10-Q 1 g66329e10-q.txt ALBECCA INC. 1 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 November 26, 2000. 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 2 ALBECCA INC. INDEX TO FORM 10-Q

Page No. Part I - Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of August 2927, ~~1999~~2000 (audited) and ~~May~~November 2826, 2000 (unaudited) ..........................................~~.............................~~ 3 Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~May~~November 3028, 1999 (unaudited) and ~~May~~November 2826, 2000 (unaudited) ........~~.....................................~~ 4 Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~May~~November 3028, 1999 (unaudited) and ~~May~~November 2826, 2000 (unaudited) ........~~.....................................~~ 5 Notes to the Consolidated Financial Statements ............................~~.........................~~ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .............................................. 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk..................~~........18~~ 16 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K ...........................................~~.........................22~~ 17 Signatures ...............................................................................~~..........................23~~ 18

2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ALBECCA INC. CONSOLIDATED BALANCE SHEETS (in thousands)

August 2927, ~~1999~~November ~~May 28~~26, 2000 2000 ----------~~-----~~ ------------ ~~ASSETS~~ (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 3523,~~058~~321 $ 2425,~~985~~715 Accounts receivable, less allowances for doubtful accounts of $5,~~190~~283 and $65,~~329~~382 at August 2927, ~~1999~~2000 and ~~May~~November 2826, 2000 4736,~~298~~384 4239,~~678~~973 Inventories 6748,~~620~~413 5247,~~074~~067 Other current assets 54,~~057~~754 56,~~957~~734 ---------- ---------- Total current assets ~~155~~112,~~033~~872 ~~125~~119,~~694~~489 PROPERTY, PLANT AND EQUIPMENT, net 5336,~~485~~692 4434,~~659~~519 OTHER LONG-TERM ASSETS 5841,~~040~~531 4340,~~599~~038 ---------- ---------- $ ~~266~~191,~~558~~095 $ ~~213~~194,~~952~~046 ========== ========== LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES: Current maturities of long-term debt $ 267,~~589~~686 $ 135,~~312~~760 Accounts payable 2617,~~423~~247 2220,~~012~~415 Accrued liabilities 2624,~~331~~664 2927,~~389~~197 ---------- ---------- Total current liabilities 7949,~~343~~597 6453,~~713~~372 ---------- ---------- LONG-TERM DEBT, less current maturities ~~213~~162,~~211~~496 ~~173~~158,~~774~~186 ---------- ---------- OTHER LONG-TERM LIABILITIES 78,~~937~~879 89,~~975~~457 ---------- ---------- SHAREHOLDERS' DEFICIT: Preferred stock -- -- Class A common stock 4 4 Class B common stock 166 166 Additional paid-in capital 7,326 7,326 Accumulated deficit (3323,~~098~~578) (2717,~~426~~762) ~~Cumulative~~Accumulated ~~foreign~~other ~~currency~~comprehensive ~~translation~~loss ~~adjustment~~ (813,~~331~~795) (1316,~~580~~703) ---------- ---------- Total shareholders' deficit (3329,~~933~~877) (3326,~~510~~969) ---------- ---------- $ ~~266~~191,~~558~~095 $ ~~213~~194,~~952~~046 ========== ==========

The accompanying notes are an integral part of these consolidated balance sheets. 3 4 ALBECCA INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands) (unaudited)

Three ~~Months~~months ~~Ended~~ended ~~Nine Months Ended~~ ----------------------------- ~~--------------------------------~~November ~~May 30, 1999 May~~ 28, ~~2000~~November ~~May 30~~26, 1999 ~~May 28,~~ 2000 ------------ ------------ ~~------------ ------------~~ Net sales $ 96100,~~224~~120 $ 8783,~~883~~373 ~~$ 297,523 $ 282,156~~ Cost of sales 5557,~~765~~299 4744,~~647~~474 ~~170,272 157,335~~ -------- --~~------~~ --------- -~~--------~~ Gross profit 4042,~~459~~821 4038,~~236~~899 ~~127,251 124,821~~ Operating expenses 3332,~~932~~097 2425,~~645~~445 ~~105,770 88,264 Restructuring charges 1,245 855 1,491 855 Write~~-~~down of goodwill~~ -- -- -- ~~4,997~~ ---~~-----~~ -------- --~~-------~~ ~~---------~~ Operating income 510,~~282~~724 1413,~~736~~454 ~~19,990 30,705 Loss on disposition of Mersch entities -- 472 -- 1,854~~ Interest income (~~604~~820) (1,~~263~~576) ~~(1,623) (3,094)~~ Interest expense 6,~~245~~413 65,~~033~~890 ~~19,914~~Other ~~18,402~~loss --~~------~~ ~~--------~~549 ---------- ---------- Income ~~(loss)~~ before provision for income taxes, minority interest, ~~and~~ extraordinary gain ~~(359)~~and ~~9,494~~cumulative 1effect of a change in accounting principle 5,~~699~~131 138,~~543~~591 Provision for income taxes ~~539~~862 ~~358~~879 ~~1,849 1,583~~ Minority interest ~~107~~114 5831 ~~355 262~~ -------- --~~------~~ --------- -~~--------~~ Income ~~(loss)~~ before extraordinary gain ~~(1,005)~~and ~~9,078~~cumulative ~~(505)~~effect 11of a change in accounting principle 4,~~698~~155 7,681 Extraordinary gain on ~~retirement~~repurchase of debt, net of tax 12,~~008~~980 247 -- ~~1,008 4,524~~ -------- ---------- Income before cumulative effect of a change in accounting principle 7,135 7,928 Cumulative effect of adoption of SFAS 133, net of tax -- 188 ---------- ---------- Net income $ ~~3 $ 9~~7,~~078~~135 $ ~~503 $ 16~~8,~~222~~116 ======== ==~~======~~ ========= =~~========~~

The accompanying notes are an integral part of these consolidated financial statements. 4 5 ALBECCA INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)

~~Nine~~Three ~~Months~~months ~~Ended~~ended ---------------------------~~-----~~ ~~May~~November 3028, ~~1999~~November ~~May 28~~26, 1999 2000 ------------ ------------ NET CASH ~~FLOWS~~PROVIDED ~~FROM~~BY OPERATING ACTIVITIES: Net income $ ~~503~~7,135 $ 168,~~222~~116 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest ~~355~~114 ~~262~~31 Depreciation and amortization 62,~~619~~067 61,~~384~~434 Loss (gain) on disposal of property, plant and equipment ~~483~~83 (7865) ~~Write-down of goodwill -- 4,997 Loss on disposition of Mersch entities -- 1,854~~ Extraordinary gain on ~~retirement~~repurchase of debt (12,~~008~~980) (~~4,524~~247) Changes in operating assets and liabilities: Accounts receivable (210,~~704~~344) (34,~~686~~704) Inventories 14,~~876~~519 ~~9,760~~(322) Other current assets (~~1,001~~548) (~~905~~2,294) Accounts payable (13,~~745)~~523 ~~(885)~~4,279 Accrued liabilities 8,~~990~~692 52,~~430~~684 Other (~~1,632~~49) ~~1,167~~751 ---------- ---------- Net cash provided by operating activities 1012,~~736~~212 359,~~998~~663 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (~~4,520) (7,760) Acquisitions of businesses, net (~~3,~~594~~574) (21,~~449~~001) Proceeds from sales of property, plant and equipment ~~1,624~~508 ~~1,452~~486 ~~Proceeds from disposition of Mersch entities -- 16,278~~ Changes in other long-term assets 63 (~~627~~224) ~~1,205~~ ---------- ---------- Net cash (used in) ~~provided by~~ investing activities (73,~~117~~003) ~~8,726~~(739) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: ~~Payments for additional debt issue costs (195) --~~ Proceeds from revolving credit facilities 267,~~679~~855 204,~~550~~791 Repayments of revolving credit facilities (257,~~411~~914) (295,~~199~~587) Proceeds from long-term debt 142,~~486~~153 ~~3,098~~608 Repayments of long-term debt (2714,~~490~~848) (404,~~219~~845) Distributions to shareholders ~~(4,308)~~-- (102,~~550~~300) ---------- ---------- Net cash used in financing activities (1612,~~239~~754) (567,~~320~~333) ---------- ---------- EFFECT OF EXCHANGE RATE ON CASH ~~(1,790)~~52 ~~1,523~~803 ---------- ---------- NET (DECREASE) INCREASE IN CASH (143,~~410~~493) ~~(10~~2,~~073)~~394 CASH and cash equivalents, at beginning of period ~~54,884~~ 35,058 23,321 ---------- ---------- CASH and cash equivalents, at end of period $ 4031,~~474~~565 $ 2425,~~985~~715 ========== ========== SUPPLEMENTAL INFORMATION: Interest paid $ 141,~~969~~020 $ ~~13,245~~549 ========== ========== Income taxes paid $ 21,~~531~~113 $ ~~2,382~~774 ========== ==========

