Statement on Form S-4, File No. 333-5455-01).
    4.3     --      Amended and Restated Security Agreement, dated April 29,
                    1996, between Avondale Mills, Inc. and Wachovia Bank, N.A.,
                    as Agent for the Banks which are Parties to the Amended and
                    Restated Credit Agreement (incorporated by reference to
                    Exhibit 4.4 to Avondale Incorporated's Registration
                    Statement on Form S-4, File No. 333-5455-01).
    4.4     --      Amended and Restated Parent Guaranty, dated April 29,
                    1996, executed by Avondale Incorporated in favor of Wachovia
                    Bank, N.A., as Agent for the Banks Which are parties to the
                    Amended and Restated Credit Agreement (incorporated by
</TABLE>



                                       53
<PAGE>   55

<TABLE>
<S>         <C>     <C>
                    Reference to Exhibit 4.5 to Avondale Incorporated's
                    Registration Statement on Form S-4, File No. 333-5455-01).
    4.5     --      Amended and Restated Stock Pledge Agreement, dated April
                    29, 1996, between Wachovia Bank, N.A., as Agent for the
                    Banks which are parties to the Amended and Restated Credit
                    Agreement, and Avondale Incorporated (incorporated by
                    reference to Exhibit 4.6 to Avondale Incorporated's
                    Registration Statement on Form S-4, File No. 333-5455-01).
    4.6     --      Agreement to Provide Certain Debt Instruments to the
                    Commission upon Request (incorporated by reference to
                    Exhibit 4.7 to Avondale Incorporated's Registration
                    Statement on Form S-4, File No. 333-5455-01).
    4.7     --      Third Amendment to Credit Agreement, dated August 27,
                    1999, among Avondale Mills, Inc., the Banks listed therein
                    and Wachovia Bank, N.A., as Agent.
    4.8     --      Amendments to Letter of Credit Agreements, dated October
                    19, 1999, between and among Avondale Incorporated, Avondale
                    Mills, Inc. and SunTrust Bank, Atlanta related to Industrial
                    Development Board refunding revenue bonds issued to finance
                    improvements at four Company manufacturing facilities.
   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).
   10.4     --      Amended and Restated Series 1996-1 Supplement to the
                    Pooling and Servicing Agreement, Dated November 21, 1997,
                    among Avondale Receivables Company, Avondale Mills, Inc. And
                    Manufacturers and Traders Trust Company. (Incorporated by
                    reference to Exhibit 10.4 to Avondale Incorporated's 1998
                    Annual Report on Form 10-K, File No. 33-68412).
   10.5     --      Amended and Restated Certificate Purchase Agreement,
                    dated November 21, 1997, among Avondale Receivables Company,
                    Avondale Mills, Inc., the purchasers described therein And
                    First National Bank of Chicago, as Agent. (Incorporated by
                    reference to Exhibit 10.5 to Avondale Incorporated's 1998
                    Annual Report on Form 10-K, File No. 33-68412).
   10.6     --      Registration Rights Agreement, dated April 29, 1996
                    between Avondale Incorporated And the Persons listed therein
                    (incorporated by reference to Exhibit 10.8 to Avondale
                    Incorporated's Registration Statement on Form S-4, File No.
                    333-5455-01).
   10.7     --      Shareholders Agreement, dated April 29, 1996 among
                    Avondale Incorporated, the Investors listed therein, the
                    Shareholders listed therein and Clipper Capital Partners,
                    L.P., in its capacity as Purchaser Representative under the
                    Agreement (incorporated by reference to Exhibit 10.9 to
                    Avondale Incorporated's Registration Statement on Form S-4,
                    File No. 333-5455-01).
   10.8     --      Post-Merger Stock Transfer and Repurchase Agreement,
                    dated August 27, 1993 by and Among Avondale Incorporated,
                    Metropolitan Life Insurance Company, 1985 Merchant
                    Investment Partnership, Merchant LBO, Inc., G. Stephen
                    Felker, John F. Maypole and Jack R. Altherr, Jr.
                    (incorporated by reference to Exhibit 10.10 to Avondale
                    Incorporated's Registration Statement on Form S-4, File No.
                    333-5455-01).
   10.9     --      Post-Merger Stock Transfer and Repurchase Agreement,
                    dated August 27, 1993 by and Among Avondale Incorporated,
                    Metropolitan Life Insurance Company, 1985 Merchant
                    Investment Partnership, Merchant LBO, Inc., G. Stephen
                    Felker, John F. Maypole and T. Wayne Spraggins (incorporated
                    by reference to Exhibit 10.11 to Avondale Incorporated's
                    Registration Statement on Form S-4, File No. 333-5455-01).
   10.10    --      Avondale Incorporated Stock Option Plan (incorporated by
                    reference to Exhibit 10.12
</TABLE>



