10-Q 1 g70420e10-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 May 27, 2001. 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 [ ] 2 ALBECCA INC. INDEX TO FORM 10-Q

Page No. Part I - Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of August 27, 2000 (audited) and ~~February~~May 2527, 2001 (unaudited) ................................................... 3 Consolidated Statements of Operations for the three and ~~six~~nine months ended ~~February~~May 2728, 2000 (unaudited) and ~~February~~May 2527, 2001 (unaudited) ...................... 4 Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~February~~May 2728, 2000 (unaudited) and ~~February~~May 2527, 2001 (unaudited) ...................... 5 Notes to the Consolidated Financial Statements ................................ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .................................................. 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk ..................... 17 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K ............................................... 18 Signatures .................................................................................. 19

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

August 27, ~~February~~May 2527, 2000 2001 ----------- ----------- ~~ASSETS~~ (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 23,321 $ 2423,~~555~~426 Accounts receivable, less allowances for doubtful accounts of $5,283 and $5,~~380~~245 at August 27, 2000 and ~~February~~May 2527, 2001 36,384 3633,~~097~~996 Inventories 48,413 49,~~381~~152 Other current assets 4,754 56,~~301~~549 ---------- ---------- Total current assets 112,872 ~~115~~113,~~334~~123 PROPERTY, PLANT AND EQUIPMENT, net 36,692 3533,~~484~~852 OTHER LONG-TERM ASSETS 41,531 4039,~~603~~235 ---------- ---------- $ 191,095 $ ~~191~~186,~~421~~210 ========== ========== LIABILITIES AND ~~SHAREHOLDERS~~SHAREHOLDER'S DEFICIT CURRENT LIABILITIES: Current maturities of long-term debt $ 7,686 $ 56,~~796~~170 Accounts payable 17,247 1816,~~443~~395 Accrued liabilities 24,664 2024,~~322~~606 ---------- ---------- Total current liabilities 49,597 4447,~~561~~171 ---------- ---------- LONG-TERM DEBT, less current maturities 162,496 ~~154~~146,~~239~~383 ---------- ---------- OTHER LONG-TERM LIABILITIES 8,879 9,~~726~~536 ---------- ---------- ~~SHAREHOLDERS~~SHAREHOLDER'S 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 (23,578) (108,~~357~~048) Accumulated other comprehensive loss (13,795) (1416,~~244~~328) ---------- ---------- Total ~~shareholders~~shareholder's deficit (29,877) (1716,~~105~~880) ---------- ---------- $ 191,095 $ ~~191~~186,~~421~~210 ========== ==========

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 ended ~~Six~~Nine months ended ------------------------~~-----~~ --------------------------~~-----~~ ~~February~~May 2728, ~~February~~May 2527, ~~February~~May 2728, ~~February~~May 2527, 2000 2001 2000 2001 --------~~----~~ --------~~----~~ ---------~~---~~ ---------~~---~~ Net sales $ 9487,~~153~~883 $ 8175,~~561~~396 $ ~~194~~282,~~273~~156 $ ~~164~~240,~~934~~330 Cost of sales 5247,~~389~~647 4239,~~444~~836 ~~109~~157,~~688~~335 86126,~~918~~754 -------- -------- --------- --------- Gross profit 4140,~~764~~236 3935,~~117~~560 84124,~~585~~821 78113,~~016~~576 Operating expenses 3124,~~522~~645 2523,~~609~~230 6388,~~619~~264 5174,~~054~~284 Restructuring charges 855 -- 855 -- Impairment of goodwill ~~4,997~~-- -- 4,997 -- -------- -------- --------- --------- Operating income 514,~~245~~736 1312,~~508~~330 1530,~~969~~705 2639,~~962~~292 Loss on disposition of businesses ~~1,382~~472 -- 1,~~382~~854 -- Interest income (1,~~011~~263) (1,~~905~~954) (13,~~831~~094) (35,~~481~~435) Interest expense 56,~~956~~033 56,~~778~~056 1218,~~369~~402 1117,~~668~~724 Other ~~income~~loss -- ~~(430)~~422 -- ~~(69)~~353 -------- -------- --------- --------- ~~(Loss)~~Income ~~income~~ before provision for income taxes, minority interest and extraordinary (loss) gain (19,~~082)~~494 107,~~065~~806 413,~~049~~543 1826,~~844~~650 Provision for income taxes ~~363~~358 ~~388~~505 1,~~225~~583 1,~~267~~772 Minority interest 9058 2335 ~~204~~262 5489 -------- -------- --------- --------- ~~(Loss)~~Income ~~income~~ before extraordinary ~~gain~~ (~~1,535~~loss) gain 9,~~654~~078 27,~~620~~266 1711,~~523~~698 24,789 Extraordinary (loss) gain on repurchase of debt, net of tax ~~1,544~~-- ~~251~~(157) 4,524 ~~498~~341 -------- -------- --------- --------- Net income $ 9,078 $ 97,~~905~~109 $ 716,~~144~~222 $ 1825,~~021~~130 ======== ======== ========= =========