The accompanying notes are an integral part of these consolidated financial statements. 5 6 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1. INTERIM FINANCIAL STATEMENT PRESENTATION The unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, the unaudited interim consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles 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 27, 2000, as filed with the Securities and Exchange Commission. Note 2. USE OF ESTIMATES The preparation of consolidated 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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 3. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Albecca Inc. ("Albecca", the "Company") and its subsidiaries. All significant intercompany transactions have been eliminated. Minority interest represents minority shareholders' interest in majority-owned subsidiaries. Note 4. INCOME TAXES Albecca is an S corporation and several of its subsidiaries are classified as either partnerships or single member entities. Each is treated as a pass-through entity under the Internal Revenue Code. They are not subject to federal and certain state income taxes. As a result, the related taxable income is included in the tax returns of the shareholders and members of the respective companies. The Company makes distributions to shareholders to pay their income tax obligations as a result of the Company's status as an S corporation. The provision for income taxes included in the accompanying consolidated financial statements primarily relates to certain state and foreign income taxes. Note 5. RESTRUCTURING PLANS Restructuring plans address the status of the Company's ongoing restructuring activities which were initiated in prior fiscal years. As of November 26, 2000, the following restructuring plans had remaining financial and/or legal obligations. UNITED KINGDOM - NORTHAMPTON As of November 26, 2000, with respect to the Company's closure of its United Kingdom - Northampton operation, none of the original 37 team members remained at the facility. The Company continued to sell existing assets and collect existing accounts receivable through its United Kingdom - Arqadia Ltd. operations. Management estimates that the restructuring plan will be completed prior to the end of fiscal 2001. NEW ZEALAND As of November 26, 2000, 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. The Company, through its Australian operations, is finalizing the legal requirements of the liquidation, and estimates the restructuring plan will be completed by the second quarter of fiscal 2001. GREECE As of November 26, 2000, with respect to the closure of the Company's distribution operations in Greece, none of the original 14 team members remained at the facility. The Company, through its local counsel, will continue to collect existing accounts receivable and finalize the legal liquidation of its Greek entities. The Company estimates that the restructuring plan will be completed prior to the end of fiscal 2001. For more descriptive information on the above mentioned restructuring plans, please see the Company's Form 10-K for the fiscal year ended August 27, 2000, as filed with the Securities and Exchange Commission. SUMMARY OF PREVIOUSLY REPORTED RESTRUCTURING PLANS At November 26, 2000, as it relates to the Company's fiscal 1998, 1999 and 2000 restructuring plans, $617,000 of restructuring charges remained in accrued liabilities representing severance and other termination costs of $85,000 and $532,000 of lease termination and other exit costs. 6 7 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited) A summary of the previously reported restructuring plans and activity consist of the following estimated accrued future cash/non-cash requirements:

Severance and Lease Write-down ~~Severance~~ of ~~property~~other ~~and~~termination ~~other~~property and termination ~~Other~~and other exit CLOSURE OF UNITED KINGDOM - NORTHAMPTON: equipment benefits costs Total ------------- ------------- -------------- ------------ 2000 Provision $~~270~~ 499,000 $~~222~~ 298,000 $~~417~~ 618,000 $~~909~~ 1,415,000 Non-cash ~~270~~499,000 -- -- ~~270~~499,000 ---------- ---------- ---------- ------------ Cash -- ~~222~~298,000 ~~417~~618,000 ~~639~~916,000 ~~Third~~Fiscal 2000 cash activity -- (116,000) (84,000) (200,000) ---------- ---------- ---------- ------------ Balance as of August 27, 2000 -- 182,000 534,000 716,000 First quarter 2001 cash activity (unaudited) -- (121,000) (126,000) (247,000) ---------- ---------- ---------- ------------ Balance as of November 26, 2000 (unaudited) $ -- $ 61,000 $ 408,000 $ 469,000 ========== ========== ========== ============ Severance and Write-down of other property and termination Other exit CLOSURE OF OPERATIONS IN NEW ZEALAND: equipment benefits costs Total ------------- ------------- ---------- ---------- 1999 Provision $ 75,000 $ 48,000 $ 102,000 $ 225,000 Non-cash 75,000 -- -- 75,000 ---------- ---------- ---------- ---------- Cash -- 48,000 102,000 150,000 Fiscal 1999 cash activity -- (30,000) (75,000) (105,000) ---------- ---------- ---------- ---------- Balance as of August 29, 1999 -- 18,000 27,000 45,000 Fiscal 2000 cash activity -- (3,000) (3,000) (6,000) ---------- ---------- ---------- ---------- Balance as of August 27, 2000 -- 15,000 24,000 39,000 First quarter 2001 cash activity (unaudited) -- -- -- -- ---------- ---------- ---------- ---------- Balance as of ~~May~~November 2826, 2000 (unaudited) $ -- $~~222~~ 15,000 $~~417~~ 24,000 $~~639~~ 39,000 ========== ========== ========== ========== Severance and other Write-off of termination Other exit CLOSURE OF OPERATIONS IN GREECE: goodwill benefits 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 30, 1998 -- 79,000 104,000 183,000 1999 provision -- -- 129,000 129,000 Fiscal 1999 cash activity -- (70,000) (129,000) (199,000) ---------- ---------- ---------- ---------- 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 First quarter 2001 cash activity (unaudited) -- -- -- -- ---------- ---------- ---------- ---------- Balance as of November 26, 2000 (unaudited) $ -- $ 9,000 $ 100,000 $ 109,000 ========== ========== ========== ==========

7 8 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited) Note 6. OTHER LOSS Other loss primarily represents realized and unrealized foreign currency exchange gains and losses on intercompany account balances. Note 7. EXTRAORDINARY GAIN In September 2000, the Company repurchased a portion of its senior subordinated notes with a face value of $4,000,000. The debt repurchase resulted in an extraordinary gain of $247,000, net of state income taxes of $6,000. In September and November 1999, the Company repurchased a portion of its senior subordinated notes with a face value of $13,820,000. The debt repurchases resulted in extraordinary gains of $2,980,000, net of state income taxes of $124,000. Note 8. INVENTORIES Inventories consist of the following (in thousands):

~~Write-down~~August ~~Severance~~27, ofNovember ~~property~~26, ~~and~~2000 ~~other~~2000 ~~and termination Other exit CLOSURE OF SWEDEN DUPLICATE FACILITY: equipment benefits costs Total~~ ----------- ----------- -~~---------~~ ~~-----------~~Raw ~~1999~~materials ~~Provision~~ $~~700,000~~ ~~$ 275~~6,~~000~~290 $ 455,~~000~~878 $Work ~~1,020,000~~in ~~Non-cash~~process ~~700~~2,~~000~~127 ~~-- -- 700~~2,~~000~~175 ~~--------~~Finished ~~---------~~goods ~~-------- ----------- Cash -- 275~~39,~~000~~996 4539,~~000~~014 ~~320,000 Fiscal 1999 cash activity~~ -- ~~(125,000) (30,000) (155,000)~~ -------- --------- ~~--------~~$ ~~----------- Balance as of August 29~~48,413 ~~1999~~$ ~~-- 150~~47,~~000~~067 15,000 165,000 First quarter 2000 cash activity (unaudited) -- (150,000) (15,000) (165,000) -------- --------- -------- ----------- Balance as of November 28, 1999 (unaudited) -- -- -- -- Second quarter 2000 cash activity (unaudited) -- -- -- -- -------- --------- -------- ----------- Balance as of February 27, 2000 (unaudited) -- -- -- -- Third quarter 2000 cash activity (unaudited) -- -- -- -- -------- --------- -------- ----------- Balance as of May 28, 2000 (unaudited) $ -- $ -- $ -- $ -- ======== ========~~= ======== ===========~~

