10-Q 1 x75451e10-q.txt ALBECCA INC FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended February 24, 2002. 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: 333-67975 ALBECCA INC. (Exact name of registrant as specified in its charter) GEORGIA 39-1389732 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3900 Steve Reynolds Boulevard, Norcross, Georgia 30093 (Address of principal executive offices) (Zip Code) (770) 279-5210 (Registrant's telephone number, including area code) Indicate by checkmark 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 1 ALBECCA INC. INDEX TO FORM 10-Q

Page No. ~~--------~~ Part I -- Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of August 26, 2001 (audited) and ~~November~~February 2524, ~~2001~~2002 (unaudited) ................................................................. 3 Consolidated Statements of Operations for the three and six months ended ~~November~~February 2625, ~~2000~~2001 (unaudited) and ~~November~~February 2524, ~~2001~~2002 (unaudited) ............................... 4 Consolidated Statements of Shareholder's (Deficit) Equity for the year ended August 26, 2001 (audited) and the six months ended February 24, 2002 (unaudited) ................. 5 Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~November~~February 2625, ~~2000~~2001 (unaudited) and ~~November~~February 2524, ~~2001~~2002 (unaudited) ................................ 56 Notes to the Consolidated Financial Statements ................................................... 67 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..................................................................... 1518 Item 3. Quantitative and Qualitative Disclosures About Market Risk ........................................ 1823 Part II -- Other Information Item 6. Exhibits and Reports on Form 8-K .................................................................. 1924 Signatures ....................................................................................................... 2025

2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ALBECCA INC. CONSOLIDATED BALANCE SHEETS (in thousands)

August 26, ~~November~~February 2524, 2001 ~~2001~~2002 ----------- ------------ (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 19,146 $ 2218,~~824~~844 Accounts receivable, less allowances for doubtful accounts of $4,602 and $4,~~669~~475 at August 26, 2001 and ~~November~~February 2524, ~~2001~~2002 32,967 3834,~~293~~348 Inventories 50,423 4746,~~555~~175 Other current assets 6,203 79,~~835~~121 ----------- ----------- Total current assets 108,739 ~~116~~108,~~507~~488 PROPERTY, PLANT AND EQUIPMENT, net 35,097 3439,~~021~~736 DEFERRED INCOME TAXES 1,580 86,440 OTHER LONG-TERM ASSETS 3937,~~297~~717 3834,~~408~~900 ----------- ----------- $ 183,133 $ ~~188~~269,~~936~~564 =========== =========== LIABILITIES AND SHAREHOLDER'S (DEFICIT) EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 5,917 $ 65,~~046~~946 Accounts payable 17,680 1415,~~717~~272 Accrued liabilities 18,547 2419,~~373~~968 ----------- ----------- Total current liabilities 42,144 4541,~~136~~186 ----------- ----------- LONG-TERM DEBT, less current maturities 145,240 144,~~967~~832 ----------- ----------- OTHER LONG-TERM LIABILITIES 8,976 86,~~950~~511 ----------- ----------- SHAREHOLDER'S (DEFICIT) EQUITY: Preferred stock -- -- Class A common stock 4 4170 Class B common stock 166 ~~166~~-- Additional paid-in capital 7,326 792,~~326~~402 Accumulated (deficit) earnings (6,098) ~~(1,354)~~470 ~~Cumulative~~Accumulated ~~foreign~~other ~~currency~~comprehensive ~~translation~~loss ~~adjustment~~ (14,625) (16,~~259~~007) ----------- ----------- Total shareholder's (deficit) equity (13,227) ~~(10~~77,~~117)~~035 ----------- ----------- $ 183,133 $ ~~188~~269,~~936~~564 =========== ===========

The accompanying notes are an integral part of these consolidated financial statements. 3 ALBECCA INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands) (unaudited)

Three months ended Six months ended ----------------------------- ------------------------------ ~~November~~February 2625, ~~November~~February 24, February 25, ~~2000~~February 24, 2001 2002 2001 2002 ------------ ------------ ------------ ------------ Net sales $ 8581,~~041~~345 $ 8077,~~482~~245 $ 166,386 $ 157,727 Cost of sales 4743,~~904~~990 4441,~~815~~862 91,894 86,677 --------- --------- ---------- ---------- Gross profit 37,~~137~~355 35,~~667~~383 74,492 71,050 Operating expenses 23,~~683~~847 2327,~~145~~701 47,530 50,846 --------- --------- ---------- ---------- Operating income 13,~~454~~508 127,~~522~~682 26,962 20,204 Interest income (1,~~576~~905) (1,~~919~~802) (3,481) (3,721) Interest expense 5,~~890~~778 5,~~711~~737 11,668 11,448 Other (income) loss ~~361~~(430) ~~373~~(211) (69) 162 --------- --------- ---------- ---------- Income before provision for income taxes, minority interest and extraordinary gain 810,~~779~~065 83,~~357~~958 ~~Provision~~18,844 ~~for~~12,315 ~~income~~Income ~~taxes~~tax ~~879~~expense ~~540~~(benefit) 388 (2,007) 1,267 (1,467) Minority interest 3123 3711 54 48 --------- --------- ---------- ---------- Income before extraordinary gain 79,~~869~~654 75,~~780~~954 17,523 13,734 Extraordinary gain on repurchase of debt, net of tax ~~247~~251 -- 498 -- --------- --------- ---------- ---------- Net income $ 89,~~116~~905 $ 75,~~780~~954 $ 18,021 $ 13,734 ========= ========= ========== ==========

The accompanying notes are an integral part of these consolidated financial statements. 4 ALBECCA INC. CONSOLIDATED STATEMENTS OF SHAREHOLDER'S (DEFICIT) EQUITY (In thousands, except share data)

~~Three~~ACCUMULATED ~~months~~CLASS ~~ended~~A CLASS B ADDITIONAL ACCUMULATED OTHER COMMON STOCK COMMON STOCK PAID-IN (DEFICIT) COMPREHENSIVE SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS LOSS TOTAL ---------- ------ ----------- ------ ~~November 26, November 25, 2000 2001~~ ---------- ----------- ------------- ~~CASH~~-------- ~~FLOWS~~BALANCE, ~~FROM~~August ~~OPERATING~~27, ~~ACTIVITIES:~~2000 ~~Net income $ 8~~374,~~116~~000 $ ~~7,780~~4 ~~Adjustments to reconcile net income to net cash provided by operating activities: Minority interest 31 37 Depreciation and amortization 1~~16,~~434 1~~626,~~304~~000 ~~Gain~~$ on166 ~~disposal~~$ of7,326 ~~property~~$(23,578) ~~plant and equipment~~ $(6513,795) $(1029,877) ~~Extraordinary~~Net ~~gain~~income on-- ~~repurchase~~-- of-- ~~debt~~-- ~~(247)~~-- 31,580 -- ~~Changes~~Foreign incurrency ~~operating~~translation ~~assets~~adjustment ~~and~~-- ~~liabilities:~~-- ~~Accounts~~-- ~~receivable~~-- ~~(4,704)~~-- -- (~~5,933~~830) ~~Inventories~~Total ~~(322)~~comprehensive 2income 30,~~091~~750 ~~Other~~Distribution ~~current~~to ~~assets~~shareholders ~~(2,294)~~-- ~~(1,680)~~-- ~~Accounts~~-- ~~payable~~-- ~~4,279~~-- (314,~~019~~100) ~~Accrued~~-- ~~liabilities 2~~(14,~~684~~100) ~~6,374 Other 751 35~~ ---------- ---- ----------- ~~Net~~----- ~~cash provided by operating activities 9,663 6,979~~ ------- -------- -------- -------- ~~CASH~~BALANCE, ~~FLOWS~~August ~~FROM~~26, ~~INVESTING~~2001 ~~ACTIVITIES:~~374,000 ~~Purchases~~4 ~~of property~~16,626,000 ~~plant~~166 ~~and~~7,326 ~~equipment~~ (16,~~001~~098) (~~486) Proceeds from sales of property~~14, ~~plant and equipment 486 16 Changes in other long-term assets (224~~625) (~~237~~13,227) ---------- ---- ----------- ~~Net~~----- ~~cash used in investing activities (739) (707)~~ ------- -------- -------- -------- ~~CASH~~Net ~~FLOWS~~income ~~FROM~~(unaudited) ~~FINANCING~~-- ~~ACTIVITIES:~~-- ~~Proceeds~~-- ~~from~~-- ~~revolving~~-- ~~credit~~13,734 ~~facilities~~-- ~~4,791~~Foreign ~~3,270~~currency ~~Repayments~~translation ofadjustment ~~revolving~~(unaudited) ~~credit~~-- ~~facilities~~-- -- -- -- -- (51,~~587~~382) Total comprehensive income (~~2,762~~unaudited) ~~Proceeds~~12,352 ~~from~~Distribution ~~long-term~~to ~~debt~~shareholder ~~608~~(unaudited) 85-- ~~Repayments~~-- of-- ~~long~~-~~term~~- ~~debt~~-- (47,~~845~~166) -- (~~395~~7,166) ~~Distributions~~Recognition toof ~~shareholders~~deferred taxes upon change in ownership (~~2,300~~Note 5) (~~3,036~~unaudited) -- -- -- -- 85,076 --- --~~---------~~ ~~Net~~85,076 ~~cash~~Conversion ~~used~~of inClass ~~financing~~B ~~activities~~Common Stock to Class A Common Stock (~~7,333~~unaudited) 16,626,000 166 (216,~~838~~626,000) (166) -- -- -- -- --- ------- ---- ~~EFFECT OF EXCHANGE RATE ON CASH 803 244~~ ----------- ----- ------- ~~NET INCREASE IN CASH 2,394 3,678 CASH and cash equivalents, beginning of period 23,321 19,146~~ -------- --- ----- -------- ~~CASH~~BALANCE, ~~and~~February ~~cash~~24, ~~equivalents~~2002 (unaudited) 17,000,000 ~~end~~$170 of-- ~~period~~$ -- $92,402 25$ 470 $(16,~~715~~007) $ 2277,~~824~~035 =========== ==== ======= ~~SUPPLEMENTAL INFORMATION: Interest paid $ 549 $ 157~~ ==== ======= ======= ==== ~~Income taxes paid $ 774 $ 838~~ ==== ======== ========~~===~~