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

~~Six~~Nine months ended ----------------------------- ~~February~~May 2728, ~~February~~2000 25May 27, ~~2000~~ 2001 ------------- ------------ ~~NET~~ CASH ~~PROVIDED~~FLOWS BYFROM OPERATING ACTIVITIES: Net income $ 716,~~144~~222 $ 1825,~~021~~130 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest ~~204~~262 5489 Depreciation and amortization 36,~~933~~384 23,~~727~~847 ~~Loss~~Gain on disposal of property, plant and equipment 5(78) ~~114~~(191) Impairment of goodwill 4,997 -- Loss on disposition of businesses 1,~~382~~854 -- Extraordinary gain on repurchase of debt (4,524) (~~498~~341) Changes in operating assets and liabilities: Accounts receivable (53,~~908~~686) ~~(279)~~1,412 Inventories 79,~~910~~760 (12,~~551~~189) Other current assets ~~268~~(905) (~~523~~1,886) Accounts payable ~~1,600~~(885) ~~1,579~~(397) Accrued liabilities 5,~~535~~430 (~~4,282~~249) Other ~~(236)~~1,167 ~~854~~1,260 -------- -------- Net cash provided by operating activities 2235,~~310~~998 1626,~~216~~485 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (67,~~316~~760) (12,~~447~~065) Acquisitions of businesses, net (2,449) -- Proceeds from sales of property, plant and equipment 1,~~411~~452 ~~668~~1,355 Proceeds from disposition of businesses 16,278 -- Changes in other long-term assets ~~687~~1,205 ~~(57)~~44 -------- -------- Net cash provided by (used in) investing activities 128,~~060~~726 (~~836~~666) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit facilities 1420,~~424~~550 1116,~~009~~200 Repayments of revolving credit facilities (2029,~~242~~199) (1015,~~941~~801) Proceeds from long-term debt 23,~~752~~098 ~~703~~1,335 Repayments of long-term debt (3540,~~871~~219) (1018,~~323~~290) Distributions to shareholders (310,~~000~~550) (49,~~800~~600) -------- -------- Net cash used in financing activities (4156,~~937~~320) (1426,~~352~~156) -------- -------- EFFECT OF EXCHANGE RATE ON CASH ~~337~~1,523 ~~206~~442 -------- -------- NET (DECREASE) INCREASE IN CASH (710,~~230~~073) ~~1,234~~105 CASH and cash equivalents, beginning of period 35,058 23,321 -------- -------- CASH and cash equivalents, end of period $ 2724,~~828~~985 $ 2423,~~555~~426 ======== ======== SUPPLEMENTAL INFORMATION: Interest paid $ 1213,~~491~~245 $ 1112,~~782~~263 ======== ======== Income taxes paid $ 12,~~351~~382 $ 23,~~258~~365 ======== ========

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 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 27, 2000, as filed with the Securities and Exchange Commission. Note 2. 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 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 shareholder and members of the respective companies. The Company makes distributions to the shareholder to pay 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 CANADA - EDMONTON In May 2001, the Company initiated a plan to close one of its Canadian distribution facilities, located in Edmonton and recorded a charge to operations of approximately $252,000. This charge included severance costs for 5 team members approximating $72,000, a $38,000 write-down of property, plant and equipment to its net estimated realizable value, $73,000 of lease termination costs, and $69,000 of other exit costs including post-closure maintenance and other costs. The costs described above have been charged to other operating expenses in the Consolidated Statements of Operations. No cash payments were made with respect to the Canada - Edmonton restructuring as of the end of the third quarter of fiscal 2001. SUMMARY OF PREVIOUS RESTRUCTURING PLANS The following summary of restructuring plans addresses the status of the Company's restructuring activities which were initiated in prior fiscal years. As of May 27, 2001, these restructuring plans had remaining financial and/or legal obligations: UNITED KINGDOM - NORTHAMPTON As of May 27, 2001, 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 continues to sell existing assets and collect existing accounts receivable through its United Kingdom - Arqadia Ltd. operations. Management anticipates that the restructuring plan will be substantially complete prior to the end of fiscal 2001, except for lease termination costs representing the Company's continued obligation under the existing lease commitments for the closed facility. NEW ZEALAND As of May 27, 2001, 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 anticipates that the restructuring plan will be completed prior to the end of fiscal 2001. 6 7 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited) GREECE As of May 27, 2001, 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, is finalizing the legal liquidation of its Greek entities. The Company anticipates 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. As of May 27, 2001, as it relates to the Company's fiscal 1998, 1999, 2000, and 2001 restructuring plans, $603,000 of restructuring charges remained in accrued liabilities representing $128,000 of severance and other termination costs and $475,000 of lease termination and other exit costs. During the third quarter of fiscal 2001, $71,000 was paid relating to lease termination costs on a building not yet subleased and $29,000 was paid in severance, relating to the closure of the Company's United Kingdom - Northampton operation. A summary of the previously reported restructuring plans and activity consist of the following estimated accrued future cash/non-cash requirements:

Severance and Write-down of other Lease property and termination termination and CLOSURE OF UNITED KINGDOM - NORTHAMPTON: equipment benefits other exit costs Total ------------- ------------- ---------------- ------------ 2000 Provision $499,000 $ 298,000 $ 618,000 $ 1,415,000 Non-cash 499,000 -- -- 499,000 -------- ---------- ---------- ------------ Cash -- 298,000 618,000 916,000 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 Second quarter 2001 cash activity (unaudited) -- -- (128,000) (128,000) -------- ---------- ---------- ------------ Balance as of February 25, 2001 (unaudited) -- 61,000 280,000 341,000 Third quarter 2001 cash activity (unaudited) -- (29,000) (71,000) (100,000) -------- ---------- ---------- ------------ Balance as of May 27, 2001 (unaudited) $ -- $ 6132,000 $ ~~280~~209,000 $ ~~341~~241,000 ======== ========== ========== ============ 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 November 26, 2000 (unaudited) -- 15,000 24,000 39,000 Second quarter 2001 cash activity (unaudited) -- -- -- -- -------- -------- --------- --------- Balance as of February 25, 2001 (unaudited) -- 15,000 24,000 39,000 Third quarter 2001 cash activity (unaudited) -- -- -- -- -------- -------- --------- --------- Balance as of May 27, 2001 (unaudited) $ -- $ 15,000 $ 24,000 $ 39,000 ======== ======== ========= =========

7 8 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited)

Severance and other Write-~~down~~off of ~~other property and~~ termination Other exit CLOSURE OF OPERATIONS IN ~~NEW ZEALAND~~GREECE: ~~equipment~~goodwill benefits costs Total ------------- ------------- ---------- ----------- ~~1999~~1998 Provision $ 75333,000 $ 4879,000 $ ~~102~~104,000 $ ~~225~~516,000 Non-cash 75333,000 -- -- 75333,000 -------- -------- --------- --------- Cash -- 79,000 104,000 183,000 Fiscal 1998 cash activity -- -- -- -- -------- ~~Cash~~-------- --------- 48--------- Balance as of August 30, 1998 -- 79,000 ~~102~~104,000 ~~150~~183,000 1999 provision -- -- 129,000 129,000 Fiscal 1999 cash activity -- (3070,000) (75129,000) (~~105~~199,000) -------- --------- --------- ----------- Balance as of August 29, 1999 -- 189,000 27104,000 45113,000 Fiscal 2000 cash activity -- ~~(3,000)~~-- (34,000) (64,000) -------- --------- --------- ----------- Balance as of August 27, 2000 -- 159,000 24100,000 39109,000 First quarter 2001 cash activity (unaudited) -- -- -- -- -------- --------- --------- ----------- Balance as of November 26, 2000 (unaudited) -- 159,000 24100,000 39109,000 Second quarter 2001 cash activity (unaudited) -- -- -- -- -------- -------- --------- --------- Balance as of February 25, 2001 (unaudited) -- 9,000 100,000 109,000 Third quarter 2001 cash activity (unaudited) -- -- -- -- -------- -------- --------- --------- Balance as of ~~February~~May 2527, 2001 (unaudited) $ -- $ 159,000 $ 24100,000 $ 39109,000 ======== ========= ========= ===========

Note 6. OTHER LOSS Other 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 10. Note 7. EXTRAORDINARY GAIN During the nine months ended May 27, 2001, the Company repurchased a portion of its senior subordinated notes with a face value of $14,000,000. The debt repurchases resulted in net extraordinary gains of $341,000, net of state income taxes of $12,000. During the nine months ended May 28, 2000, the Company repurchased a portion of its senior subordinated notes with a face value of $23,820,000. The debt repurchases resulted in extraordinary gains of $4,524,000, net of state income taxes of $189,000. Note 8. INVENTORIES Inventories consist of the following (in thousands):