Note 9. COMPREHENSIVE INCOME Comprehensive income for the Company is as follows (in thousands):

~~Write-down~~Three ~~Severance~~months ofended ~~property and other and termination Other exit CLOSURE OF OPERATIONS IN NEW ZEALAND: equipment benefits costs Total~~ ----------- ------------ ----~~------~~ ~~---------~~November ~~1999 Provision $75~~28,~~000~~ $November 4826,~~000~~ ~~$ 102,000 $ 225,000 Non-cash 75,000 -- -- 75,000 ------- -------- --------- --------- Cash -- 48,000 102,000 150,000 Fiscal~~ 1999 ~~cash~~2000 ~~activity~~ -- ~~(30,000) (75,000) (105,000)~~ ------- ---~~-----~~ --------- ---~~------~~ ~~Balance~~Net ~~as of August 29~~income, ~~1999 -- 18,000 27,000 45,000 First quarter 2000 cash activity (unaudited) -- (3,000) (3,000) (6,000) ------- -------- --------- --------- Balance~~ as ofreported ~~November~~$ 287,135 ~~1999~~$ ~~(unaudited) -- 15~~8,~~000~~116 ~~24,000~~Foreign ~~39,000~~currency ~~Second~~translation ~~quarter~~adjustments ~~2000 cash activity~~ (~~unaudited~~295) ~~-- -- -- -- ------- -------- --------- --------- Balance as of February 27, 2000~~ (~~unaudited) -- 15~~2,~~000 24,000 39,000 Third quarter 2000 cash activity (unaudited~~908) -- -- -- -- ------- -~~-------~~ ~~---------~~Total ~~---------~~comprehensive ~~Balance~~income ~~as of May 28, 2000 (unaudited)~~ $ ~~-- $ 15~~6,~~000~~840 $ 245,~~000~~208 ~~$ 39,000~~ ======= =~~=======~~ ========~~= =========~~

Accumulated other comprehensive loss represents foreign currency translation adjustments of $13,795,000 and $16,703,000 at August 27, 2000 and November 26, 2000, respectively. Note 10. 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 quarters beginning after June 15, 2000. 8 9 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited) 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-effect-type transition adjustments to earnings and other comprehensive income (equity). In accordance with the transition provisions of SFAS 133, the Company recorded a cumulative- effect-type adjustment, net of tax, of $188,000 to recognize the fair value of the derivatives. 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; with its U.S. operations purchasing primarily the Italian Lira, Spanish Peseta, and French Franc, and with its United Kingdom subsidiary entering into U.S. dollar forward exchange contracts. The carrying amount of derivatives at fair value as of November 26, 2000 was $312,000. As of November 26, 2000 the maximum period of time the Company was hedging its exposure to the variability in future cash flows for forecasted transactions was nine months. Note 11. 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 12. SUBSEQUENT EVENTS REPURCHASE OF SENIOR SUBORDINATED NOTES Subsequent to the end of the first quarter of fiscal 2001, the Company repurchased $2,000,000 of its senior subordinated notes. The Company estimates that an extraordinary gain of approximately $198,000 will be recorded net of state income taxes of $5,000. Note 13. RECLASSIFICATIONS Certain prior period amounts have been reclassified to conform to the current period presentation. Note 14. 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. 9 10 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited) CONDENSED CONSOLIDATING BALANCE SHEETS (in thousands)

~~Severance~~November ~~and~~26, ~~other~~2000 ~~Write~~(Unaudited) -~~off~~----------------------------------------------------------------------- ofConsolidated ~~termination~~Subsidiary ~~Other~~Subsidiary ~~exit~~Elimination ~~CLOSURE~~Consolidated OFAlbecca ~~OPERATIONS~~Inc. INGuarantors ~~GREECE:~~Nonguarantors ~~goodwill~~Entries ~~benefits costs~~ Total ------------ ---------- ------------- ------------ ------------ ~~1998~~ASSETS ~~Provision~~CURRENT ASSETS: Cash and cash equivalents $~~333~~ 16,~~000~~141 $ 791,~~000~~233 $ ~~104~~8,~~000~~341 $ ~~516~~-- $ 25,~~000~~715 ~~Non~~Accounts receivable, net -~~cash~~- ~~333~~22,~~000~~892 17,081 -- 39,973 Intercompany accounts receivable -- ~~333~~81,~~000~~678 314 (81,992) -- Inventories -- 24,811 22,256 -- 47,067 Other current assets 1,676 1,196 3,862 -- 6,734 ---------- ---------- ---------- ~~Cash~~---------- ---------- 79Total current assets 17,~~000~~817 ~~104~~131,~~000~~810 ~~183~~51,~~000~~854 ~~Fiscal~~(81,992) ~~1998~~119,489 ~~cash~~PROPERTY, ~~activity~~PLANT AND EQUIPMENT, net -- 10,596 23,923 -- 34,519 OTHER LONG-TERM ASSETS 4,698 13,831 21,509 -- 40,038 INVESTMENT IN SUBSIDIARIES 117,222 -- 7,884 (125,106) -- INTERCOMPANY LOANS RECEIVABLE 92,492 -- -- (92,492) -- ---------- ---------- ---------- ~~Balance~~---------- as---------- of$ ~~August 30~~232,229 ~~1998~~$ --156,237 79$ 105,~~000~~170 ~~104~~$ (299,~~000~~590) ~~183~~$ 194,~~000~~046 ~~1999~~========== ~~provision~~========== ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Current maturities of long--term debt $ -- ~~129~~$ 722 $ 5,~~000~~038 ~~129~~$ -- $ 5,~~000~~760 ~~Fiscal~~Accounts ~~1999~~payable ~~cash~~-- ~~activity~~11,183 9,232 -- ~~(70~~20,~~000)~~415 ~~(129~~Intercompany accounts payable 75,~~000)~~976 441 5,575 (~~199~~81,~~000~~992) -- Accrued liabilities 6,171 10,242 10,784 -- 27,197 ---------- ---------- ---------- ---------- ~~Balance~~---------- asTotal ofcurrent ~~August~~liabilities 2982,147 ~~1999~~22,588 --30,629 9(81,~~000~~992) ~~104~~53,~~000~~372 ~~113~~---------- ---------- ---------- ---------- ---------- LONG-TERM DEBT,~~000~~ ~~First~~less ~~quarter~~current ~~2000~~maturities ~~cash~~144,930 ~~activity~~6,622 ~~(unaudited)~~6,634 -- 158,186 -- -- ------ ---------- ---------- ---------- ---------- ~~Balance~~INTERCOMPANY asLOANS ofPAYABLE ~~November~~-- 28172 92,320 ~~1999~~ (~~unaudited~~92,492) -- ~~9,000~~---------- ~~104,000~~---------- ~~113,000~~---------- ~~Second~~---------- ~~quarter~~---------- ~~2000~~OTHER ~~cash~~LONG-TERM ~~activity~~LIABILITIES ~~(unaudited)~~898 5,544 3,015 -- 9,457 ---------- ---------- ---------- ---------- ---------- SHAREHOLDERS' EQUITY (DEFICIT): Preferred stock -- -- -- -- -- Class A common stock 4 -- -- -- 4 Class B common stock 166 -- -- ~~Balance~~-- as166 ofAdditional ~~February~~paid-in 27capital 7,326 ~~2000~~41,825 7,926 (~~unaudited~~49,751) --7,326 9Accumulated (deficit) earnings (3,~~000~~242) ~~104~~79,~~000~~127 ~~113~~(18,~~000~~292) ~~Third~~(75,355) ~~quarter~~(17,762) ~~2000~~Accumulated ~~cash~~other ~~activity~~comprehensive gain (~~unaudited~~loss) -- 359 (17,062) -- (16,703) -- -------- ---------- ---------- ---------- ---------- ~~Balance~~Total asshareholders' ofequity ~~May~~(deficit) 284,254 ~~2000~~121,311 (~~unaudited~~27,428) $(125,106) (26,969) ---------- ---------- ---------- ---------- ---------- $ 9232,~~000~~229 $ ~~104~~156,~~000~~237 $ ~~113~~105,~~000~~170 $ (299,590) $ 194,046 ========== ========== ========== ========== ==========