The accompanying notes are an integral part of these consolidated financial statements. 5 ALBECCA INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)

~~Severance~~Six ~~Lease~~months ~~Write-down~~ended ~~of and other termination property and termination and other equipment benefits exit costs Total~~ -------------- ------------ February 25, February 24, 2001 2002 ------------ ------------ ~~2000~~NET ~~Provision~~CASH ~~$499,000~~PROVIDED BY OPERATING ACTIVITIES: Net income $ ~~298~~18,~~000~~021 $ ~~618~~13,~~000~~734 $Adjustments 1to reconcile net income to net cash provided by operating activities: Minority interest 54 48 Depreciation and amortization 2,~~415~~727 2,~~000~~559 ~~Non-cash~~Loss ~~499~~(gain) on disposal of property,~~000~~ plant and equipment 114 (20) Extraordinary gain on repurchase of debt (498) -- Changes in operating assets and liabilities: Accounts receivable (279) (2,018) Inventories (1,551) 3,544 Deferred taxes -- ~~499~~(2,~~000~~452) Other current assets (523) (598) Accounts payable 1,579 (2,936) Accrued liabilities (4,282) 2,547 Other 854 (2,330) ---------- --------- Net cash provided by operating activities 16,216 12,078 ---------- ----------- ~~Cash~~CASH --FLOWS ~~298,000~~FROM ~~618,000~~INVESTING ~~916,000~~ACTIVITIES: ~~Fiscal~~Purchases ~~2000~~of ~~cash~~property, ~~activity~~plant --and equipment (~~116~~1,~~000~~447) (846,~~000~~830) ~~(200~~Proceeds from sales of property,~~000~~ plant and equipment 668 73 Changes in other long-term assets (57) 1,366 ---------- --------- Net cash used in investing activities (836) (5,391) ---------- ----------- ~~Balance~~CASH asFLOWS ofFROM ~~August~~FINANCING ~~27,~~ACTIVITIES: ~~2000~~Proceeds --from ~~182~~revolving credit facilities 11,~~000~~009 ~~534~~6,~~000~~836 ~~716~~Repayments of revolving credit facilities (10,~~000~~941) ~~Fiscal~~(6,591) ~~2001~~Proceeds ~~cash~~from ~~activity~~long-term debt 703 249 Repayments of long--term debt (~~150~~10,~~000~~323) (~~374~~560) Distributions to shareholders (4,~~000~~800) (~~524~~7,~~000~~166) ---------- --------- Net cash used in financing activities (14,352) (7,232) ---------- ----------- ~~Balance~~EFFECT asOF ofEXCHANGE ~~August~~RATE ~~26,~~ON ~~2001~~CASH --206 ~~32,000~~243 ~~160,000 192,000 First quarter 2002 cash activity (unaudited)~~ -- -- ~~(58,000) (58,000)~~ -------- --------- NET INCREASE (DECREASE) IN CASH 1,234 (302) CASH and cash equivalents, beginning of period 23,321 19,146 ---------- ----------- ~~Balance~~CASH asand ofcash ~~November 25~~equivalents, ~~2001~~end ~~(unaudited)~~of period $ --24,555 $ 3218,~~000~~844 ========== ========= SUPPLEMENTAL INFORMATION: Interest paid $ ~~102~~11,~~000~~782 $ ~~134~~11,~~000~~312 ========== ========= Income taxes paid $ 2,258 $ 1,252 ========== ===========

The accompanying notes are an integral part of these consolidated financial statements. 6 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1. CHANGE IN OWNERSHIP On February 8, 2002, Albecca Inc. and its subsidiaries ("the Company", "Albecca") were acquired by Berkshire Hathaway Inc. ("Berkshire"), a Delaware holding company owning subsidiaries engaged in a number of diverse business activities. Under the terms of the Purchase and Sale Agreement, all of the outstanding shares of common stock of Albecca were acquired from its sole shareholder for cash consideration of $223,425,000. In connection with the transaction, all Class B common shares were converted to Class A common shares. In connection with the acquisition, the Company incurred and expensed transaction related expenditures of approximately $5,500,000 consisting of $467,000 for legal fees and other professional fees, $1,939,000 for the accelerated vesting of stock options due to change of control provisions, a one-time discretionary $1,000,000 contribution to the Company's 401(K) plan for the benefit of all plan participants, and $2,094,000 for other compensation arrangements. Additionally, the Company will accrue and expense additional compensation amounts over related vesting periods of 12 and 24 month periods from the transaction date totaling $6,930,000. The Company expensed approximately $144,000 of such amounts during the quarter ended February 24, 2002. Based on the above, a total of $5,644,000 in expenses are reflected in operating expenses within the accompanying statement of operations. Note 2. BASIS OF INTERIM FINANCIAL STATEMENT PRESENTATION As permitted under Staff Accounting Bulletin (SAB) No. 54, "Push Down Basis of Accounting Required in Certain Limited Circumstances", the Company elected not to apply push down accounting in its consolidated financial statements as it is a public registrant as a result of public debt that was outstanding prior to the acquisition. As such, the accompanying consolidated financial statements are reported on the Company's historical cost basis. If push down accounting had been elected, the Company would have been required to establish a new basis for its assets and liabilities based on the amount of consideration paid and the fair value of the acquired assets and liabilities as of the date of acquisition. The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, the unaudited interim consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation have been included. On a quarterly basis, the Company's results may vary. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for a full year. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company's Form 10-K for the fiscal year ended August 26, 2001, as filed with the Securities and Exchange Commission. Note 3. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 4. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Albecca and its subsidiaries. All significant intercompany transactions have been eliminated. Minority interest represents minority shareholders' interest in majority-owned subsidiaries. Note 5. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carryforwards. Deferred tax assets and liabilities are measured using statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Prior to the acquisition, the Company was treated as an S corporation for federal income tax purposes and several of its subsidiaries were classified as either partnerships or single member entities. As such, these entities were not subject to federal, and certain state, income taxes. Instead, the related taxable income was included in the tax returns of the shareholders and members of the respective entities. The Company made distributions to its shareholders to pay income tax obligations as a result of the Company's 7 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited) status as an S corporation. Albecca's S corporation status automatically terminated upon the closing of the acquisition and the Company became subject to entity level taxes at C corporation tax rates for federal income tax purposes. The single member entities and partnerships will retain their tax entity status and continue to have their results combined with Albecca's, which consolidated federal income will be included in Berkshire's consolidated federal income tax filing. The foreign subsidiaries not included in the Company's federal income tax filings were not impacted by this conversion. In the Purchase and Sale Agreement, Berkshire and the former sole shareholder have agreed to jointly elect to treat the sale of the Company for federal and certain state income tax purposes as an asset acquisition under section 338(h)(10) ("the 338 election") of the Internal Revenue Code of 1986, as amended. A preliminary allocation of the purchase price to the tax basis of assets and liabilities based on their respective estimated fair values at February 8, 2002 has been made for income tax purposes. As a result of the 338 election, the automatic termination of S corporation status for federal income tax purposes and the Company's election not to push down the accounting associated with the acquisition, the Company recorded a deferred tax asset of approximately $85,076,000. This net deferred tax asset, which primarily consists of tax deductible goodwill, results from the excess of the adjusted tax basis over the historical cost basis of the Company's assets and liabilities for financial reporting purposes. A corresponding credit was made to additional paid-in capital in accordance with Emerging Issues Task Force (EITF) 94-10, "Accounting by a Company for the Income Tax Effects of Transactions Among or with its Shareholders Under FASB Statement 109". As the allocation of the purchase price to the acquired assets is subject to change in upcoming periods as appraisals and other allocation methods are finalized, additional changes to additional paid-in capital may occur. Note 6. RESTRUCTURING PLANS THE NETHERLANDS - LEVER As of February 24, 2002, with respect to the Company's closure of its Lever manufacturing and distribution facility located in Bergambacht, The Netherlands, none of the original 28 team members remained at the facility. During the second quarter of fiscal 2002, cash payments of $50,000 were made with respect to severance costs, resulting in a remaining balance of $34,000 in accrued liabilities at February 24, 2002. The Company anticipates that The Netherlands - Lever restructuring plan will be completed prior to the end of fiscal 2002. CANADA - EDMONTON As of February 24, 2002, with respect to the Company's closure of one of its Canadian distribution facilities, located in Edmonton, none of the original 5 team members remained at the facility. During the second quarter of fiscal 2002, cash payments relating to lease termination and other exit costs were made totaling $49,000, resulting in a remaining balance of $44,000 in accrued liabilities. The Company anticipates that the Canada - Edmonton restructuring will be completed prior to the end of fiscal 2002. UNITED KINGDOM - NORTHAMPTON As of February 24, 2002, with respect to the Company's closure of its United Kingdom - Northampton operation, none of the original 37 team members remained at the facility and the restructuring plan was substantially complete. The remaining accrual relates to the Company's continuing obligation under existing lease commitments for the closed facility and a severance payment that will be paid during fiscal 2002. Cash payments relating to lease termination costs of $51,000 were made during the second quarter of fiscal 2002. NEW ZEALAND As of February 24, 2002, with respect to the closure of the Company's distribution operations in New Zealand, none of the 9 original team members remained at the facility and the restructuring plan was complete. Cash payments relating to other exit costs of approximately $10,000 were made during the first quarter of fiscal 2002. 8 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited) GREECE As of February 24, 2002, with respect to the closure of the Company's distribution operations in Greece, none of the original 14 team members remained at the facility. Cash payments relating to other exit costs of approximately $7,000 were made during the second quarter of fiscal 2002. The Company, through its local counsel, is finalizing the legal liquidation of its Greek entities. The Company anticipates that the restructuring plan will be completed prior to the end of the third quarter of fiscal 2002. For more descriptive information on the above mentioned restructuring plans, please see the Company's Form 10-K for the fiscal year ended August 26, 2001, as filed with the Securities and Exchange Commission. SUMMARY OF RESTRUCTURING PLANS As of February 24, 2002, as it relates to the Company's reported restructuring plans, $248,000 of restructuring charges remained in accrued liabilities representing $39,000 of severance and other termination costs and $209,000 of lease termination and other exit costs. A summary of the restructuring plans and activity consist of the following estimated accrued future cash/non-cash requirements:

~~Severance~~ Write-down of Severance and ~~other~~ property and other termination ~~Other~~Lease termination CLOSURE OF UNITED KINGDOM - NORTHAMPTON: equipment benefits and other exit costs Total -------------- ------------------ ------------ -------- ---------- ~~1999~~2000 Provision $ 75499,000 $ 48298,000 $ ~~102~~618,000 $ ~~225~~1,415,000 Non-cash 75499,000 -- -- 75499,000 --------- --------- ---------- ----------- Cash -- 48298,000 ~~102~~618,000 ~~150~~916,000 Fiscal ~~1999~~2000 cash activity -- (30116,000) (7584,000) (~~105~~200,000) --------- --------- ---------- ----------- Balance as of August 2927, ~~1999~~2000 -- 18182,000 27534,000 45716,000 Fiscal ~~2000~~2001 cash activity -- (3150,000) (3374,000) (6524,000) --------- --------- ---------- ----------- Balance as of August 2726, ~~2000~~2001 -- 1532,000 24160,000 39192,000 ~~2001~~First ~~reversal~~quarter of2002 ~~excess~~cash ~~provision~~activity (unaudited) -- ~~(15,000)~~-- (1458,000) (2958,000) --------- --------- ---------- ----------- Balance as of ~~August~~November 2625, 2001 --(unaudited) -- 1032,000 10102,000 ~~First~~134,000 Second quarter 2002 cash activity (unaudited) -- -- (1051,000) (1051,000) --------- --------- ---------- ----------- Balance as of ~~November~~February 2524, ~~2001~~2002 (unaudited) $ -- $ --32,000 $ --51,000 $ --83,000 ========= ========= ========== ===========

Write-down of Severance and ~~other~~property ~~Write-off~~and ofother termination ~~Other~~CLOSURE ~~goodwill~~OF OPERATIONS IN NEW ZEALAND: equipment benefits Other exit costs Total -------------- ------------------ ------------ -------- ---------- ~~1998~~1999 Provision $~~333~~ 75,000 $ 7948,000 $ ~~104~~102,000 $ ~~516~~225,000 Non-cash ~~333~~75,000 -- -- ~~333~~75,000 -------- -~~--------~~ --------- ----------- ~~Cash~~ -- ~~79,000 104,000 183,000 Fiscal 1998 cash activity~~ -- -- -- -- ~~--------~~Cash --~~-------~~ ~~--------- ----------- Balance as of August 30~~48, ~~1998 -- 79,~~000 ~~104~~102,000 ~~183~~150,000 ~~1999 provision -- -- 129,000 129,000~~ Fiscal 1999 cash activity -- (7030,000) (~~129~~75,000) (~~199~~105,000) --------- --------- ---------- ----------- Balance as of August 29, 1999 -- 918,000 ~~104~~27,000 ~~113~~45,000 Fiscal 2000 cash activity -- --(3,000) (43,000) (46,000) --------- --------- ---------- ----------- Balance as of August 27, 2000 -- 915,000 ~~100~~24,000 ~~109~~39,000 ~~Fiscal~~ 2001 ~~cash~~reversal ~~activity~~of excess provision -- (915,000) (614,000) (1529,000) --------- --------- ---------- ----------- Balance as of August 26, 2001 -- -- 9410,000 9410,000 First quarter 2002 cash activity (unaudited) -- -- --(10,000) --(10,000) --------- --------- ---------- ----------- Balance as of November 25, 2001 (unaudited) $ -- $ -- $ ~~94,000~~-- $ ~~94,000~~-- ========= ========= ========== ===========

9 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited)

Write-down of Severance and property and other termination CLOSURE OF OPERATIONS IN GREECE: equipment benefits Other exit costs Total ------------- ------------------ -------------------- ---------- 1998 Provision $ 333,000 $ 79,000 $ 104,000 $ 516,000 Non-cash 333,000 -- -- 333,000 --------- --------- ---------- ---------- Cash -- 79,000 104,000 183,000 Fiscal 1998 cash activity -- -- -- -- --------- --------- ---------- ---------- Balance as of August 2630, ~~November~~1998 25-- 79,000 ~~2001~~104,000 ~~2001~~183,000 1999 provision -- -- 129,000 129,000 Fiscal 1999 cash activity -- (70,000) (129,000) (199,000) --------- --------- ---------- ~~Raw~~---------- ~~materials~~Balance $as of August 29, 1999 -- 9,000 104,000 113,000 Fiscal 2000 cash activity -- -- (4,000) (4,000) --------- --------- ---------- ---------- Balance as of August 27, 2000 -- 9,000 100,000 109,000 Fiscal 2001 cash activity -- (9,000) (6,~~218~~000) $(15,000) 7--------- --------- ---------- ---------- Balance as of August 26,~~507~~ ~~Work~~2001 in-- ~~process~~-- 194,~~812~~000 194,~~947~~000 ~~Finished~~First ~~goods~~quarter 422002 cash activity (unaudited) -- -- -- -- --------- --------- ---------- ---------- Balance as of November 25,~~393~~ 382001 (unaudited) -- -- 94,~~101~~000 94,000 Second quarter 2002 cash activity (unaudited) -- -- (7,000) (7,000) --------- --------- ---------- ---------- Balance as of February 24, 2002 (unaudited) $ 50-- $ -- $ 87,~~423~~000 $ 4787,~~555~~000 ========= ========= ========== ==========

Note 7. OTHER (INCOME) LOSS During the three months ended February 24, 2002, the Company received a dividend from Prudential Financial as a result of the insurance company's conversion from a mutual company to a stock company. Albecca received shares of Prudential Financial stock with a value at the time of issuance of $232,000, which was reflected in other income for the period ended February 24, 2002. The Company anticipates selling such shares prior to the end of the fiscal year. As of the end of the second quarter of fiscal 2002, the value of the shares approximates the amount recognized as income. The remaining other (income) loss primarily represents net realized and unrealized foreign currency exchange gains and losses on intercompany account balances and certain other foreign-denominated assets, as well as gains and losses on derivative instruments as discussed in Note 11. Note 8. EXTRAORDINARY GAIN During the six months ended February 25, 2001, the Company repurchased a portion of its senior subordinated notes with a face value of $8,000,000. The debt repurchase resulted in an extraordinary gain of $498,000, net of state income taxes of $12,000. The Company did not repurchase any of its senior subordinated notes during the six months ended February 24, 2002. Note 9. INVENTORIES Inventories consist of the following (in thousands):

~~Three~~August ~~months ended ------------------------------ November~~ 26, ~~November~~February 2524, ~~2000~~ 2001 2002 ------------ ------------ ~~Net~~Raw ~~income,~~materials ~~as reported~~ $ 86,~~116~~218 $ 76,~~780~~772 ~~Foreign~~Work ~~currency~~in ~~translation~~process ~~adjustment (2~~1,~~908)~~812 (1,~~634)~~936 Finished goods 42,393 37,467 --------- --------- ~~Total comprehensive income~~ $ 550,~~208~~423 $ 646,~~146~~175 ========= =========

10 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited) Note 10. COMPREHENSIVE INCOME Comprehensive income for the Company is as follows (in thousands):

~~November~~Three ~~25,~~months ~~2001~~ended ~~(unaudited)~~Six ~~----------------------------------------------------------------------~~months ~~Consolidated~~ended ~~Subsidiary Subsidiary Elimination Consolidated Albecca Inc. Guarantors Nonguarantors Entries Total~~ -------~~----~~ ------~~----~~ --------~~-----~~ --------~~-----~~ ~~------------~~February ~~ASSETS CURRENT ASSETS: Cash and cash equivalents $ 16~~25,~~250~~ $February 124,~~417~~ $February ~~5,157 $ -- $ 22,824 Accounts receivable, net -- 22,743 15,550 -- 38,293 Intercompany accounts receivable -- 116,462 1,024 (117,486) -- Inventories --~~ 25,~~086~~ ~~22,469~~February ~~-- 47~~24,~~555~~ ~~Other~~2001 ~~current~~2002 ~~assets~~2001 ~~2,012~~2002 ~~1,861 3,962~~ -- ~~7,835~~ ---------- ---------- --~~--------~~ ---------- --~~--------~~ ~~Total current assets 18,262 167,569 48,162 (117,486) 116,507 PROPERTY, PLANT AND EQUIPMENT, net~~ -- ~~10,641 23,380~~ -- ~~34,021 OTHER LONG~~-~~TERM ASSETS 4,072 13,824 20,512~~ -- ~~38,408 INVESTMENT IN SUBSIDIARIES 163,292~~ -- ~~7,884 (171,176)~~ -- ~~INTERCOMPANY LOANS RECEIVABLE 90,052~~ -- ~~358~~Net ~~(90~~income,~~410)~~ --as ~~----------~~reported ~~---------- ---------- ---------- ----------~~ $ ~~275~~9,~~678~~905 $ 192,034 $ 100,296 $ (379,072) $ 188,936 ========== ========== ========== ========== ========== LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT) CURRENT LIABILITIES: Current maturities of long-term debt $ -- $ 979 $ 5,~~067~~954 $ -- $ 6,046 Accounts payable -- 7,634 7,083 -- 14,717 Intercompany accounts payable 111,651 785 5,050 (117,486) -- Accrued liabilities 6,055 8,996 9,322 -- 24,373 ---------- ---------- ---------- ---------- ---------- Total current liabilities 117,706 18,~~394~~021 ~~26,522~~$ ~~(117~~13,~~486)~~734 ~~45,136~~Foreign ~~----------~~currency ~~----------~~translation ~~----------~~adjustments ---------- ---------- LONG-TERM DEBT, less current maturities 134,930 5,974 4,063 -- 144,967 ---------- ---------- ---------- ---------- ---------- INTERCOMPANY LOANS PAYABLE -- 358 90,052 (90,410) -- ---------- ---------- ---------- ---------- ---------- OTHER LONG-TERM LIABILITIES 2,~~380~~459 ~~4,170~~252 ~~2,400 -- 8,950 ---------- ---------- ---------- ---------- ---------- SHAREHOLDER'S EQUITY~~ (~~DEFICIT~~449): ~~Preferred stock -- -- -- -- -- Class A common stock 4 -- -- -- 4 Class B common stock 166 -- -- -- 166 Additional paid-in capital 7,326 41,825 7,926~~ (~~49,751) 7,326 Accumulated earnings (deficit) 13,166 120,960 (14,055) (121,425) (~~1,~~354~~382) ~~Accumulated other comprehensive gain (loss)~~ -- ~~353 (16,612)~~ -- ~~(16,259)~~ ---~~-------~~ ------~~----~~ ---------- ---------- ~~----------~~ Total ~~shareholder's~~comprehensive ~~equity~~income ~~(deficit) 20,662 163,138 (22,741) (171,176) (10,117) ---------- ---------- ---------- ---------- ----------~~ $ ~~275~~12,~~678~~364 $ ~~192~~6,~~034~~206 $ ~~100~~17,~~296~~572 $ ~~(379~~12,~~072)~~352 ~~$ 188,936~~ =======~~===~~ ======~~====~~ ========== ========~~== ==========~~