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 3027, ~~1998~~May ~~-- 79~~27,~~000~~ ~~104,000~~2000 ~~183,000~~2001 ~~1999 provision~~ -- -- ~~129,000 129,000 Fiscal 1999 cash activity~~ -- ~~(70,000) (129,000) (199,000)~~ ----~~----~~ --------- ~~---------~~Raw ~~-----------~~materials ~~Balance~~$ ~~as of August 29~~6,290 ~~1999~~$ ~~-- 9~~6,~~000~~055 ~~104,000~~Work ~~113,000~~in ~~Fiscal~~process ~~2000 cash activity -- -- (4~~2,~~000)~~127 (42,~~000)~~163 ~~--------~~Finished ~~---------~~goods ~~--------- ----------- Balance as of August 27~~39,996 ~~2000 -- 9~~40,~~000~~934 ~~100,000 109,000 First quarter 2001 cash activity (unaudited)~~ -- -- -- -- -------- --------- --------- ----------- Balance as of November 26, 2000 (unaudited) -- 9,000 100,000 109,000 Second quarter 2001 cash activity (unaudited) -- -- -- -- -------- --------- --------- ----------- Balance as of February 25, 2001 (unaudited) $ ~~-- $ 9~~48,~~000~~413 $ ~~100~~49,~~000~~152 ~~$ 109,000~~ ======== ========~~= ========= ===========~~

8 9 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited) Note 9. COMPREHENSIVE INCOME Comprehensive income for the Company is as follows (in thousands):

~~August~~Three months ended Nine months ended ---------------------------- ---------------------------- May 28, 2000 May 27, ~~February~~2001 25May 28, 2000 May 27, 2001 ------------ ------------ ~~Raw~~------------ ~~materials~~------------ $Net 6income,~~290~~ as reported $ 69,~~425~~078 ~~Work~~$ in7,109 ~~process~~$ 216,~~127~~222 2$ 25,~~495~~130 ~~Finished~~Foreign ~~goods~~currency 39translation adjustment (3,~~996~~831) 40(2,~~461~~084) (5,249) (2,533) -------- -------- -------- -------- Total comprehensive income (loss) $48 5,~~413~~247 $49 5,~~381~~025 $ 10,973 $ 22,597 ======== ======== ======== ========

Accumulated other comprehensive loss represents foreign currency translation adjustments of $13,795,000 and $16,328,000 at August 27, 2000 and May 27, 2001, 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 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). In accordance with the transition provisions of SFAS 133, the Company recorded a cumulative adjustment during the first quarter of fiscal 2001 to other income on the Company's Consolidated Statement of Operations of $188,000, net of tax, 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. Its U.S. operations purchase primarily the Italian Lira, Spanish Peseta, and French Franc, 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 May 27, 2001 was a net liability of $35,000. During the three months ended May 27, 2001, a loss of $131,000 was recorded, net of tax, representing the change in fair value of the derivatives. As of May 27, 2001 the maximum period of time the Company was hedging its exposure to the variability in future cash flows for forecasted transactions was approximately nine months. Note 11. SHAREHOLDER'S DEFICIT In April 2001, the majority shareholder of the Company purchased the remaining shares of Albecca's common stock owned by a minority shareholder. No compensation was recognized for this transaction since, in the opinion of management, the purchase price did not exceed the fair market value of shares at the time of purchase. 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. RECLASSIFICATIONS Certain prior period amounts have been reclassified to conform to the current period presentation. 9 10 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited) 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. ALBECCA INC. CONDENSED CONSOLIDATING BALANCE SHEETS (in thousands)