10 11 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited) CONDENSED CONSOLIDATING BALANCE SHEETS (in thousands)

~~Severance~~August ~~and~~27, ~~other~~2000 ~~termination~~--------------------------------------------------------------------------- ~~Other~~Consolidated ~~exit~~Subsidiary ~~CLOSURE~~Subsidiary OFElimination UConsolidated Albecca Inc.S. ~~FACILITIES:~~Guarantors ~~benefits~~Nonguarantors ~~costs~~Entries Total ------------ ---------- --------------- ------------ ~~1998~~------------ ~~Provision~~ASSETS CURRENT ASSETS: Cash and cash equivalents $ ~~234~~13,~~000~~745 $ 421,~~000~~855 $ ~~276~~7,~~000~~721 ~~Non~~$ -~~cash~~- $ 23,321 Accounts receivable, net -- 20,291 16,093 -- 36,384 Intercompany accounts receivable -- 73,310 1,336 (74,646) -- Inventories -- 23,617 24,796 -- 48,413 Other current assets 180 987 3,587 -- 4,754 ---------- ---------- ---------- ~~Cash~~---------- ~~234~~---------- Total current assets 13,~~000~~925 42120,~~000~~060 ~~276~~53,~~000~~533 ~~Fiscal~~(74,646) ~~1998~~112,872 ~~cash~~PROPERTY, ~~activity~~PLANT AND EQUIPMENT, net -- 11,095 25,597 -- 36,692 OTHER LONG-TERM ASSETS 4,894 13,745 22,892 -- 41,531 INVESTMENT IN SUBSIDIARIES 105,452 -- 7,884 (42113,~~000~~336) -- INTERCOMPANY LOANS RECEIVABLE 91,985 -- 532 (4292,~~000~~517) -- ---------- ---------- ---------- ~~Balance~~---------- as---------- of$ ~~August~~216,256 30$ 144,900 ~~1998~~$ ~~234~~110,~~000~~438 $ (280,499) $ 191,095 ========== ========== ========== ========== ========== LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ -- ~~234~~$ 563 $ 7,~~000~~123 ~~1999~~$ ~~provision~~-- $ 7,686 Accounts payable -- ~~117~~9,~~000~~484 ~~117~~7,~~000~~763 ~~Fiscal~~-- ~~1999~~17,247 ~~cash~~Intercompany ~~activity~~accounts ~~(145~~payable 67,~~000)~~854 ~~(108~~114 6,~~000)~~678 (~~253~~74,~~000~~646) -- Accrued liabilities 814 11,856 11,994 -- 24,664 ---------- ---------- ---------- ~~Balance~~---------- as---------- ofTotal ~~August~~current 29liabilities 68,668 ~~1999~~22,017 8933,~~000~~558 9(74,~~000~~646) 9849,~~000~~597 ~~First~~---------- ~~quarter~~---------- ~~2000~~---------- ~~provision~~---------- ~~(unaudited)~~---------- ~~(54~~LONG-TERM DEBT,~~000)~~ 54less current maturities 148,~~000~~930 6,085 7,481 -- ~~First~~162,496 ~~quarter~~---------- ~~2000~~---------- ~~cash~~---------- ~~activity~~---------- ~~(unaudited)~~---------- ~~(15,000)~~INTERCOMPANY ~~(54~~LOANS PAYABLE -- 388 92,~~000)~~129 (6992,~~000~~517) -- ---------- ---------- ---------- ~~Balance~~---------- as---------- ofOTHER ~~November~~LONG-TERM ~~28,~~LIABILITIES ~~1999~~220 ~~(unaudited) 20~~5,~~000~~961 92,~~000~~698 29-- 8,~~000~~879 ~~Second~~---------- ~~quarter 2000 cash activity (unaudited)~~ ---------- ---------- ---------- ---------- SHAREHOLDERS' (DEFICIT) EQUITY: Preferred stock -- -- -- -- -- Class A common stock 4 -- -- -- 4 Class B common stock 166 -- -- ~~Balance~~-- as166 ofAdditional ~~February~~paid-in 27capital 7,326 ~~2000~~41,825 7,926 (~~unaudited~~49,751) 207,~~000~~326 Accumulated (deficit) earnings (9,~~000~~058) 2968,~~000~~199 ~~Third~~(19,134) ~~quarter~~(63,585) ~~2000~~(23,578) ~~reversal~~Accumulated ofother ~~provision~~comprehensive ~~(unaudited)~~gain (~~20,000~~loss) -- 425 (914,~~000~~220) -- (2913,~~000~~795) ---------- ---------- ---------- ~~Balance~~---------- as---------- ofTotal ~~May~~shareholders' 28(deficit) equity (1,562) ~~2000~~110,449 (~~unaudited~~25,428) $(113,336) (29,877) ---------- $---------- ---------- $---------- ---------- $ 216,256 $ 144,900 $ 110,438 $ (280,499) $ 191,095 ========== ========== ========== ========== ==========

11 12 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (in thousands)