Accumulated other comprehensive loss represents foreign currency translation adjustments of $14,625 and $16,007 at August 26, 2001 and February 24, 2002, respectively. Note 11. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES Effective August 28, 2000, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended by SFAS No. 137, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. This statement became effective for all fiscal years beginning after June 15, 2000. The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. If the derivative is a hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings or recognized in comprehensive income (equity) until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is recognized in earnings. In transition, the Statement required all hedging relationships to be evaluated and designated anew, resulting in cumulative transition adjustments to earnings and other comprehensive income (equity). The Company adopted SFAS 133 on August 28, 2000. The adoption was not material to the consolidated financial statements. The Company has historically entered into forward exchange contracts to reduce the foreign currency exchange risks associated with its committed and anticipated foreign currency denominated purchases. Its U.S. operations purchase primarily Euro forward exchange contracts and its United Kingdom subsidiary primarily enters into U.S. dollar and Euro forward exchange contracts. The carrying amount of derivatives at fair value as of February 24, 2002 was a net liability of $35,000. During the six months ended February 24, 2002 a loss of $31,000 was recorded in the accompanying statement of operations, net of tax, representing the change in fair value of the derivatives. As of February 24, 2002 the maximum period of time the Company was hedging its exposure to the variability in future cash flows for forecasted transactions was approximately seven months. Note 12. COMMITMENTS AND CONTINGENCIES LITIGATION The Company is involved in certain litigation arising in the ordinary course of business. In the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on the Company's financial position or results of operations. Note 13. RELATED PARTY TRANSACTIONS Pursuant to the Purchase and Sale Agreement between the Company and Berkshire, the Company acquired the during the second quarter of fiscal 2002, the corporate headquarters office building in Norcross, Georgia for $5,575,000 from an entity controlled by the selling shareholder of the Company. The purchase price was based on a recent third-party appraisal. In addition, under the terms of the agreement, the selling shareholder is required to reimburse the Company for certain state income taxes resulting from the 338 election. In connection with this obligation, the Company has recorded on a preliminary basis a receivable due from the former shareholder of approximately $1,050,000. 11 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited) Note 14. SUBSEQUENT EVENTS On March 11, 2002, the Company, pursuant to Sections 3.09 and 4.13 of the Indenture dated August 11, 1998 between the Company and State Street Bank and Trust, as trustee, issued a Notice of Change of Control and Offer to Purchase for cash any and all of the Company's senior subordinated notes at an offer price of 101% of the principal amount. The offer expired on April 5, 2002 and no notes were tendered for repurchase. Note 15. RECLASSIFICATIONS Certain prior period amounts have been reclassified to conform to the current period presentation, including amounts related to the Company's implementation of EITF 00-10, "Accounting for Shipping and Handling Fees and Costs", as more fully explained in the Recent Accounting Pronouncements section of Management's Discussion and Analysis of Financial Condition and Results of Operations. Note 16. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS These condensed consolidating financial statements reflect Albecca Inc. and Subsidiary Guarantors, which consist of all of the Company's wholly-owned restricted subsidiaries other than the foreign subsidiaries, as defined under the Indenture dated August 11, 1998. These nonguarantor foreign subsidiaries are herein referred to as "Subsidiary Nonguarantors." The subsidiary guarantee of each Subsidiary Guarantor will be subordinated to the prior payment in full of all senior debt of such Subsidiary Guarantor. Separate financial statements of the Subsidiary Guarantors are not presented because the subsidiary guarantees are joint and several and full and unconditional and the Company believes the condensed consolidating financial statements presented are more meaningful in understanding the financial position of the Subsidiary Guarantors and the separate financial statements are deemed not material to investors. 12 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited) CONDENSED CONSOLIDATING BALANCE SHEETS (in thousands)

~~August~~February 2624, ~~2001~~2002 (unaudited) ------------------------------------------------------------------------- Consolidated Subsidiary Subsidiary Elimination Consolidated Albecca Inc. Guarantors Nonguarantors Entries Total ------------ ---------- ------------- ------------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 11,~~929~~490 $ ~~1,169~~781 $ 6,~~048~~573 $ -- $ 1918,~~146~~844 Accounts receivable, net -- 19,~~364~~966 1314,~~603~~382 -- 3234,~~967~~348 Intercompany accounts receivable -- ~~109~~124,~~363~~565 1,~~025~~008 (~~110~~125,~~388~~573) -- Inventories -- 2624,~~679~~419 2321,~~744~~756 -- 5046,~~423~~175 Other current assets ~~215~~3,811 1,~~478~~827 43,~~510~~483 -- 69,~~203~~121 ---------- ---------- ---------- ---------- ---------- Total current assets 1215,~~144~~301 ~~158~~171,~~053~~558 4847,~~930~~202 (~~110~~125,~~388~~573) 108,~~739~~488 PROPERTY, PLANT AND EQUIPMENT, net -- 1016,~~752~~076 2423,~~345~~660 -- 3539,~~097~~736 DEFERRED INCOME TAXES 84,860 -- 1,580 -- 86,440 OTHER LONG-TERM ASSETS 43,~~174~~966 1312,~~684~~503 2118,~~439~~431 -- 3934,~~297~~900 INVESTMENT IN SUBSIDIARIES ~~151~~170,~~703~~769 -- 7,~~884~~885 (~~159~~178,~~587~~654) -- INTERCOMPANY LOANS RECEIVABLE 89,~~819~~580 -- ~~360~~350 (9089,~~179~~930) -- ---------- ---------- ---------- ---------- ---------- $ ~~257~~364,~~840~~476 $ ~~182~~200,~~489~~137 $ ~~102~~99,~~958~~108 $ (~~360~~394,~~154~~157) $ ~~183~~269,~~133~~564 ========== ========== ========== ========== ========== LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT) CURRENT LIABILITIES: Current maturities of long-term debt $ -- $ ~~888~~1,109 $ 54,~~029~~837 $ -- $ 5,~~917~~946 Accounts payable -- 89,~~998~~385 85,~~682~~887 -- 1715,~~680~~272 Intercompany accounts payable ~~104~~120,~~238~~062 ~~486~~678 54,~~664~~833 (~~110~~125,~~388~~573) -- Accrued liabilities ~~723~~1,843 8,~~538~~520 9,~~286~~605 -- 1819,~~547~~968 ---------- ---------- ---------- ---------- ---------- Total current liabilities ~~104~~121,~~961~~905 1819,~~910~~692 2825,~~661~~162 (~~110~~125,~~388~~573) 4241,~~144~~186 ---------- ---------- ---------- ---------- ---------- LONG-TERM DEBT, less current maturities 134,930 65,~~001~~932 43,~~309~~970 -- ~~145~~144,~~240~~832 ---------- ---------- ---------- ---------- ---------- INTERCOMPANY LOANS PAYABLE -- ~~360~~350 89,~~819~~580 (9089,~~179~~930) -- ---------- ---------- ---------- ---------- ---------- OTHER LONG-TERM LIABILITIES ~~2,031~~79 43,~~470~~654 2,~~475~~778 -- 86,~~976~~511 ---------- ---------- ---------- ---------- ---------- SHAREHOLDER'S EQUITY (DEFICIT): Preferred stock -- -- -- -- -- Class A common stock 4170 -- -- -- 4170 ~~Class B common stock 166 -- -- -- 166~~ Additional paid-in capital 792,~~326~~402 41,825 7,~~926~~927 (49,~~751~~752) 792,~~326~~402 Accumulated earnings (deficit) 814,~~422~~990 ~~110~~128,~~550~~337 (1513,~~234~~955) (~~109~~128,~~836~~902) ~~(6,098)~~470 Accumulated other comprehensive gain (loss) -- ~~373~~347 (1416,~~998~~354) -- (1416,~~625~~007) ---------- ---------- ---------- ---------- ---------- Total shareholder's equity (deficit) 15107,~~918~~562 ~~152~~170,~~748~~509 (22,~~306~~382) (~~159~~178,~~587~~654) ~~(13~~77,~~227)~~035 ---------- ---------- ---------- ---------- ---------- $ ~~257~~364,~~840~~476 $ ~~182~~200,~~489~~137 $ ~~102~~99,~~958~~108 $ (~~360~~394,~~154~~157) $ ~~183~~269,~~133~~564 ========== ========== ========== ========== ==========