~~Three~~May ~~months~~27, ~~ended~~2001 ~~Six~~(Unaudited) ~~months~~------------------------------------------------------------------------------ ~~ended~~Consolidated Subsidiary Subsidiary Elimination Consolidated Albecca Inc. Guarantors Nonguarantors Entries Total ------------ ---------- ------------- ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 14,967 $ 1,212 $ 7,247 $ -- $ 23,426 Accounts receivable, net -- 19,035 14,961 -- ~~February~~33,996 27Intercompany accounts receivable -- 101,259 ~~February~~480 25(101,739) ~~February~~-- Inventories -- 27,202 ~~February~~21,950 25-- 49,152 ~~2000~~Other ~~2001~~current ~~2000~~assets ~~2001~~1,945 1,395 3,209 -- 6,549 -------- -------- --------- --------- --------- Total current assets 16,912 150,103 47,847 (101,739) 113,123 PROPERTY, PLANT AND EQUIPMENT, net -- 9,900 23,952 -- 33,852 OTHER LONG-TERM ASSETS 4,275 13,596 21,364 -- 39,235 INVESTMENT IN SUBSIDIARIES 141,438 -- 7,884 (149,322) -- INTERCOMPANY LOANS RECEIVABLE 90,178 -- 191 (90,369) -- -------- ~~Net~~-------- ~~income~~--------- --------- --------- $252,803 as$173,599 ~~reported~~$ 101,238 $(341,430) 9$ 186,210 ======== ======== ========= ========= ========= LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT) CURRENT LIABILITIES: Current maturities of long-term debt $ 9-- $ 779 $ 5,~~905~~391 $ -- $ 6,170 Accounts payable -- 8,501 7,~~144~~894 $-- 16,395 Intercompany accounts payable 96,191 433 5,115 (101,739) -- Accrued liabilities 6,011 8,845 9,750 -- 24,606 -------- -------- --------- --------- --------- Total current liabilities 102,202 18,~~021~~558 ~~Foreign~~28,150 ~~currency~~(101,739) ~~translation~~47,171 ~~adjustments~~-------- -------- --------- --------- --------- LONG-TERM DEBT, less current maturities 134,930 6,044 5,409 -- 146,383 -------- -------- --------- --------- --------- INTERCOMPANY LOANS PAYABLE -- 191 90,178 (90,369) -- -------- -------- --------- --------- --------- OTHER LONG-TERM LIABILITIES 1,~~123~~703 4,822 3,011 -- 9,536 -------- -------- --------- --------- --------- SHAREHOLDER'S EQUITY (DEFICIT): 2Preferred stock -- -- -- -- -- Class A common stock 4 -- -- -- 4 Class B common stock 166 -- -- -- 166 Additional paid-in capital 7,~~459~~326 41,825 7,926 (149,~~418~~751) 7,326 Accumulated earnings (~~449~~deficit) 6,472 101,804 (16,753) (99,571) (8,048) Accumulated other comprehensive gain (loss) -- 355 (16,683) -- (16,328) -------- -------- --------- --------- --------- Total ~~comprehensive~~shareholder's equity (~~loss~~deficit) ~~income~~13,968 $143,984 (125,~~114~~510) (149,322) (16,880) -------- -------- --------- --------- --------- $12252,~~364~~803 $173,599 5$ 101,~~726~~238 $(341,430) 17$ 186,~~572~~210 ======== ======== ========= ========= =========