~~Write-down~~Three ~~Severance~~Months ~~Lease~~Ended ofNovember ~~property~~26, ~~and~~2000 ~~other~~(Unaudited) ~~termination~~------------------------------------------------------------------------ ~~CLOSURE~~Consolidated OFSubsidiary ~~UNITED~~Subsidiary ~~KINGDOM~~Elimination ~~PLASTIC~~Consolidated ~~MOULDING~~Albecca ~~and~~Inc. ~~termination~~Guarantors ~~and~~Nonguarantors ~~exit~~Entries ~~MANUFACTURING OPERATIONS: equipment benefits costs~~ Total ------------ ---------- ------------- ------------ ------------ ~~1998~~Net ~~Provision~~sales $~~775~~ -- $ 57,~~000~~134 $~~230~~ 28,~~000~~476 $ ~~465~~(2,~~000~~237) $1 83,~~470~~373 Cost of sales -- 29,~~000~~698 ~~Non~~17,013 (2,237) 44,474 -~~cash~~--------- ~~775~~---------- ---------- ---------- ---------- Gross profit -- 27,~~000~~436 11,463 -- 38,899 Operating expenses 18 16,139 9,288 -- ~~775~~25,~~000~~445 ---------- ---------- ---------- ---------- ~~Cash~~ ---------- ~~230~~Operating (loss) income (18) 11,~~000~~297 ~~465~~2,~~000~~175 ~~695~~-- 13,~~000~~454 ~~Fiscal~~Interest ~~1998~~income ~~cash~~(1,576) ~~activity~~-- -- -- (~~216~~1,~~000~~576) Interest expense 5,459 234 197 -- 5,890 Other loss -- -- 549 -- 549 ---------- ---------- ---------- ---------- ---------- (~~216~~Loss) income before provision for income taxes,~~000~~ minority interest, extraordinary gain and cumulative effect of a change in accounting principle (3,901) 11,063 1,429 -- 8,591 Provision for income taxes -- 135 744 -- 879 Minority interest -- -- 31 -- 31 ---------- ---------- ---------- ~~Balance~~---------- as---------- (Loss) income before extraordinary gain and cumulative effect of ~~August~~a 30change in accounting principle (3,901) ~~1998~~10,928 654 -- 147,~~000~~681 ~~465~~Extraordinary gain on repurchase of debt,~~000~~ ~~479~~net of tax 247 -- -- -- 247 ---------- ---------- ---------- ---------- ---------- (Loss) income before cumulative effect of a change in accounting principle (3,~~000~~654) ~~Fiscal~~10,928 ~~1999~~654 ~~cash~~-- ~~activity~~7,928 Cumulative effect of adoption of SFAS 133, net of tax -- -- 188 -- 188 Equity in earnings of subsidiaries 11,770 -- -- (1411,~~000~~770) -- ---------- ---------- ---------- ---------- ---------- Net income $ 8,116 $ 10,928 $ 842 $ (~~440~~11,~~000~~770) $ 8,116 ========== ========== ========== ========== ========== CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS NET CASH PROVIDED BY (~~454~~USED IN) OPERATING ACTIVITIES $ 8,~~000~~352 $ (1,210) $ 2,521 $ -- $ 9,663 ---------- ---------- ---------- ---------- ~~Balance~~---------- asCASH ofFLOWS ~~August~~FROM 29INVESTING ACTIVITIES: Purchases of property, ~~1999~~plant and equipment -- (281) (720) -- 25(1,~~000~~001) 25Proceeds from sales of property,~~000~~ ~~First~~plant ~~quarter~~and ~~2000~~equipment ~~cash~~-- ~~activity~~399 87 -- 486 Changes in other long-term assets 97 (~~unaudited~~208) (113) -- (224) ---------- ---------- ---------- ---------- ---------- Net cash provided by (used in) investing activities 97 (90) (746) -- (739) ---------- ---------- ~~Balance~~---------- as---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit facilities -- 102 4,689 -- 4,791 Repayments of ~~November~~revolving 28credit facilities -- -- (5,587) ~~1999~~-- (~~unaudited~~5,587) Proceeds from long-term debt -- 600 8 -- 25608 Repayments of long-term debt (3,~~000~~753) 25(3) (1,~~000~~089) ~~Second~~-- ~~quarter~~(4,845) ~~2000~~Distributions ~~cash~~to ~~activity~~shareholders (~~unaudited~~2,300) -- -- -- (2,300) ---------- ---------- ---------- ---------- ---------- ~~Balance~~Net ascash of(used ~~February~~in) 27provided by financing activities (6,053) ~~2000~~699 (~~unaudited~~1,979) -- (7,333) ---------- ~~25,000~~---------- ~~25,000~~---------- ~~Third~~---------- ~~quarter~~---------- ~~2000~~EFFECT ~~reversal~~OF ofEXCHANGE ~~provision~~RATE ON CASH -- (~~unaudited~~21) 824 -- 803 ---------- ---------- ---------- ---------- ---------- NET INCREASE (~~25,000~~DECREASE) ~~(25~~IN CASH 2,~~000~~396 (622) 620 -- 2,394 Cash and cash equivalents, beginning of period 13,745 1,855 7,721 -- 23,321 ---------- ---------- ---------- ---------- ~~Balance~~---------- asCash ofand ~~May~~cash 28equivalents, ~~2000~~end ~~(unaudited)~~of period $ --16,141 $ --1,233 $ --8,341 $ -- $ 25,715 ========== ========== ========== ========== ==========

12 13 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (in thousands)

~~August~~Three 29Months Ended November 28, 1999 ~~May~~(Unaudited) --------------------------------------------------------------------- Consolidated Subsidiary Subsidiary Elimination Consolidated Albecca Inc. Guarantors Nonguarantors Entries Total ------------ ---------- ------------- ------------ ------------ Net sales $ -- $ 55,589 $ 46,842 $ (2,311) $ 100,120 Cost of sales -- 30,840 28,770 ~~2000~~(2,311) 57,299 --------- --------- --------- --------- ~~Raw~~--------- ~~materials~~Gross profit -- 24,749 18,072 -- 42,821 Operating expenses 84 16,823 15,190 -- 32,097 --------- --------- --------- --------- --------- Operating (loss) income (84) 7,926 2,882 -- 10,724 Interest income (820) -- -- -- (820) Interest expense 5,525 101 787 -- 6,413 --------- --------- --------- --------- --------- (Loss) income before provision for income taxes, minority interest and extraordinary gain (4,789) 7,825 2,095 -- 5,131 Provision for income taxes -- 120 742 -- 862 Minority interest -- -- 114 -- 114 --------- --------- --------- --------- --------- (Loss) income before extraordinary gain (4,789) 7,705 1,239 -- 4,155 Extraordinary gain on repurchase of debt, net of tax 2,980 -- -- -- 2,980 Equity in earnings of subsidiaries 8,944 -- -- (8,944) -- --------- --------- --------- --------- --------- Net income $12 7,~~435~~135 $ 97,~~103~~705 ~~Work~~$ 1,239 $ (8,944) $ 7,135 ========= ========= ========= ========= ========= CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS NET CASH PROVIDED BY OPERATING ACTIVITIES $ 8,900 $ 1,495 $ 1,817 $ -- $ 12,212 --------- --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment -- (1,886) (1,688) -- (3,574) Proceeds from sales of property, plant and equipment -- 11 497 -- 508 Changes in ~~process~~other long-term assets 430 (203) (164) -- 63 --------- --------- --------- --------- --------- Net cash provided by (used in) investing activities 430 (2,~~276~~078) (1,355) -- (3,003) --------- --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Changes in intercompany loan balances -- (4) 4 -- -- Proceeds from revolving credit facilities -- -- 7,855 -- 7,855 Repayments of revolving credit facilities -- -- (7,914) -- (7,914) Proceeds from long-term debt -- -- 2,~~186~~153 ~~Finished~~-- ~~goods~~2,153 Repayments of long-term debt (10,840) (1,301) (2,707) -- (14,848) Distributions to shareholders -- 326 (326) -- -- --------- --------- --------- --------- --------- Net cash used in financing activities (10,840) (979) (935) -- (12,754) --------- --------- --------- --------- --------- EFFECT OF EXCHANGE RATE ON CASH -- 128 (76) -- 52 --------- --------- --------- --------- --------- NET DECREASE IN CASH (1,~~909~~510) 40(1,~~785~~434) (549) -- (3,493) Cash and cash equivalents, beginning of period 27,424 1,748 5,886 -- 35,058 --------- --------- --------- --------- --------- Cash and cash equivalents, end of period $67 25,~~620~~914 $52 314 $ 5,~~074~~337 $ -- $ 31,565 ========= ========= ========= ========= =========

13 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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. The following table sets forth certain consolidated statements of operations data as a percentage of net sales for the periods indicated:

Three ~~Months~~months ~~Ended~~ended ~~Nine Months Ended~~ --------------------------~~-------~~ November 28, November 26, 1999 2000 ------------ ------------~~--------~~ ~~May~~Net ~~30,~~sales ~~1999~~100.0% ~~May~~100.0% ~~28,~~Cost ~~2000~~of ~~May~~sales ~~30,~~57.2 ~~1999~~53.3 ~~May 28, 2000~~ ------ ------~~---~~ Gross profit 42.8 46.7 Operating expenses 32.0 30.5 ------ ------ Operating income 10.8 16.2 Interest income (0.8) (1.9) Interest expense 6.4 7.1 Other loss --- 0.7 ------ ------ Income before provision for income taxes, minority interest, extraordinary gain and cumulative effect of a change in accounting principle 5.2 10.3 Provision for income taxes 0.9 1.1 Minority interest 0.1 --- ------ ------- ~~Net~~Income ~~income,~~before asextraordinary ~~reported~~gain $and 3cumulative $effect ~~9,078~~of $a ~~503~~change $in ~~16,222~~accounting ~~Foreign~~principle ~~currency~~4.2 ~~translation~~9.2 ~~adjustment~~Extraordinary ~~(1,688)~~gain ~~(3,831)~~on ~~(2,093)~~repurchase (5of debt,~~249)~~ net of tax 3.0 0.3 ------- ------- Income before cumulative effect of a change in accounting principle 7.2 9.5 Cumulative effect of adoption of SFAS 133, net of tax -- .2 ------ -------- ~~Total~~Net ~~comprehensive~~ income ~~(loss)~~7.2% ~~$(1,685)~~9.7% ~~$ 5,247 $(1,590) $ 10,973~~ ======= ======~~= ======= ========~~