                                       54
<PAGE>   56

<TABLE>
<S>         <C>     <C>
                    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 1999 Management Incentive Plan
                    for G. Stephen Felker.
   10.13    --      Avondale Mills, Inc. Fiscal 1999 Management Incentive Plan
                    for Jack R. Altherr, Jr.
   10.14    --      Avondale Mills, Inc. Fiscal 1999 Management Incentive Plan
                    for T. Wayne Spraggins.
   10.15    --      Avondale Mills, Inc. Fiscal 1999 Management Incentive Plan
                    for Keith Hull.
   10.16    --      Avondale Mills, Inc. Fiscal 1999 Management Incentive Plan
                    for Bill Henry.
   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 C.H. Patrick & Co., Inc. (incorporated by reference to
                    Exhibit 10.24 to Avondale Incorporated's Registration
                    Statement on Form S-4, File No. 33-5455-01).
   10.22    --      Avondale Incorporated Stock Option Plan for Non-Employee
                    Directors, Dated April 10, 1997 (incorporated by reference
                    to Exhibit 10.23 to Avondale Incorporated's 1997 Annual
                    Report on Form 10-K, File No. 33-68412).
   12.1     --      Computation of Ratio of Earnings to Fixed Charges.
   27       --      Financial Data Schedule (for SEC use only).
</TABLE>

----------

         (b)      Reports on Form 8-K

                  Not applicable.

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



                                       55
<PAGE>   57


                                   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 4, 1999

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

PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR:

<TABLE>
<CAPTION>
NAME                                                         TITLE                         DATE
----                                                         -----                         ----
<S>                                              <C>                             <C>
/s/  G. STEPHEN FELKER                           Chairman of the Board,          November 4, 1999
----------------------                           President and Chief Executive
G. Stephen Felker                                Officer

PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:

/s/  JACK R. ALTHERR, JR.                        Vice Chairman, Chief            November 4, 1999
-------------------------                        Financial Officer and
Jack R. Altherr, Jr.                             Director

DIRECTORS:

/s/  DALE J. BODEN                               Director                        November 4, 1999
------------------
Dale J. Boden

/s/  ROBERT B. CALHOUN                           Director                        November  4, 1999
----------------------
Robert B. Calhoun

/s/  KENNETH H. CALLAWAY                         Director                        November  4, 1999
------------------------
Kenneth H. Callaway

/s/  HARRY C. HOWARD                             Director                        November  4, 1999
--------------------
Harry C. Howard

/s/  C. LINDEN LONGINO, JR.                      Director                        November  4, 1999
---------------------------
C. Linden Longino, Jr.

/s/  JOHN P. STEVENS                             Director                        November  4, 1999
--------------------
John P. Stevens
</TABLE>