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

~~February~~August 2527, ~~2001~~2000 ~~(Unaudited)~~ ---------------------------------------------------------------------------~~---~~ Consolidated Subsidiary Subsidiary Elimination Consolidated Albecca Inc. Guarantors Nonguarantors Entries Total ------------ ---------- ------------- ------------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1513,~~720~~745 $ 1,~~193~~855 $ 7,~~642~~721 $ -- $ 2423,~~555~~321 Accounts receivable, net -- 20,~~137~~291 1516,~~960~~093 -- 36,~~097~~384 Intercompany accounts receivable -- 9373,~~331~~310 ~~516~~1,336 (9374,~~847~~646) -- Inventories -- 2523,~~887~~617 2324,~~494~~796 -- 4948,~~381~~413 Other current assets ~~183~~180 ~~1,348~~987 3,~~770~~587 -- 54,~~301~~754 --------- -------- --------- --------- --------- Total current assets 1513,~~903~~925 ~~141~~120,~~896~~060 5153,~~382~~533 (9374,~~847~~646) ~~115~~112,~~334~~872 PROPERTY, PLANT AND EQUIPMENT, net -- 1011,~~335~~095 25,~~149~~597 -- 3536,~~484~~692 OTHER LONG-TERM ASSETS 4,~~506~~894 13,~~712~~745 22,~~385~~892 -- 4041,~~603~~531 INVESTMENT IN SUBSIDIARIES ~~130~~105,~~515~~452 -- 7,~~885~~884 (~~138~~113,~~400~~336) -- INTERCOMPANY LOANS RECEIVABLE 91,~~274~~985 -- ~~176~~532 (9192,~~450~~517) -- --------- -------- --------- --------- --------- $~~242~~ 216,~~198~~256 $~~165~~144,~~943~~900 $ ~~106~~110,~~977~~438 $(~~323~~280,~~697~~499) $ 191,~~421~~095 ========= ======== ========= ========= ========= LIABILITIES AND SHAREHOLDERS' ~~EQUITY~~ (DEFICIT) EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ -- $ ~~721~~563 $ 57,~~075~~123 $ -- $ 57,~~796~~686 Accounts payable -- 9,~~445~~484 87,~~998~~763 -- 1817,~~443~~247 Intercompany accounts payable 8867,~~033~~854 ~~578~~114 56,~~236~~678 (9374,~~847~~646) -- Accrued liabilities ~~645~~814 911,~~416~~856 1011,~~261~~994 -- 2024,~~322~~664 --------- -------- --------- --------- --------- Total current liabilities 8868,~~678~~668 2022,~~160~~017 2933,~~570~~558 (9374,~~847~~646) 4449,~~561~~597 --------- -------- --------- --------- --------- LONG-TERM DEBT, less current maturities ~~140~~148,930 6,~~601~~085 67,~~708~~481 -- ~~154~~162,~~239~~496 --------- -------- --------- --------- --------- INTERCOMPANY LOANS PAYABLE -- ~~176~~388 9192,~~274~~129 (9192,~~450~~517) -- --------- -------- --------- --------- --------- OTHER LONG-TERM LIABILITIES ~~931~~220 5,~~634~~961 32,~~161~~698 -- 98,~~726~~879 --------- -------- --------- --------- --------- SHAREHOLDERS' ~~EQUITY~~ (DEFICIT) EQUITY: Preferred stock -- -- -- -- -- Class A common stock 4 -- -- -- 4 Class B common stock 166 -- -- -- 166 Additional paid-in capital 7,326 41,~~826~~825 7,926 (49,~~752~~751) 7,326 Accumulated ~~earnings~~ (deficit) 4earnings (9,~~163~~058) 9168,~~183~~199 (1719,~~055~~134) (8863,~~648~~585) (1023,~~357~~578) Accumulated other comprehensive gain (loss) -- ~~363~~425 (14,~~607~~220) -- (1413,~~244~~795) --------- -------- --------- --------- --------- Total shareholders' ~~equity~~ (deficit) 11equity (1,~~659~~562) ~~133~~110,~~372~~449 (2325,~~736~~428) (~~138~~113,~~400~~336) (1729,~~105~~877) --------- -------- --------- --------- --------- $~~242~~ 216,~~198~~256 $~~165~~144,~~943~~900 $ ~~106~~110,~~977~~438 $(~~323~~280,~~697~~499) $ 191,~~421~~095 ========= ======== ========= ========= =========