NET SALES For the first quarter ended November 26, 2000, net sales were $83.4 million compared to $100.1 million for the first quarter ended November 28, 1999. The decrease in net sales for the three months ended November 26, 2000 was primarily the result of the sale of two international operations completed during the second and fourth quarters of fiscal year 2000, the closure of an international operation completed during the third quarter of fiscal year 2000, and the impact of unfavorable changes in foreign exchange rates. Currency fluctuations in the first quarter decreased net sales by $4.0 million, primarily due to a strengthening of the U.S. dollar against major European currencies. U.S. net sales increased 3.2% for the three months ended November 26, 2000 compared to November 28, 1999, primarily the result of an increase in sales of branded wood moulding. International net sales decreased 40.1%, primarily due to the sale of the Mersch operations completed during the second quarter of fiscal year 2000, the sale of the Brio operations completed during the fourth quarter of fiscal year 2000, the closure of the United Kingdom - Northampton operation completed during the third quarter of fiscal year 2000, a decrease in sales in Canada, The Netherlands, and Sweden, as well as the negative impact of the strengthening of the U.S. dollar. COST OF SALES Cost of sales were $44.5 million for the three months ended November 26, 2000 compared to $57.3 million for the three months ended November 28, 1999. In the U.S., gross profit increased to 48.2% for the three months ended November 26, 2000 compared to 44.2% for the comparable period in fiscal year 2000. The increase for the quarter was primarily the result of continued growth in sales of branded products, a continued decrease in sales of lower margin products associated with the Company's prior years' acquisitions, and favorable currency exchange rate movements in certain supplier markets. For the first quarter ended November 26, 2000, international gross profit margin increased to 43.5% compared to 41.1% for the first quarter ended November 28, 1999. This increase was primarily the result of the decrease in net sales of lower margin products associated with the recently sold Mersch and Brio operations, and a continued decrease in sales of lower margin products related to the Canadian operation's prior year acquisitions. OPERATING EXPENSES Operating expenses were $25.4 million for the three months ended November 26, 2000 compared to $32.1 million for the three months ended November 28, 1999. In the U.S., operating expenses as a percentage of net sales decreased to 28.1% for the three months ended November 26, 2000 compared to 29.7% for the comparable period in fiscal year 2000. The decrease is primarily the result of the completion of acquisition related integrations versus ongoing integration costs in the previous year. For the first quarter ended November 26, 2000, international operating expenses as a percentage of net sales increased to 35.5% compared to 34.8% for the comparable period in fiscal year 2000. The increase in operating expenses as a percentage of net sales is primarily attributable to the decrease in net sales in Canada, The Netherlands, and Sweden. 14 15 INTEREST INCOME Interest income was $1.6 million for the three months ended November 26, 2000 compared to $.8 million for the three months ended November 28, 1999. The increase resulted primarily from the interest income associated with the Company's continued acquisition of its senior subordinated notes. INTEREST EXPENSE Interest expense was $5.9 million for the three months ended November 26, 2000 compared to $6.4 million for the three months ended November 28, 1999. The decrease in interest expense is primarily due to the reduction of debt associated with the sale of the Mersch and Brio businesses, as well as the repurchase of $30.0 million of the Company's senior subordinated notes during the preceding twelve months. OTHER LOSS Other loss primarily represents realized and unrealized foreign currency exchange gains and losses on intercompany account balances. EXTRAORDINARY GAIN ON REPURCHASE OF DEBT Consistent with its stated objective of using a portion of its cash to lower its debt, including its senior subordinated notes, in September 2000, the Company repurchased a portion of its senior subordinated notes with a face value of $4.0 million. The debt repurchase resulted in an extraordinary gain totaling $.25 million, net of state income taxes of $.06 million. NET INCOME For the reasons set forth above, net income was $8.1 million for the three months ended November 26, 2000 compared to $7.1 million for the three months ended November 28, 1999. 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 shareholders to pay income taxes as a result of its status as an S corporation. As of November 26, 2000, the Company had cash and cash equivalents of $25.7 million compared to $23.3 million as of August 27, 2000. Net cash provided by operating activities was $9.7 million for the three months ended November 26, 2000 compared to $12.2 million for the three months ended November 28, 1999. The decrease is primarily attributable to the positive cash flow generated by the reduction of acquisition related inventories and the increase in accrued liabilities for the three months ended November 28, 1999 compared to the three months ended November 26, 2000. This impact is partially offset by the negative cash flow generated from the increase in accounts receivables for the three months ended November 28, 1999 compared to the three months ended November 26, 2000. Net cash used in investing activities decreased to $.7 million for the three months ended November 26, 2000 compared to $3.0 million for the three months ended November 28, 1999, primarily due to a decrease in capital expenditures as a result of the completion of the Company's new manufacturing plant in Ashland, Wisconsin. Net cash used in financing activities decreased to $7.3 million for the three months ended November 26, 2000 compared to $12.8 million for the three months ended November 28, 1999, primarily due to a decrease in the amount of its senior subordinated debt repurchased by the Company. The Company repurchased senior subordinated debt with a face value of $4.0 million for the three months ended November 26, 2000 compared to $13.8 million during the prior comparable period. As of November 26, 2000, the Company had outstanding indebtedness of approximately $164.0 million, consisting of $145.0 million in principal amount of the August 1998 senior subordinated debt and $19.0 million of other indebtedness. At August 27, 2000, the Company had outstanding indebtedness of approximately $170.2 million, consisting of $148.9 million in principal amount of the notes and $21.3 million of other indebtedness. 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. 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. 15 16 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. The Company currently classifies most shipping and handling revenues and costs, on a net basis, in selling and administrative expense. Accordingly, the Company has determined that EITF Issue 00-10 will require reclassification of shipping and handling revenues and costs, but does not believe EITF Issue 00-10 will impact its financial condition or net income. The effective date of this standard is the fourth quarter of the Company's fiscal year 2001. 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. Significant portions of the Company's revenue have been historically generated in Europe. Of the eleven 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 27, 2000, as filed with the Securities and Exchange Commission. 16 17 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits: NO. DESCRIPTION 3.1 Amended and Restated Articles of Incorporation of Albecca (incorporated by reference to Exhibit 3.1 of Albecca's Registration Statement on Form S-4 (No. 333-67975) as filed with the SEC on November 25, 1998 and declared effective by the SEC on February 12, 1999). 3.2 Amended and Restated Bylaws of Albecca (incorporated by reference to Exhibit 3.2 of Albecca's Registration Statement on Form S-4 (No. 333-67975) as filed with the SEC on November 25, 1998 and declared effective by the SEC on February 12, 1999). 4.1 Indenture dated August 11, 1998, among Albecca Inc. and State Street Bank & Trust, as trustee, relating to the Notes (the "Indenture")(incorporated by reference to Exhibit 4.1 of Albecca's Registration Statement on Form S-4 (No. 333-67975) as filed with the SEC on November 25, 1998 and declared effective by the SEC on February 12, 1999). 4.2 Form of 10 3/4% Senior Note due 2008 of Albecca Inc. (the "New Notes")(included as Exhibit A of the Indenture filed as Exhibit 4.1).

b. Reports on Form 8-K: None 17 18 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: January 10, 2001 By: /s/ Craig A. Ponzio ----------------------------------- Craig A. Ponzio, Chairman of the Board, President, Chief Executive Officer (Principal Executive Officer) Date: January 10, 2001 By: /s/ R. Bradley Goodson ----------------------------------- R. Bradley Goodson, Vice President Finance, Chief Financial Officer (Principal Financial Officer) 18