13 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited) CONDENSED CONSOLIDATING BALANCE SHEETS (in thousands)

~~Three~~August ~~months ended November 25~~26, 2001 ~~(unaudited)~~ ---------------------------------------------------------------------- Consolidated Subsidiary Subsidiary Elimination Consolidated Albecca Inc. Guarantors Nonguarantors Entries Total ------------ ---------- ------------- ------------- ------------ ~~Net~~ASSETS ~~sales~~CURRENT $ASSETS: --Cash $and ~~53,988~~cash equivalents $ 2711,~~766~~929 $ (1,~~272)~~169 $ 806,~~482~~048 ~~Cost~~$ ~~of sales~~ -- ~~28,162~~$ 1719,~~925~~146 ~~(1,272)~~Accounts 44receivable,~~815~~ ~~---------~~net --~~-------~~ ~~--------- --------- --------- Gross profit -- 25~~19,~~826~~364 913,~~841~~603 -- 3532,~~667~~967 ~~Operating~~Intercompany ~~expenses~~accounts ~~168~~receivable ~~14,970 8,007~~ -- 23109,~~145~~363 ~~--------- --------- --------- --------- --------- Operating (loss) income (168) 10,856~~ 1,~~834~~025 ~~-- 12,522 Interest income~~ (1110,~~830~~388) -- ~~(89)~~Inventories -- (126,~~919)~~679 ~~Interest expense 5~~23,~~471~~744 ~~149 91~~ -- 550,~~711~~423 Other ~~loss~~current --assets ~~161~~215 ~~212~~1,478 4,510 -- ~~373~~6,203 --------- --------- --------- --------- --------- ~~(Loss)~~Total ~~income~~current ~~before~~assets ~~provision~~12,144 ~~for~~158,053 ~~income~~48,930 ~~taxes and minority interest~~ (3110,~~809~~388) 10108,~~546~~739 1PROPERTY,~~620~~ --PLANT 8AND EQUIPMENT,~~357~~ ~~Provision~~net ~~for income taxes~~ -- ~~136~~10,752 ~~404~~24,345 -- ~~540~~35,097 ~~Minority~~DEFERRED ~~interest~~INCOME --TAXES -- 37 -- 371,580 --~~-------~~ ~~---------~~1,580 ~~---------~~OTHER LONG-~~--------~~TERM ~~---------~~ASSETS ~~(Loss)~~4,174 ~~income~~13,684 ~~before~~19,859 ~~equity~~-- in37,717 ~~earnings~~INVESTMENT ~~(3,809)~~IN ~~10,410~~SUBSIDIARIES 1151,~~179~~703 -- 7,~~780~~884 ~~Equity~~(159,587) in-- ~~earnings~~INTERCOMPANY ofLOANS ~~subsidiaries~~RECEIVABLE 1189,~~589~~819 -- --360 (1190,~~589~~179) -- --------- --------- --------- --------- --------- ~~Net income~~ $ 7257,~~780~~840 $ 10182,~~410~~489 $ 1102,~~179~~958 $ (11360,~~589~~154) $ 7183,~~780~~133 ========= ========= ========= ========= ========= ~~CONDENSED~~LIABILITIES ~~CONSOLIDATING~~AND ~~STATEMENT~~SHAREHOLDER'S OFEQUITY ~~CASH~~(DEFICIT) ~~FLOWS~~CURRENT ~~NET~~LIABILITIES: ~~CASH~~Current ~~PROVIDED~~maturities BYof ~~(USED~~long-term ~~IN)~~debt ~~OPERATING ACTIVITIES~~ $ ~~7,357~~-- $ ~~617~~888 $ ~~(995)~~5,029 $ -- $ 65,~~979~~917 Accounts payable -- 8,998 8,682 -- 17,680 Intercompany accounts payable 104,238 486 5,664 (110,388) -- Accrued liabilities 723 8,538 9,286 --- 18,547 --------- --------- --------- --------- ~~CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment~~ -- ~~(199) (287)~~ -- ~~(486) Proceeds from sales of property, plant and equipment~~ -- ~~7 9~~ --- 16Total ~~Changes~~current inliabilities ~~other~~104,961 ~~long-term~~18,910 ~~assets~~28,661 -- (~~247~~110,388) 1042,144 -- ~~(237)~~ ------~~---~~ --------- --------- --------- --------- ~~Net~~LONG-TERM ~~cash~~DEBT, ~~used~~less incurrent ~~investing~~maturities ~~activities~~134,930 --6,001 ~~(439)~~4,309 ~~(268)~~ -- ~~(707)~~145,240 --------- --------- --------- --------- --------- ~~CASH~~INTERCOMPANY ~~FLOWS~~LOANS ~~FROM~~PAYABLE ~~FINANCING ACTIVITIES: Proceeds from revolving credit facilities~~ -- 97360 389,~~173~~819 ~~-- 3,270 Repayments of revolving credit facilities -- --~~ (290,~~762~~179) -- ~~(2,762) Proceeds from long~~-~~term debt~~ -- -- 85 -- ~~85 Repayments of long~~-~~term~~ ~~debt~~ -- ~~(27) (368)~~ -- ~~(395) Distributions to shareholder (3,036)~~ -- -- -- ~~(3,036)~~ --------- --------- --------- OTHER LONG-TERM LIABILITIES 2,031 4,470 2,475 -- 8,976 ------ -- ------- ~~Net cash (used in) provided by financing activities (3,036) 70 128~~ -- ~~(2,838)~~ --------- --------- --------- SHAREHOLDER'S EQUITY (DEFICIT): Preferred stock -- -- -- --- -- Class A common stock 4 -- -- --- ~~EFFECT~~4 OFClass ~~EXCHANGE~~B ~~RATE~~common ONstock ~~CASH~~166 -- -- ~~244~~-- 166 Additional paid-in capital 7,326 41,825 7,926 (49,751) 7,326 Accumulated earnings (deficit) 8,422 110,550 (15,234) (109,836) (6,098) Accumulated other comprehensive gain (loss) -- ~~244~~373 (14,998) -- (14,625) -------- --------- --------- --------- --------- ~~NET~~Total ~~INCREASE~~shareholder's ~~(DECREASE)~~equity ~~IN CASH 4,321 248~~ (~~891~~deficit) ~~-- 3~~15,~~678~~918 ~~Cash and cash equivalents~~152,748 ~~beginning of period 11~~(22,~~929~~306) 1(159,~~169~~587) 6(13,~~048~~227) -- ~~19,146~~ ------~~---~~ --------- --------- --------- --------- ~~Cash and cash equivalents~~$257,840 ~~end of period~~ $ 16182,~~250~~489 $ 1102,~~417~~958 $ 5(360,~~157~~154) $ ~~-- $ 22~~183,~~824~~133 ========= ========= ========= ========= =========

14 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (in thousands)

Three months ended ~~November~~February 2624, ~~2000~~2002 (unaudited) ---------------------------------------------------------------------- Consolidated Subsidiary Subsidiary Elimination Consolidated Albecca Inc. Guarantors Nonguarantors Entries Total ------------ ---------- ------------- ------------- ------------ Net sales $ -- $ 5755,~~725~~134 $ 2924,~~553~~317 $ (2,~~237~~206) $ 8577,~~041~~245 Cost of sales -- 3128,~~014~~563 1915,~~127~~505 (2,~~237~~206) 4741,~~904~~862 --------- --------- --------- --------- --------- Gross profit -- 26,~~711~~571 108,~~426~~812 -- 3735,~~137~~383 Operating expenses 18566 1518,~~414~~893 8,~~251~~242 -- 2327,~~683~~701 --------- --------- --------- --------- --------- Operating (loss) income (18566) 117,~~297~~678 ~~2,175~~570 -- 137,~~454~~682 Interest income (1,~~576~~780) -- --(22) -- (1,~~576~~802) Interest expense 5,~~459~~364 ~~234~~117 ~~197~~256 -- 5,~~890~~737 Other (income) loss --(232) --4 ~~361~~17 -- ~~361~~(211) --------- --------- --------- --------- --------- (Loss) income before provision for income taxes, minority interest, and extraordinary gain (3,~~901~~918) 117,~~063~~557 ~~1,617~~319 -- 83,~~779~~958 ~~Provision~~Income ~~for~~tax ~~income~~(benefit) ~~taxes~~expense --(2,395) ~~135~~180 ~~744~~208 -- ~~879~~(2,007) Minority interest -- -- 3111 -- 3111 --------- --------- --------- --------- --------- (Loss) income before extraordinary gain (31,~~901~~523) 107,~~928~~377 ~~842~~100 -- 75,~~869~~954 ~~Extraordinary gain on repurchase of debt, net of tax 247 -- -- -- 247~~ Equity in earnings of subsidiaries 117,~~770~~477 -- -- (117,~~770~~477) -- --------- --------- --------- --------- --------- Net income ~~(loss)~~ $ 85,~~116~~954 $ 107,~~928~~377 $ ~~842~~100 $ (117,~~770~~477) $ 8,116 ========= ========= ========= ========= ========= CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 8,352 $ (1,210) $ 2,521 $ -- $ 9,663 --------- --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment -- (281) (720) -- (1,001) Proceeds from sales of property, plant and equipment -- 399 87 -- 486 Changes in other long-term assets 97 (208) (113) -- (224) --------- --------- --------- --------- --------- Net cash provided by (used in) investing activities 97 (90) (746) -- (739) --------- --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit facilities -- 102 4,689 -- 4,791 Repayments of revolving credit facilities -- -- (5,~~587)~~954 -- (5,587) Proceeds from long-term debt -- 600 8 -- 608 Repayments of long-term debt (3,753) (3) (1,089) -- (4,845) Distributions to shareholders (2,300) -- -- -- (2,300) --------- --------- --------- --------- --------- Net cash (used in) provided by financing activities (6,053) 699 (1,979) -- (7,333) --------- --------- --------- --------- --------- EFFECT OF EXCHANGE RATE ON CASH -- (21) 824 -- 803 --------- --------- --------- --------- --------- NET INCREASE (DECREASE) IN CASH 2,396 (622) 620 -- 2,394 Cash and cash equivalents, beginning of period 13,745 1,855 7,721 -- 23,321 --------- --------- --------- --------- --------- Cash and cash equivalents, end of period $ 16,141 $ 1,233 $ 8,341 $ -- $ 25,715 ========= ========= ========= ========= =========