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

~~August~~Three months ended May 27, ~~2000~~2001 (Unaudited) ------------------------------------------------------------------------~~------~~ Consolidated Subsidiary Subsidiary Elimination Consolidated Albecca Inc. Guarantors Nonguarantors Entries Total ------------ ---------- ------------- ------------- ------------ ~~ASSETS~~Net ~~CURRENT~~sales ~~ASSETS:~~$ ~~Cash~~-- ~~and~~$ ~~cash~~50,977 ~~equivalents~~ $ 1327,~~745~~238 $ 1(2,~~855~~819) $ 775,~~721~~396 $Cost of sales -- $26,127 2316,~~321~~528 ~~Accounts~~(2,819) ~~receivable~~39,836 ~~net~~-------- -------- 20-------- -------- -------- Gross profit -- 24,~~291~~850 1610,~~093~~710 -- 3635,~~384~~560 ~~Intercompany~~Operating ~~accounts~~expenses ~~receivable~~6 13,689 9,535 -- 7323,~~310~~230 -------- -------- -------- -------- -------- Operating (loss) income (6) 11,161 1,~~336~~175 -- 12,330 Interest income (741,~~646~~824) -- ~~Inventories~~(130) -- 23(1,~~617~~954) 24Interest expense 5,~~796~~475 256 325 -- 486,~~413~~056 Other ~~current~~loss ~~assets~~-- ~~180~~116 ~~987~~306 ~~3,587~~ -- ~~4,754~~422 --------- -------- --------- --------- --------- ~~Total~~(Loss) ~~current~~income ~~assets~~before ~~13,925~~provision ~~120~~for income taxes,~~060~~ 53minority interest,~~533~~ and extraordinary loss (743,~~646~~657) ~~112~~10,~~872~~789 ~~PROPERTY~~674 -- 7,806 ~~PLANT~~Provision ~~AND~~for ~~EQUIPMENT,~~income ~~net~~taxes -- ~~11,095~~168 ~~25,597~~337 -- ~~36,692~~505 ~~OTHER~~Minority ~~LONG~~interest -~~TERM~~- ~~ASSETS~~-- ~~4,894~~35 ~~13,745~~-- ~~22,892~~35 -------- ~~41,531~~-------- ~~INVESTMENT~~-------- IN-------- ~~SUBSIDIARIES~~-------- ~~105~~(Loss) income before extraordinary loss (3,~~452~~657) 10,621 302 -- 7,~~884~~266 ~~(113~~Extraordinary loss on repurchase of debt,~~336~~ net of tax (157) -- ~~INTERCOMPANY~~-- ~~LOANS~~-- ~~RECEIVABLE~~(157) 91Equity in earnings of subsidiaries 10,~~985~~923 -- ~~532~~-- (9210,~~517~~923) -- --------- -------- --------- --------- --------- Net income (loss) $ ~~216~~7,~~256~~109 $~~144~~ 10,~~900~~621 $ ~~110,438~~302 $(~~280~~10,~~499~~923) $ ~~191~~7,~~095~~109 ========= ======== ========= ========= ========= ~~LIABILITIES~~Three ~~AND~~months ~~SHAREHOLDERS'~~ended ~~(DEFICIT)~~May ~~EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ -- $ 563 $ 7~~28,~~123~~ $2000 ~~-- $ 7,686 Accounts payable -- 9,484 7,763 -- 17,247 Intercompany accounts payable 67,854 114 6,678~~ (~~74,646~~Unaudited) -- ~~Accrued liabilities 814 11,856 11,994~~ -- ~~24,664~~ --------- -------- --------- --------- --------- ~~Total current liabilities 68,668 22,017 33,558 (74,646) 49,597~~ --------- -------- --------- ~~---------~~Consolidated ~~---------~~Subsidiary ~~LONG-TERM~~Subsidiary ~~DEBT,~~Elimination ~~less~~Consolidated ~~current~~Albecca ~~maturities~~Inc. ~~148,930~~Guarantors ~~6,085~~Nonguarantors ~~7,481~~Entries Total -- ~~162,496~~ ---------- ---------- ------------- ------------ ------------ ~~INTERCOMPANY~~Net ~~LOANS~~sales ~~PAYABLE~~$ -- ~~388~~$ 9255,~~129~~531 $ 34,806 $ (922,~~517~~454) $ 87,883 Cost of sales -- 28,669 21,432 (2,454) 47,647 --------- -------- --------- --------- -------- Gross profit -- ~~OTHER~~26,862 ~~LONG~~13,374 -~~TERM~~- ~~LIABILITIES~~40,236 ~~220~~Operating 5expenses 12 12,~~961~~098 212,~~698~~535 -- 824,~~879~~645 Restructuring charges -- (29) 884 -- 855 -------- -------- --------- --------- --------- ~~SHAREHOLDERS'~~Operating (~~DEFICIT~~loss) ~~EQUITY:~~income ~~Preferred~~(12) ~~stock~~14,793 --(45) -- --14,736 --Loss --on ~~Class~~disposition Aof ~~common~~businesses ~~stock 4~~ -- -- 472 -- 4472 ~~Class~~Interest Bincome ~~common~~(1,263) ~~stock 166~~ -- -- -- ~~166 Additional paid-in capital 7,326 41,825 7,926~~ (491,~~751~~263) ~~7,326~~Interest ~~Accumulated~~expense ~~(deficit) earnings (9~~5,~~058)~~464 ~~68,199~~64 ~~(19,134)~~505 ~~(63,585) (23,578) Accumulated other comprehensive gain (loss)~~ -- ~~425 (14~~6,~~220)~~033 -- ~~(13,795)~~ ------~~---~~ -------- --------- --------- --------- ~~Total shareholders'~~ (~~deficit~~Loss) ~~equity~~income before provision for income taxes and minority interest (14,~~562~~213) ~~110~~14,~~449~~729 (251,~~428~~022) ~~(113~~-- 9,~~336)~~494 Provision for income taxes -- 120 238 -- 358 Minority interest -- -- 58 -- 58 Equity in earnings of subsidiaries 13,291 -- -- (2913,~~877~~291) -- -------- -------- --------- --------- --------- Net income (loss) $ ~~216~~9,~~256~~078 $~~144~~ 14,~~900~~609 $ ~~110~~(1,~~438~~318) $(~~280~~13,~~499~~291) $ ~~191~~9,~~095~~078 ========= ======== ========= ========= =========