May 28, 2000 (Unaudited) ------------------------------------------------------------------------ Consolidated Subsidiary Subsidiary Elimination Consolidated Albecca Inc. Guarantors Nonguarantors Entries Total ------------ ---------- ------------- ------------- ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 18,443 $ 846 $ 5,696 $ -- $ 24,985 Accounts receivable, net -- 19,802 22,876 -- 42,678 Intercompany accounts receivable -- 60,057 278 (60,335) -- Inventories -- 21,602 30,472 -- 52,074 Other current assets 1,068 801 4,088 -- 5,957 --------- -------- --------- --------- --------- Total current assets 19,511 103,108 63,410 (60,335) 125,694 PROPERTY, PLANT AND EQUIPMENT, net -- 11,017 33,642 -- 44,659 OTHER LONG-TERM ASSETS 5,412 13,687 24,500 -- 43,599 INVESTMENT IN SUBSIDIARIES 43,453 -- 7,886 (51,339) -- INTERCOMPANY LOANS RECEIVABLE 97,935 -- -- (97,935) -- --------- -------- --------- --------- --------- $ 166,311 $127,812 $ 129,438 $(209,609) $ 213,952 ========= ======== ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Current maturities of long-term debt $ -- $ 887 $ 12,425 $ -- $ 13,312 Accounts payable -- 7,860 14,152 -- 22,012 Intercompany accounts payable 53,787 202 6,346 (60,335) -- Accrued liabilities 6,359 13,304 9,726 -- 29,389 --------- -------- --------- --------- --------- Total current liabilities 60,146 22,253 42,649 (60,335) 64,713 --------- -------- --------- --------- --------- LONG-TERM DEBT, less current maturities 164,930 1,483 7,361 -- 173,774 --------- -------- --------- --------- --------- INTERCOMPANY LOANS PAYABLE -- -- 97,935 (97,935) -- --------- -------- --------- --------- --------- OTHER LONG-TERM LIABILITIES -- 5,785 3,190 -- 8,975 --------- -------- --------- --------- --------- SHAREHOLDERS' EQUITY (DEFICIT): Preferred stock -- -- -- -- -- Class A common stock 4 -- -- -- 4 Class B common stock 166 -- -- -- 166 Additional paid-in capital 8,912 41,826 7,927 (51,339) 7,326 Accumulated earnings (deficit) (67,847) 56,051 (15,630) -- (27,426) Cumulative foreign currency translation adjustment -- 414 (13,994) -- (13,580) --------- -------- --------- --------- --------- Total shareholders' equity (deficit) (58,765) 98,291 (21,697) (51,339) (33,510) --------- -------- --------- --------- --------- $ 166,311 $127,812 $ 129,438 $(209,609) $ 213,952 ========= ======== ========= ========= =========

August 29, 1999 -------------------------------------------------------------------------- Consolidated Subsidiary Subsidiary Elimination Consolidated Albecca Inc. Guarantors Nonguarantors Entries Total ------------ ---------- ------------- ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 27,424 $ 1,747 $ 5,887 $ -- $ 35,058 Accounts receivable, net -- 17,526 29,772 -- 47,298 Intercompany accounts receivable -- 29,917 513 (30,430) -- Inventories -- 28,212 39,408 -- 67,620 Other current assets 49 432 4,576 -- 5,057 --------- -------- --------- --------- --------- Total current assets 27,473 77,834 80,156 (30,430) 155,033 PROPERTY, PLANT AND EQUIPMENT, net -- 8,088 45,397 -- 53,485 OTHER LONG-TERM ASSETS 6,443 18,884 32,713 -- 58,040 INVESTMENT IN SUBSIDIARIES 43,453 -- 7,559 (51,012) -- INTERCOMPANY LOANS RECEIVABLE 94,598 -- 13 (94,611) -- --------- -------- --------- --------- --------- $ 171,967 $104,806 $ 165,838 $(176,053) $ 266,558 ========= ======== ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Current maturities of long-term debt $ -- $ 2,209 $ 24,380 $ -- $ 26,589 Accounts payable -- 8,611 17,812 -- 26,423 Intercompany accounts payable 21,742 155 8,533 (30,430) -- Accrued liabilities 895 16,336 9,100 -- 26,331 --------- -------- --------- --------- --------- Total current liabilities 22,637 27,311 59,825 (30,430) 79,343 --------- -------- --------- --------- --------- LONG-TERM DEBT, less current maturities 188,750 2,045 22,416 -- 213,211 --------- -------- --------- --------- --------- INTERCOMPANY LOANS PAYABLE -- 13 94,598 (94,611) -- --------- -------- --------- --------- --------- OTHER LONG-TERM LIABILITIES -- 3,975 3,962 -- 7,937 --------- -------- --------- --------- --------- SHAREHOLDERS' EQUITY (DEFICIT): Preferred stock -- -- -- -- -- Class A common stock 4 -- -- -- 4 Class B common stock 166 -- -- -- 166 Additional paid-in capital 8,912 41,500 7,926 (51,012) 7,326 Accumulated earnings (deficit) (48,502) 29,811 (14,407) -- (33,098) Cumulative foreign currency translation adjustment -- 151 (8,482) -- (8,331) --------- -------- --------- --------- --------- Total stockholders' equity (deficit) (39,420) 71,462 (14,963) (51,012) (33,933) --------- -------- --------- --------- --------- $ 171,967 $104,806 $ 165,838 $(176,053) $ 266,558 ========= ======== ========= ========= =========

Three Months Ended May 28, 2000 (Unaudited) -------------------------------------------------------------------------- Consolidated Subsidiary Subsidiary Elimination Consolidated Albecca Inc. Guarantors Nonguarantors Entries Total ------------ ---------- ------------- ------------ ------------ Net sales $ -- $ 55,531 $ 34,806 $ (2,454) $ 87,883 Cost of sales -- 28,669 21,432 (2,454) 47,647 --------- -------- --------- --------- --------- Gross profit -- 26,862 13,374 -- 40,236 Operating expenses 12 12,098 12,535 -- 24,645 Restructuring charges -- (29) 884 -- 855 --------- -------- --------- --------- --------- Operating income (loss) (12) 14,793 (45) -- 14,736 Loss on disposition of Mersch entities -- -- 472 -- 472 Interest income (1,263) -- -- -- (1,263) Interest expense 5,464 64 505 -- 6,033 --------- -------- --------- --------- --------- Income (loss) before provision for income taxes and minority interest (4,213) 14,729 (1,022) -- 9,494 Provision for income taxes -- 120 238 -- 358 Minority interest -- -- 58 -- 58 --------- -------- --------- --------- --------- Net income (loss) $ (4,213) $ 14,609 $ (1,318) $ -- $ 9,078 ========= ======== ========= ========= =========

Three Months Ended May 30, 1999 (Unaudited) -------------------------------------------------------------------------- Consolidated Subsidiary Subsidiary Elimination Consolidated Albecca Inc. Guarantors Nonguarantors Entries Total ------------ ---------- ------------- ------------ ------------ Net sales $ -- $ 50,985 $ 46,350 $ (1,111) $ 96,224 Cost of sales -- 28,221 28,655 (1,111) 55,765 --------- -------- --------- --------- --------- Gross profit -- 22,764 17,695 -- 40,459 Operating expenses 65 17,342 16,525 -- 33,932 Restructuring charges -- 225 1,020 -- 1,245 --------- -------- --------- --------- --------- Operating income (loss) (65) 5,197 150 -- 5,282 Interest income (604) -- -- -- (604) Interest expense 5,185 166 894 -- 6,245 --------- -------- --------- --------- --------- Income (loss) before provision for income taxes, minority interest and extraordinary gain (4,646) 5,031 (744) -- (359) Provision for income taxes -- 130 409 -- 539 Minority interest -- -- 107 -- 107 --------- -------- --------- --------- --------- Income (loss) before extraordinary gain (4,646) 4,901 (1,260) -- (1,005) Extraordinary gain on retirement of debt, net of tax 1,008 -- -- -- 1,008 --------- -------- --------- --------- --------- Net income (loss) $ (3,638) $ 4,901 $ (1,260) $ -- $ 3 ========= ======== ========= ========= =========