                                       56
<PAGE>   58
                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT                                                                          SEQUENTIALLY
NUMBER                         DESCRIPTION OF EXHIBITS                           NUMBERED PAGE
------                         -----------------------                           -------------
<S>          <C>    <C>                                                          <C>
    2.1      --     Asset Purchase Agreement, dated March 31, 1996 among
                    Avondale Incorporated, Avondale Mills, Inc., Graniteville
                    Company and Triarc Companies, Inc. (incorporated by
                    Reference to Exhibit 2.1 to the Avondale Incorporated's
                    Registration Statement on Form S-4, File No. 333-5455-01).
    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).
    3.2      --     Bylaws of Avondale Incorporated (incorporated by
                    reference to Exhibit 3.2 to Avondale Incorporated's
                    Registration Statement on Form S-4, File No. 333-5455-01).
    4.1      --     Indenture for the Notes between Avondale Incorporated,
                    Avondale Mills, Inc. and The Bank of New York, as Trustee
                    (incorporated by reference to Exhibit 4.1 to Avondale
                    Incorporated's Registration Statement on Form S-4, File No.
                    333-5455-01).
    4.2      --     Amended and Restated Credit Agreement, dated as of April
                    29, 1996, among Avondale Mills, Inc., the Banks listed
                    therein and Wachovia Bank, N.A., as Agent (incorporated by
                    reference to Exhibit 4.3 to Avondale Incorporated's
                    Registration Statement on Form S-4, File No. 333-5455-01).
    4.3      --     Amended and Restated Security Agreement, dated April 29,
                    1996, between Avondale Mills, Inc. and Wachovia Bank, N.A.,
                    as Agent for the Banks which are Parties to the Amended and
                    Restated Credit Agreement (incorporated by reference to
                    Exhibit 4.4 to Avondale Incorporated's Registration
                    Statement on Form S-4, File No.
                    333-5455-01).
    4.4      --     Amended and Restated Parent Guaranty, dated April 29,
                    1996, executed by Avondale Incorporated in favor of Wachovia
                    Bank, N.A., as Agent for the Banks Which are parties to the
                    Amended and Restated Credit Agreement (incorporated by
                    Reference to Exhibit 4.5 to Avondale Incorporated's
                    Registration Statement on Form S-4, File No. 333-5455-01).
    4.5      --     Amended and Restated Stock Pledge Agreement, dated April
                    29, 1996, between Wachovia Bank, N.A., as Agent for the
                    Banks which are parties to the Amended and Restated Credit
                    Agreement, and Avondale Incorporated (incorporated by
                    reference to Exhibit 4.6 to Avondale Incorporated's
                    Registration Statement on Form S-4, File No.
                    333-5455-01).
    4.6      --     Agreement to Provide Certain Debt Instruments to the
                    Commission upon Request (incorporated by reference to
                    Exhibit 4.7 to Avondale Incorporated's Registration
                    Statement on Form S-4, File No. 333-5455-01).
    4.7      --     Third Amendment to Credit Agreement, dated August 27,
                    1999, among Avondale Mills, Inc., the Banks listed therein
                    and Wachovia Bank, N.A., as Agent.
    4.8      --     Amendments to Letter of Credit Agreements, dated October
                    19, 1999, between and among Avondale Incorporated, Avondale
                    Mills, Inc. and SunTrust Bank, Atlanta related to Industrial
                    Development Board refunding revenue bonds issued to finance
                    improvements at four Company manufacturing facilities.
   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.,
</TABLE>