Three months ended February 25, 2001 (unaudited) --------------------------------------------------------------------- ~~November~~Consolidated ~~26,~~Subsidiary ~~November~~Subsidiary ~~25,~~Elimination ~~2000~~Consolidated ~~2001~~Albecca Inc. Guarantors Nonguarantors Entries Total ------------ ---------- ------------- ------------ ------------ Net sales ~~100.0%~~$ ~~100.0%~~-- $ 27,745 $ 28,687 $ (2,663) $ 81,345 Cost of sales ~~56.3~~-- ~~55.7~~17,951 18,893 (2,663) 43,990 -------- -------- --------- --------- --------- Gross profit ~~43.7~~-- ~~44.3~~27,561 9,794 -- 37,355 Operating expenses ~~27.9~~172 ~~28.~~15,198 8,477 -- 23,847 -------- -------- --------- --------- --------- Operating (loss) income ~~15.8~~(172) ~~15.5~~12,363 1,317 -- 13,508 Interest income (1.8,905) -- -- -- (~~2.4~~1,905) Interest expense ~~6.9~~5,372 ~~7.1~~182 224 -- 5,778 Other ~~loss~~income ~~0.4~~-- ~~0.4~~-- (430) -- (430) -------- -------- ~~Income~~--------- --------- --------- (Loss) income before provision for income taxes, minority interest, and extraordinary gain ~~10.~~(3,639) 12,181 1,523 -- 10.4,065 ~~Provision~~Income ~~for~~tax ~~income~~expense ~~taxes~~-- ~~1.0~~125 ~~0.6~~263 -- 388 Minority interest ~~0.1~~-- ~~0.1~~-- 23 -- 23 -------- -------- ~~Income~~--------- --------- --------- (Loss) income before extraordinary gain ~~9.2~~(3,639) 12,056 1,237 -- 9.7,654 Extraordinary gain on repurchase of debt, net of tax ~~0.3~~251 -- -- -- 251 Equity in earnings of subsidiaries 13,293 -- -- (13,293) -- -------- -------- --------- --------- --------- Net income $ 9~~.5%~~,905 $ 12,056 $ 1,237 $ (13,293) $ 9~~.7%~~,905 ======== ======== ========= ========= =========

15 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (in thousands)

NOSix months ended February 24, 2002 (unaudited) ----------------------------------------------------------------------- Consolidated Subsidiary Subsidiary Elimination Consolidated Albecca Inc. ~~DESCRIPTION~~Guarantors Nonguarantors Entries Total ------------ ---------- ------------- ~~3.1~~------------ ~~Amended~~------------ ~~and~~Net ~~Restated~~sales ~~Articles~~$ of-- ~~Incorporation~~$109,122 of$ ~~Albecca~~52,083 $ (~~incorporated~~3,478) by$ ~~reference~~157,727 toCost ~~Exhibit~~of sales -- 56,725 33,430 (3.1,478) of86,677 ~~Albecca's~~-------- ~~Registration~~-------- ~~Statement~~--------- on--------- ~~Form~~--------- SGross profit -4- ~~(No.~~52,397 ~~333~~18,653 -~~67975)~~- as71,050 ~~filed~~Operating ~~with~~expenses ~~the~~734 ~~SEC~~33,863 on16,249 ~~November~~-- 2550,846 ~~1998~~-------- ~~and~~-------- ~~declared~~--------- ~~effective~~--------- by--------- ~~the~~Operating ~~SEC~~(loss) onincome ~~February~~(734) 1218,534 ~~1999~~2,404 -- 20,204 Interest income (3,610). -- (111) -- (3.2,721) ~~Amended~~Interest ~~and~~expense ~~Restated~~10,835 ~~Bylaws~~266 of347 ~~Albecca~~-- 11,448 Other (~~incorporated~~income) byloss ~~reference~~(232) to165 ~~Exhibit~~229 ~~3.2~~-- of162 ~~Albecca's~~-------- ~~Registration~~-------- ~~Statement~~--------- on--------- ~~Form~~--------- S(Loss) income before provision for income taxes and minority interest (7,727) 18,103 1,939 -4- 12,315 Income tax (~~No.~~benefit) ~~333~~expense (2,395) 316 612 -~~67975~~- (1,467) asMinority ~~filed~~interest ~~with~~-- ~~the~~-- ~~SEC~~48 on-- ~~November~~48 25-------- -------- --------- --------- --------- (Loss) income before equity in earnings (5,332) ~~1998~~17,787 ~~and~~1,279 ~~declared~~-- ~~effective~~13,734 byEquity ~~the~~in ~~SEC~~earnings onof ~~February~~subsidiaries 1219,066 ~~1999~~-- -- (19,066). ~~4.1~~-- ~~Indenture~~-------- ~~dated~~-------- ~~August~~--------- 11--------- --------- Net income $ 13,734 ~~1998~~$ 17,787 ~~among~~$ ~~Albecca~~1,279 ~~Inc.~~$ ~~and~~(19,066) ~~State~~$ ~~Street~~13,734 ~~Bank~~======== &======== ~~Trust~~========= ========= ========= CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS NET CASH PROVIDED BY OPERATING ACTIVITIES $ 6,727 as$ ~~trustee~~4,399 ~~relating~~$ to952 ~~the~~$ ~~Notes~~-- $ 12,078 -------- -------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment -- (~~the~~5,928) ~~"Indenture"~~(902) -- (~~incorporated~~6,830) byProceeds ~~reference~~from tosales ~~Exhibit~~of 4.property, plant and equipment -- 7 66 -- 73 Changes in other long-term assets -- 972 394 -- 1,366 of-------- ~~Albecca's~~-------- ~~Registration~~--------- ~~Statement~~--------- on--------- ~~Form~~Net Scash used in investing activities -- (4,949) (~~No.~~442) ~~333~~-~~67975~~- (5,391) as-------- ~~filed~~-------- ~~with~~--------- ~~the~~--------- ~~SEC~~--------- onCASH ~~November~~FLOWS 25FROM FINANCING ACTIVITIES: Proceeds from revolving credit facilities -- 216 6,620 ~~1998~~-- ~~and~~6,836 ~~declared~~Repayments ~~effective~~of byrevolving ~~the~~credit ~~SEC~~facilities on-- ~~February~~-- 12(6,591) ~~1999~~-- (6,591). ~~4.2~~Proceeds ~~Form~~from oflong-term 10debt ~~3/4%~~-- ~~Senior~~-- ~~Note~~249 ~~due~~-- ~~2008~~249 Repayments of ~~Albecca~~long-term ~~Inc.~~debt -- (~~the~~54) ~~"New~~(506) ~~Notes"~~-- (560) Distributions to shareholder (~~included~~7,166) as-- ~~Exhibit~~-- A-- of(7,166) ~~the~~-------- ~~Indenture~~-------- ~~filed~~--------- as--------- ~~Exhibit~~--------- ~~4.1~~Net cash (used in). ~~10.2~~provided ~~Description~~by financing activities (7,166) 162 (228) -- (7,232) -------- -------- --------- --------- --------- EFFECT OF EXCHANGE RATE ON CASH -- -- 243 -- 243 -------- -------- --------- --------- --------- NET (DECREASE) INCREASE IN CASH (439) (388) 525 -- (302) Cash and ~~Form~~cash equivalents, beginning of ~~Agreement~~period ~~for~~11,929 ~~certain~~1,169 ~~executives~~6,048 -- 19,146 -------- -------- --------- --------- --------- Cash and cash equivalents, end of ~~the~~period ~~Company.~~$ 11,490 $ 781 $ 6,573 $ -- $ 18,844 ======== ======== ========= ========= =========

16 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (in thousands)