Nine Months Ended May 28, 2000 (Unaudited) -------------------------------------------------------------------------- Consolidated Subsidiary Subsidiary Elimination Consolidated Albecca Inc. Guarantors Nonguarantors Entries Total ------------ ---------- ------------- ------------ ------------ Net sales $ -- $167,363 $ 121,415 $ (6,622) $ 282,156 Cost of sales -- 89,576 74,381 (6,622) 157,335 --------- -------- --------- --------- --------- Gross profit -- 77,787 47,034 -- 124,821 Operating expenses 109 45,996 42,159 -- 88,264 Restructuring charges -- (29) 884 -- 855 Write-down of goodwill -- 4,997 -- -- 4,997 --------- -------- --------- --------- --------- Operating income (loss) (109) 26,823 3,991 -- 30,705 Loss on disposition of Mersch entities -- -- 1,854 -- 1,854 Interest income (3,094) -- -- -- (3,094) Interest expense 16,304 223 1,875 -- 18,402 --------- -------- --------- --------- --------- Income (loss) before provision for income taxes, minority interest and extraordinary gain (13,319) 26,600 262 -- 13,543 Provision for income taxes -- 360 1,223 -- 1,583 Minority interest -- -- 262 -- 262 --------- -------- --------- --------- --------- Income (loss) before extraordinary gain (13,319) 26,240 (1,223) -- 11,698 Extraordinary gain on retirement of debt, net of tax 4,524 -- -- -- 4,524 --------- -------- --------- --------- --------- Net income (loss) $ (8,795) $ 26,240 $ (1,223) $ -- $ 16,222 ========= ======== ========= ========= ========= CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS NET CASH PROVIDED BY OPERATING ACTIVITIES $ 20,144 $ 5,442 $ 10,412 $ -- $ 35,998 --------- -------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment -- (4,892) (2,868) -- (7,760) Acquisitions of businesses, net -- -- (2,449) -- (2,449) Proceeds from sales of property, plant and equipment -- 63 1,389 -- 1,452 Proceeds from disposition of Mersch entities -- -- 16,278 -- 16,278 Changes in other long-term assets 721 (186) 670 -- 1,205 --------- -------- --------- --------- --------- Net cash provided by (used in) investing activities 721 (5,015) 13,020 -- 8,726 --------- -------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit facilities -- -- 20,550 -- 20,550 Repayments of revolving credit facilities -- -- (29,199) -- (29,199) Proceeds from long-term debt -- 157 2,941 -- 3,098 Repayments of long-term debt (19,296) (2,015) (18,908) -- (40,219) Distributions to shareholders (10,550) -- -- -- (10,550) --------- -------- --------- --------- --------- Net cash used in financing activities (29,846) (1,858) (24,616) -- (56,320) --------- -------- --------- --------- --------- EFFECT OF EXCHANGE RATE ON CASH -- 530 993 -- 1,523 --------- -------- --------- --------- --------- NET DECREASE IN CASH (8,981) (901) (191) -- (10,073) Cash and cash equivalents at beginning of period 27,424 1,747 5,887 -- 35,058 --------- -------- --------- --------- --------- Cash and cash equivalents at end of period $ 18,443 $ 846 $ 5,696 $ -- $ 24,985 ========= ======== ========= ========= =========

Nine Months Ended May 30, 1999 (Unaudited) -------------------------------------------------------------------------- Consolidated Subsidiary Subsidiary Elimination Consolidated Albecca Inc. Guarantors Nonguarantors Entries Total ------------ ---------- ------------- ------------ ------------ Net sales $ -- $154,317 $ 149,168 $ (5,962) $ 297,523 Cost of sales -- 85,440 90,794 (5,962) 170,272 --------- -------- --------- --------- --------- Gross profit -- 68,877 58,374 -- 127,251 Operating expenses 107 53,624 52,039 -- 105,770 Restructuring charges -- 342 1,149 -- 1,491 --------- -------- --------- --------- --------- Operating income (loss) (107) 14,911 5,186 -- 19,990 Interest income (1,623) -- -- -- (1,623) Interest expense 16,675 476 2,763 -- 19,914 --------- -------- --------- --------- --------- Income (loss) before provision for income taxes, minority interest and extraordinary gain (15,159) 14,435 2,423 -- 1,699 Provision for income taxes -- 372 1,477 -- 1,849 Minority interest -- -- 355 -- 355 --------- -------- --------- --------- --------- Income (loss) before extraordinary gain (15,159) 14,063 591 -- (505) Extraordinary gain on retirement of debt, net of tax 1,008 -- -- -- 1,008 --------- -------- --------- --------- --------- Net income (loss) $ (14,151) $ 14,063 $ 591 $ -- $ 503 ========= ======== ========= ========= ========= CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES $ (59) $ 947 $ 9,848 $ -- $ 10,736 --------- -------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment -- (1,088) (3,432) -- (4,520) Acquisitions of businesses, net -- -- (3,594) -- (3,594) Proceeds from sales of property, plant and equipment -- 37 1,587 -- 1,624 Changes in other long-term assets (321) 305 (611) -- (627) --------- -------- --------- --------- --------- Net cash used in investing activities (321) (746) (6,050) -- (7,117) --------- -------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments for additional debt issue costs (195) -- -- -- (195) Proceeds from revolving credit facilities -- 512 26,167 -- 26,679 Repayments of revolving credit facilities -- (58) (25,353) -- (25,411) Proceeds from long-term debt -- 2,747 11,739 -- 14,486 Repayments of long-term debt (7,863) (3,273) (16,354) -- (27,490) Distributions to shareholders (4,308) -- -- -- (4,308) --------- -------- --------- --------- --------- Net cash used in financing activities (12,366) (72) (3,801) -- (16,239) --------- -------- --------- --------- --------- EFFECT OF EXCHANGE RATE ON CASH -- 30 (1,820) -- (1,790) --------- -------- --------- --------- --------- NET (DECREASE) INCREASE IN CASH (12,746) 159 (1,823) -- (14,410) Cash and cash equivalents at beginning of period 49,188 18 5,678 -- 54,884 --------- -------- --------- --------- --------- Cash and cash equivalents at end of period $ 36,442 $ 177 $ 3,855 $ -- $ 40,474 ========= ======== ========= ========= =========

Three Months Ended Nine Months Ended --------------------------- --------------------------- May 30, 1999 May 28, 2000 May 30, 1999 May 28, 2000 ------------ ------------ ------------ ------------ Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 58.0 54.2 57.2 55.8 --------- --------- --------- --------- Gross profit 42.0 45.8 42.8 44.2 Operating expenses 35.2 28.0 35.5 31.2 Restructuring charges 1.3 1.0 0.5 0.3 Write-down of goodwill -- -- -- 1.8 --------- --------- --------- --------- Operating income 5.5 16.8 6.8 10.9 Loss on disposition of Mersch entities -- 0.5 -- 0.7 Interest income (0.6) (1.4) (0.5) (1.1) Interest expense 6.4 6.9 6.7 6.5 --------- --------- --------- --------- Income (loss) before provision for income taxes, minority interest and extraordinary gain (0.3) 10.8 0.6 4.8 Provision for income taxes 0.6 0.4 0.6 0.6 Minority interest 0.1 0.1 0.1 0.1 --------- --------- --------- --------- Income (loss) before extraordinary gain (1.0) 10.3 (0.1) 4.1 Extraordinary gain on retirement of debt, net of tax 1.0 -- 0.3 1.6 --------- --------- --------- --------- Net income 0.0% 10.3% 0.2% 5.7% ========= ========= ========= =========

NO. DESCRIPTION --- ----------- 3.1 -- Amended and Restated Articles of Incorporation of Albecca (incorporated by reference to Exhibit 3.1 of Albecca's Registration Statement on Form S-4 (No. 333-67975) as declared effective by the SEC on February 12, 1999). 3.2 -- Amended and Restated Bylaws of Albecca (incorporated by reference to Exhibit 3.2 of Albecca's Registration Statement on Form S-4 (No. 333-67975) as declared effective by the SEC on February 12, 1999). 27.1 -- Financial Data Schedule

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