<PAGE>   59

<TABLE>
<CAPTION>
EXHIBIT                                                                          SEQUENTIALLY
NUMBER                         DESCRIPTION OF EXHIBITS                           NUMBERED PAGE
------                         -----------------------                           -------------
<S>          <C>    <C>                                                          <C>
                    And Manufacturers and Traders Trust Company. (Incorporated
                    by reference to Exhibit 10.3 to Avondale Incorporated's 1998
                    Annual Report on Form 10-K, File No. 33-68412).
   10.4      --     Amended and Restated Series 1996-1 Supplement to the
                    Pooling and Servicing Agreement, Dated November 21, 1997,
                    among Avondale Receivables Company, Avondale Mills, Inc. And
                    Manufacturers and Traders Trust Company. (Incorporated by
                    reference to Exhibit 10.4 to Avondale Incorporated's 1998
                    Annual Report on Form 10-K, File No. 33-68412).
   10.5      --     Amended and Restated Certificate Purchase Agreement,
                    dated November 21, 1997, among Avondale Receivables Company,
                    Avondale Mills, Inc., the purchasers described therein And
                    First National Bank of Chicago, as Agent. (Incorporated by
                    reference to Exhibit 10.5 to Avondale Incorporated's 1998
                    Annual Report on Form 10-K, File No. 33-68412).
   10.6      --     Registration Rights Agreement, dated April 29, 1996
                    between Avondale Incorporated And the Persons listed therein
                    (incorporated by reference to Exhibit 10.8 to Avondale
                    Incorporated's Registration Statement on Form S-4, File No.
                    333-5455-01).
   10.7      --     Shareholders Agreement, dated April 29, 1996 among
                    Avondale Incorporated, the Investors listed therein, the
                    Shareholders listed therein and Clipper Capital Partners,
                    L.P., in its capacity as Purchaser Representative under the
                    Agreement (incorporated by reference to Exhibit 10.9 to
                    Avondale Incorporated's Registration Statement on Form S-4,
                    File No. 333-5455-01).
   10.8      --     Post-Merger Stock Transfer and Repurchase Agreement,
                    dated August 27, 1993 by and Among Avondale Incorporated,
                    Metropolitan Life Insurance Company, 1985 Merchant
                    Investment Partnership, Merchant LBO, Inc., G. Stephen
                    Felker, John F. Maypole and Jack R. Altherr, Jr.
                    (incorporated by reference to Exhibit 10.10 to Avondale
                    Incorporated's Registration Statement on Form S-4, File No.
                    333-5455-01).
   10.9      --     Post-Merger Stock Transfer and Repurchase Agreement,
                    dated August 27, 1993 by and Among Avondale Incorporated,
                    Metropolitan Life Insurance Company, 1985 Merchant
                    Investment Partnership, Merchant LBO, Inc., G. Stephen
                    Felker, John F. Maypole and T. Wayne Spraggins (incorporated
                    by reference to Exhibit 10.11 to Avondale Incorporated's
                    Registration Statement on Form S-4, File No. 333-5455-01).
   10.10     --     Avondale Incorporated Stock Option Plan (incorporated by
                    reference to Exhibit 10.12 To Avondale Incorporated's
                    Registration Statement on Form S-4, File No. 333-5455-01).
   10.11     --     Avondale Mills, Inc. Associate Profit Sharing and Savings
                    Plan (incorporated by Reference to Exhibit 10.13 to Avondale
                    Incorporated's Registration Statement on Form S-4, File
                    No. 333-5455-01).
   10.12     --     Avondale Mills, Inc. Fiscal 1999 Management Incentive Plan
                    for G. Stephen Felker.
   10.13     --     Avondale Mills, Inc. Fiscal 1999 Management Incentive Plan
                    for Jack R. Altherr, Jr.
   10.14     --     Avondale Mills, Inc. Fiscal 1999 Management Incentive
                    Plan for T. Wayne Spraggins.
   10.15     --     Avondale Mills, Inc. Fiscal 1999 Management Incentive Plan
                    for Keith Hull.
   10.16     --     Avondale Mills, Inc. Fiscal 1999 Management Incentive Plan
                    for Bill Henry.
   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 C.H. Patrick & Co., Inc. (incorporated by reference to
                    Exhibit 10.24 to Avondale Incorporated's Registration
                    Statement on Form S-4, File No. 33-5455-01).
</TABLE>


<PAGE>   60

<TABLE>
<CAPTION>
EXHIBIT                                                                          SEQUENTIALLY
NUMBER                         DESCRIPTION OF EXHIBITS                           NUMBERED PAGE
------                         -----------------------                           -------------
<S>          <C>    <C>                                                          <C>
   10.22     --     Avondale Incorporated Stock Option Plan for Non-Employee
                    Directors, Dated April 10, 1997 (incorporated by reference
                    to Exhibit 10.23 to Avondale Incorporated's 1997 Annual
                    Report on Form 10-K, File No. 33-68412).
   12.1      --     Computation of Ratio of Earnings to Fixed Charges.
    27       --     Financial Data Schedule (for SEC use only).
</TABLE>

----------

         (b)      Reports on Form 8-K

                  Not applicable.

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