17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. The Company bases its estimates on historical experience and trends, projections of future results, economic and seasonal fluctuations and on various other assumptions. Although the Company believes these estimates are reasonable under the circumstances, there can be no assurances as application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies require the most significant judgments and estimates used in the preparation of its consolidated financial statements. Allowances for Doubtful Accounts The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. This allowance includes the specific identification of certain customers for which all or a part of amounts owed are considered to be uncollectible, as well as a general reserve for uncollectible accounts receivable. The general reserve is an estimate based on the Company's collection experience, bad debt write-off history, economic factors that may effect customer's ability to pay, and accounts receivable aging trends. If the Company's estimate of economic conditions or customers' ability to pay differs from actual results, further increases in the receivable allowance could be required. Inventory Valuation The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions. These write-downs are estimates that could vary significantly, either favorably or unfavorably, from actual results if future economic conditions, customer purchasing levels or competitive conditions differ from the Company's expectations. If actual market conditions are less favorable than those projected by management, additional inventory write-downs could be required. Impairment of Long-Lived Assets The Company evaluates the recoverability of its identifiable intangible assets, goodwill and other long-lived assets in accordance with SFAS No. 121 which generally requires assessing these assets for recoverability when events or circumstances indicate a potential impairment by estimating the undiscounted cash flows to be generated from the use and ultimate disposition of these assets. Upon implementation of SFAS No. 142 on September 2, 2002, the Company will use "fair value" methodologies to assess its existing goodwill and will reassess such fair value on an annual basis. SFAS No. 142 contemplates the use of methods which will require the Company to make estimates of the operating cashflows for each reporting unit where goodwill exists. To the extent that actual results differ from these estimates, such fair value assessments could result in impairment charges to reduce the carry values of these assets in future periods. RECENT DEVELOPMENTS Change in Ownership and Basis of Accounting On February 8, 2002, Albecca Inc. and its subsidiaries ("the Company", "Albecca") were acquired by Berkshire Hathaway Inc. ("Berkshire"), a Delaware holding company owning subsidiaries engaged in a number of diverse business activities. Under the terms of the Purchase and Sale Agreement, all of the outstanding shares of common stock of Albecca were acquired from its sole shareholder for cash consideration of $223.4 million. In connection with the transaction, all Class B common shares were converted to Class A common shares. In connection with the acquisition, the Company incurred and expensed transaction related expenditures of approximately $5.5 million, consisting of $.5 million for legal fees and other professional fees, $1.9 million for the accelerated vesting of stock options due to change of control provisions, a one-time discretionary $1.0 million contribution to the Company's 401(K) plan for the benefit of all plan participants, and $2.1 million for other compensation arrangements. Additionally, the Company will accrue and expense additional compensation amounts over 12 and 24 month periods from the transaction date totaling $6.9 million. The Company expensed approximately $.1 million of such amounts during the quarter ended February 24, 2002. Based on the above, a total of $5.6 million in expenses are reflected in operating expenses within the accompanying statement of operations. 18 As permitted under Staff Accounting Bulletin (SAB) No. 54, "Push Down Basis of Accounting Required in Certain Limited Circumstances", the Company elected not to apply push down accounting in its consolidated financial statements as it is a public registrant as a result of public debt that was outstanding prior to the acquisition. As such, the accompanying consolidated financial statements are reported on the Company's historical cost basis. If push down accounting had been elected, the Company would have been required to establish a new basis for its assets and liabilities based on the amount of consideration paid. Change in Tax Status Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carryforwards. Deferred tax assets and liabilities are measured using statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Prior to the acquisition, the Company was treated as an S corporation for federal income tax purposes and several of its subsidiaries were classified as either partnerships or single member entities. As such, these entities were not subject to federal, and certain state, income taxes. Instead, the related taxable income was included in the tax returns of the shareholders and members of the respective entities. The Company made distributions to its shareholders to pay income tax obligations as a result of the Company's status as an S corporation. Albecca's S corporation status automatically terminated upon the closing of the acquisition and the Company became subject to entity level taxes at C corporation tax rates for federal income tax purposes. The single member entities and partnerships will retain their tax entity status and continue to have their results combined with Albecca's, which consolidated federal income will be included in Berkshire's consolidated federal income tax filing. The foreign subsidiaries not included in the Company's federal income tax filings were not impacted by this conversion. In the Purchase and Sale Agreement, Berkshire and the former sole shareholder have agreed to jointly elect to treat the sale of the Company for federal and certain state income tax purposes as an asset acquisition under section 338(h)(10) ("the 338 election") of the Internal Revenue Code of 1986, as amended. A preliminary allocation of the purchase price to the tax basis of assets and liabilities based on their respective estimated fair values at February 8, 2002 has been made for income tax purposes. As a result of the 338 election, the change from an S corporation to a C corporation for federal income tax purposes and the Company's election not to push down the accounting associated with the acquisition, the Company recorded a deferred tax asset of approximately $85.1 million. This net deferred tax asset, which primarily consists of tax deductible goodwill, results from the excess of the adjusted tax basis over the historical cost basis of the Company's assets and liabilities for financial reporting purposes. A corresponding credit was made to additional paid-in capital in accordance with Emerging Issues Task Force (EITF) 94-10, "Accounting by a Company for the Income Tax Effects of Transactions Among or with its Shareholders Under FASB Statement 109". As the allocation of the purchase price to the acquired assets is subject to change in upcoming periods as appraisals and other allocation methods are finalized, additional changes to additional paid-in capital may occur. OVERVIEW Albecca primarily does business under the Larson-Juhl name. Albecca designs, manufactures and distributes a complete line of high quality, branded custom framing products, including wood and metal moulding, matboard, foamboard, glass, equipment and other framing supplies. Albecca's principal brands include the "Craig Ponzio Custom Frame Collection" and the "Larson-Juhl Classic Collection." For over 100 years, Albecca has been designing, manufacturing and distributing custom framing products that enhance the aesthetic qualities of prints, paintings, drawings and other art and memorabilia. RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with Albecca's unaudited consolidated financial statements and the related notes thereto. In this "Management's Discussion and Analysis of Financial Condition and Results of Operations," all references to the Company's international operations ("International") include all of Albecca's operations outside of the U.S. In July and September 2000, the Emerging Issues Task Force (EITF) reached a consensus on Issue 00-10 "Accounting for Shipping and Handling Fees and Costs." EITF Issue 00-10 requires that all amounts billed to a customer in a sale transaction for shipping and handling be classified as sales, and recommends that shipping and handling expenses be classified as cost of sales. As required, the Company implemented EITF 00-10 during the fourth quarter of fiscal 2001. Prior to implementation, the Company classified most shipping and handling revenues and costs, on a net basis, in selling and administrative expense. Accordingly, these costs have been reclassified to sales and cost of sales for the current period and all prior periods presented as well as for the purposes of the Management's Discussion and Analysis of Financial Position and Results of Operations that follows. Costs reclassified to cost 19 of sales for the purpose of EITF Issue 00-10 include all third party shipping expenses as well as variable handling costs such as shipping supplies. The following table sets forth certain consolidated statements of operations data as a percentage of net sales for the periods indicated:

NET SALES For the second quarter ended February 24, 2002, net sales were $77.2 million compared to $81.3 million for the second quarter ended February 25, 2001. For the six months ended February 24, 2002, net sales were $157.7 million compared to $166.4 million for the six months ended February 25, 2001. The decrease in net sales for the three and six months ended February 24, 2002 was primarily the result of the continued weakness in the U.S., Canadian and European markets and the impact of unfavorable changes in foreign exchange rates. Currency fluctuations decreased net sales by $2.6 million and $1.9 million for the three and six months ended February 24, 2002, respectively, primarily due to continued strengthening of the U.S. dollar against most of the currencies in which the Company's subsidiaries trade, including the Euro, British Pound, Japanese Yen and Australian Dollar. U.S. net sales decreased 1.8% and 4.2%, respectively, for the three and six months ended February 24, 2002 from the comparable periods in fiscal 2001, primarily the result of continuing weakness in the U.S. economy. The rate of sales decline continued to decelerate versus the first quarter of fiscal 2002. International net sales decreased 8.6% and 7.3% for the three and six months ended February 24, 2002 from the comparable periods in fiscal 2001, primarily due to sales decreases in Canada, the Netherlands and Italy, as well as the negative impact of the continued strengthening of the U.S. dollar. Management believes that Canadian sales decreases during the first and second quarters of fiscal 2002, compared to the comparable quarters of fiscal 2001, follow the trend of decreased consumer purchases in the U.S. during the same period as the two economies are closely linked. These sales decreases were partially offset by sales increases in the U.K. and Japan. COST OF SALES Cost of sales was $41.9 million and $86.7 million for the three and six months ended February 24, 2002 compared to $44.0 million and $91.9 million for the three and six months ended February 25, 2001. In the U.S., gross profit decreased to 48.4% and increased to 48.2% for the three and six months ended February 24, 2002 compared to 49.3% and 48.0% for the comparable periods in fiscal 2001. The decrease for the quarter was primarily the result of a slight increase in product cost. For the three and six months ended February 24, 2002, International gross profit margin decreased slightly to 38.5% and increased slightly to 38.5% compared to 38.7% and 38.3% for the comparable periods in fiscal 2001. The slight decrease in gross profit margin in the second quarter of fiscal 2002 was partially driven by higher cost of product in certain markets that make large U. S. dollar-based purchases. 20 OPERATING EXPENSES Operating expenses were $27.7 million and $50.8 million for the three and six months ended February 24, 2002 compared to $23.8 million and $47.5 million for the three and six months ended February 25, 2001. In the U.S., operating expenses as a percentage of net sales increased to 35.6% and 31.9% for the three and six months ended February 24, 2002 compared to 27.2% and 26.9% for the comparable periods in fiscal 2001. The increase is primarily the result of $5.6 million of transaction expenses related to the sale of the Company, including $.5 million for legal fees and other professional fees, $1.9 million for the accelerated vesting of stock options due to change of control provisions, a one-time discretionary $1.0 million contribution to the Company's 401(K) plan for the benefit of all plan participants, and $2.2 million of other compensation arrangements. Absent these transaction related expenses, operating expenses as a percentage of net sales would have been 28.6% and 28.7% for the three and six months ended February 24, 2002. For the three and six months ended February 24, 2002, International operating expenses as a percentage of net sales increased to 35.2% and 33.0% compared to 33.9% and 32.0% for the comparable periods in fiscal 2001. The increase in operating expenses as a percentage of net sales is primarily attributable to the decrease in International sales without a corresponding reduction in operating expenses. INTEREST INCOME Interest income was $1.8 million and $3.7 million for the three and six months ended February 24, 2002 compared to $1.9 million and $3.5 million for the three and six months ended February 25, 2001. INTEREST EXPENSE Interest expense was down slightly at $5.7 million and $11.4 million for the three and six months ended February 24, 2002 compared to $5.8 million and $11.7 million for the three and six months ended February 25, 2001. OTHER (INCOME) LOSS During the three months ended February 24, 2002, the Company received a stock dividend from Prudential Financial as a result of the insurance company's conversion from a mutual company to a stock company. Albecca received shares of Prudential Financial stock with a value at the time of issuance of $.2 million which was reflected in other income. The Company anticipates selling such shares prior to the end of the fiscal year. As of the end of the second quarter of fiscal 2002, the value approximates the amount recognized as income. The remaining other (income) loss primarily represents net realized and unrealized foreign currency exchange gains and losses on intercompany account balances and certain other foreign-denominated assets, as well as gains and losses on derivative instruments as discussed in Note 11. EXTRAORDINARY GAIN During the six months ended February 25, 2001, the Company repurchased a portion of its senior subordinated notes with a face value of $8.0 million. The debt repurchase resulted in an extraordinary gain of $.5 million, net of state income taxes of $.01 million. The Company did not repurchase any of its senior subordinated notes during the six months ended February 24, 2002. NET INCOME For the reasons set forth above, net income was $6.0 million and $13.7 million for the three and six months ended February 24, 2002 compared to $9.9 million and $18.0 million for the three and six months ended February 25, 2001. LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of funds have been, and are expected to continue to be, cash flow from operations and its on-hand cash and cash equivalents. The Company's principal need for funds historically has been to finance its working capital (principally inventory and accounts receivable), capital expenditures, acquisitions and distributions to the Company's shareholder to pay income taxes as a result of its status as an S corporation. As described in Note 5 to the Consolidated Financial Statements, due to the termination of S corporation status for federal income tax purposes, the Company, at a minimum, will be making distributions to its new parent, Berkshire, for payment of federal income taxes associated with being included in Berkshire's consolidated federal income tax filings. As of February 24, 2002, the Company had cash and cash equivalents of $18.8 million compared to $19.1 million as of August 26, 2001. Net cash provided by operating activities was $12.1 million for the six months ended February 24, 2002 compared to $16.2 million for the six months ended February 25, 2001. The decrease in net cash provided by operating activities was primarily due to a decrease in net income for the period (for the reasons enumerated above) and an increase in accounts receivable, partially offset by a reduction 21 in inventory and changes in other components of other working capital. During the first quarter of fiscal 2002, the Company, to facilitate the relocation of an officer, loaned certain amounts to the officer under a secured note. The note is anticipated to be repaid prior to the end of fiscal 2002. Net cash used in investing activities was $5.4 million for the six months ended February 24, 2002 compared to $.8 million for the six months ended February 25, 2001. This increase is largely due to the $5.6 million acquisition by the Company of its corporate offices from its former shareholder, as more fully explained in Note 13 of the notes to the consolidated financial statements. Net cash used in financing activities decreased to $7.2 million for the six months ended February 24, 2002 compared to $14.4 million for the six months ended February 25, 2001. The decrease is primarily due to a reduction in the amount of its senior subordinated debt repurchased by the Company during the first six months of fiscal 2002 compared to the prior comparable period, partially offset by an increase in shareholder distributions. The Company repurchased no senior subordinated debt during the six months ended February 24, 2002 compared to a repurchase of notes with a face value of $8.0 million for the six months ended February 25, 2001. As of February 24, 2002, the Company had outstanding indebtedness of approximately $150.8 million, consisting of $134.9 million in principal amount of the August 1998 senior subordinated debt and $15.9 million of other indebtedness. At August 26, 2001, the Company had outstanding indebtedness of approximately $151.2 million, consisting of $134.9 million in principal amount of the notes and $16.3 million of other indebtedness. On March 11, 2002, the Company, pursuant to Sections 3.09 and 4.13 of the Indenture dated August 11, 1998 between Albecca Inc. and State Street Bank and Trust, as trustee, issued a Notice of Change of Control and Offer to Purchase for cash any and all of the Company's senior subordinated notes at an offer price of 101% of the principal amount. The offer expired on April 5, 2002 and no notes were tendered for repurchase. Albecca's ability to make scheduled payments of the principal of, or to pay the interest or liquidated damages, if any, on, or to refinance its indebtedness, including the August 1998 senior subordinated debt, or to fund planned capital or other expenditures, will depend on its future financial or operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, many of which are beyond its control. Based upon the current levels of operations, management believes that cash flow from operations and available cash and cash equivalents will provide adequate funds for the Company's foreseeable working capital needs, capital expenditures, scheduled payments of principal and interest on its indebtedness, including the senior subordinated debt, and acquisitions. However, there is no certainty that Albecca's business will generate sufficient cash flow from operations or that future borrowings will be available in an amount sufficient to enable Albecca to service its indebtedness, including the senior subordinated debt, or to make anticipated capital and other expenditures. RELATED PARTY TRANSACTIONS Pursuant to the Purchase and Sale Agreement between the Company and Berkshire, the Company acquired during the second quarter of fiscal 2002, the corporate headquarters office building in Norcross, Georgia for $5.6 million from an entity controlled by the selling shareholder of the Company. The purchase price was based on a recent third-party appraisal. In addition, under the terms of the agreement, the selling shareholder is required to reimburse the Company for certain state income taxes resulting from the 338 election. In connection with this obligation, the Company has recorded on a preliminary basis a receivable due from the former shareholder of approximately $1.1 million. RECENT ACCOUNTING PRONOUNCEMENTS In July and September 2000, the Emerging Issues Task Force (EITF) reached a consensus on Issue 00-10 "Accounting for Shipping and Handling Fees and Costs." EITF Issue 00-10 requires that all amounts billed to a customer in a sale transaction for shipping and handling be classified as sales and recommends that shipping and handling expenses be classified as cost of sales. As required, the Company implemented EITF Issue 00-10 during the fourth quarter of fiscal 2001. Prior to implementation, the Company classified most shipping and handling revenues and costs, on a net basis, in selling and administrative expense. Accordingly, these costs were reclassified to sales and cost of sales for the current period and all prior periods presented. Costs reclassified to cost of sales for the purpose of EITF Issue 00-10 included all third party shipping expenses as well as variable handling costs such as shipping supplies. In July 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, eliminating the pooling-of-interests method. SFAS No. 141 also establishes criteria to be used in identifying intangible assets to be recognized separately from goodwill in an acquisition. SFAS No. 142 outlines the methods to be used to account for goodwill and other intangible assets after their acquisition. Specifically, goodwill and intangible assets with indefinite useful lives will no longer be amortized, but instead be tested for impairment annually. Intangible assets with definite useful lives will be amortized over their estimated useful life, which will no longer be limited to forty years. The Company intends to implement SFAS No. 142, as required, on the first day of fiscal 2003. Management is currently evaluating the effect of this Statement on the Company's financial position and results of operations. During 22 the six months ended February 24, 2002, amortization of goodwill and other intangibles totaled $.9 million. As of February 24, 2002, the Company had $28.1 million of recorded goodwill, which will no longer be subject to amortization effective September 2, 2002. The Company had $5.8 million of other net intangible assets as of February 24, 2002, which will continue to be amortized over periods ranging from 6 to 10 years. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This Statement addresses financial accounting and reporting for asset retirement costs of long-lived assets resulting from legal obligations associated with acquisition, construction or development transactions. As required, the Company plans to adopt SFAS No. 143 on the first day of fiscal 2003. The adoption of this Statement is not expected to have a material impact on the Company's financial position or results of operations. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This Statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of," and clarifies accounting and reporting for assets held for sale, scheduled for abandonment or other disposal, and recognition of impairment loss related to the carrying value of long-lived assets. This Statement is effective for fiscal years beginning after December 15, 2001. The adoption of this Statement is not expected to have a material impact on the Company's financial position or results of operations. EUROPEAN UNION CURRENCY CONVERSION On January 1, 1999, eleven member nations of the European Economic and Monetary Union began using a common currency, the Euro. For a three-year transition period ending June 30, 2002, both the Euro and each of the currencies for such member countries will remain in circulation. After June 30, 2002, the Euro will be the sole legal tender for those countries. The adoption of the Euro will affect many financial systems and business applications as the commerce of those countries may be transacted both in the Euro and the existing national currency during the transition period. Historically, a significant portion of the Company's revenue has been generated in Europe. Of the countries currently using the Euro, the Company has subsidiary operations in Austria, Finland, France, Germany, Italy, and the Netherlands. The Company has assessed the potential impact of the Euro conversion in a number of areas, particularly on pricing and other marketing strategies. Although the Company does not currently expect that the conversion, either during or after the transition period, will have an adverse effect on its operations or financial condition, there can be no assurance that it will not have some unexpected adverse impact. FORWARD LOOKING STATEMENTS When used in this Form 10-Q and in future filings by the Company with the Securities and Exchange Commission and in its press releases, and in other written or oral statements made by the Company's representatives, the words and phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimates," "projects," "believes," "plans," "anticipates," "intends," "may," or similar expressions, are intended to identify "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements include, without limitation, the Company's expectations regarding sales, earnings, or other future financial performance and liquidity, and general statements about future operations and operating results. Although the Company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. Factors that could cause actual results to differ from expectations include, without limitation, (i) the timing and expense associated with, and effects of, cost-reduction and integration initiatives being implemented by the Company; (ii) general competitive factors and the overall financial condition of the custom framing industry, the retail industry and the general economy; (iii) change in retailer or consumer acceptance of the Company's products; (iv) consolidations and restructurings in the retail industry causing a decrease in the number of stores that sell the Company's products; (v) social, political, and economic risks to the Company's foreign operations and customers; (vi) changes in the laws, regulations, and policies, including changes in accounting standards, that affect, or will affect, the Company in the United States and internationally; (vii) shipment delays, depletion of inventory, service problems; and (viii) changes in product mix to ones which are less profitable. The Company assumes no responsibility to update forward-looking statements made herein or elsewhere. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes to the Company's disclosures related to certain market risks as reported under Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," in the Company's Form 10-K for the fiscal year ended August 26, 2001, as filed with the Securities and Exchange Commission. 23 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits:

b. Reports on Form 8-K: On December 21, 2001, the Company filed a Current Report on Form 8-K to report an agreement dated December 15, 2001 providing for the sale of all Albecca's issued and outstanding capital stock to Berkshire Hathaway Inc. by Albecca's sole shareholder Craig A. Ponzio. On February 8, 2002, the Company filed a Current Report Form 8-K to report the closing of the purchase of the Company by Berkshire Hathaway from Albecca's sole shareholder Craig A. Ponzio, as well as a change in the composition of the Company's board of directors. 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALBECCA INC. (registrant) Date: April 10, 2002 By: /s/ Stephen E. McKenzie --------------- ------------------------------------- Stephen E. McKenzie President, Chief Executive Officer (Principal Executive Officer) Date: April 10, 2002 By: /s/ R. Bradley Goodson --------------- ------------------------------------- R. Bradley Goodson, Senior Vice President Finance, Chief Financial Officer (Principal Financial Officer) 25

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