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

~~Three~~Nine months ended ~~February~~May 2527, 2001 (Unaudited) ----------------------------------------------------------------------~~----~~ Consolidated Subsidiary Subsidiary Elimination Consolidated Albecca Inc. Guarantors Nonguarantors Entries Total ------------ ---------- ------------- ------------ ------------ Net sales $ -- $55 163,~~672~~783 $ 2884,~~552~~266 $ (27,~~663~~719) $ 81240,~~561~~330 Cost of sales -- 2783,~~386~~211 1751,~~721~~262 (27,~~663~~719) 42126,~~444~~754 -------- --------- -------- -------- --------- Gross profit -- 2880,~~286~~572 1033,~~831~~004 -- 39113,~~117~~576 Operating expenses ~~172~~196 1545,~~923~~751 928,~~514~~337 -- 2574,~~609~~284 -------- --------- -------- -------- --------- Operating (loss) income (~~172~~196) 1234,~~363~~821 14,~~317~~667 -- 1339,~~508~~292 Interest income (15,~~905~~305) -- --(130) -- (15,~~905~~435) Interest expense 516,~~372~~306 ~~182~~672 ~~224~~746 -- 517,~~778~~724 Other ~~income~~loss -- --116 ~~(430)~~237 -- ~~(430)~~353 -------- --------- -------- -------- --------- (Loss) income before provision for income taxes, minority interest, and extraordinary gain (311,~~639~~197) 1234,~~181~~033 13,~~523~~814 -- 1026,~~065~~650 Provision for income taxes -- ~~125~~428 ~~263~~1,344 -- ~~388~~1,772 Minority interest -- -- 2389 -- 2389 -------- --------- -------- -------- --------- (Loss) income before extraordinary gain (311,~~639~~197) 1233,~~056~~605 12,~~237~~381 -- 924,~~654~~789 Extraordinary gain on repurchase of debt, net of tax ~~251~~341 -- -- -- ~~251~~341 Equity in earnings of subsidiaries 1335,~~293~~986 -- -- (1335,~~293~~986) -- -------- --------- -------- -------- --------- Net income $ 25,130 $ 33,605 $ 2,381 $(~~loss~~35,986) $ 925,~~905~~130 ======== ========= ======== ======== ========= CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $12 24,~~056~~160 $ 1(947) $ 3,~~237~~272 $ -- $ 26,485 -------- --------- -------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment -- (630) (1,435) -- (2,065) Proceeds from sales of property, plant and equipment -- 1,107 248 -- 1,355 Changes in other long-term assets 322 (338) 60 -- 44 -------- --------- -------- -------- --------- Net cash provided by (used in) investing activities 322 139 (1,127) -- (666) -------- --------- -------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit facilities -- 170 16,030 -- 16,200 Repayments of revolving credit facilities -- (2) (15,799) -- (15,801) Proceeds from long-term debt -- 600 735 -- 1,335 Repayments of long-term debt (13,~~293~~660) $(590) (4,040) -- (18,290) Distributions to shareholders (9,~~905~~600) -- -- -- (9,600) -------- --------- -------- -------- --------- Net cash (used in) provided by financing activities (23,260) 178 (3,074) -- (26,156) -------- --------- -------- -------- --------- EFFECT OF EXCHANGE RATE ON CASH -- (13) 455 -- 442 -------- --------- -------- -------- --------- NET INCREASE (DECREASE) IN CASH 1,222 (643) (474) -- 105 Cash and cash equivalents, beginning of period 13,745 1,855 7,721 -- 23,321 -------- --------- -------- -------- --------- Cash and cash equivalents, end of period $ 14,967 $ 1,212 $ 7,247 $ -- $ 23,426 ======== ========= ======== ======== =========

13 14 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (unaudited) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (in thousands)

~~Three~~Nine months ended ~~February~~May 2728, 2000 (Unaudited) ----------------------------------------------------------------------~~----~~ Consolidated Subsidiary Subsidiary Elimination Consolidated Albecca Inc. Guarantors Nonguarantors Entries Total ------------ ---------- ------------- ------------ ------------ Net sales $ -- $56 167,~~243~~363 $ 39121,~~767~~415 $ (16,~~857~~622) $ 94282,~~153~~156 Cost of sales -- 3089,~~067~~576 2474,~~179~~381 (16,~~857~~622) 52157,~~389~~335 -------- --------- --------- -------- --------- Gross profit -- 2677,~~176~~787 1547,~~588~~034 -- 41124,~~764~~821 Operating expenses 13109 1745,~~075~~996 1442,~~434~~159 -- 3188,~~522~~264 Restructuring charges -- (29) 884 -- 855 Impairment of goodwill -- 4,997 -- -- 4,997 -------- --------- --------- -------- --------- Operating (loss) income (13109) 426,~~104~~823 13,~~154~~991 -- 530,~~245~~705 Loss on disposition of businesses -- -- 1,~~382~~854 -- 1,~~382~~854 Interest income (13,~~011~~094) -- -- -- (13,~~011~~094) Interest expense 516,~~315~~304 58223 ~~583~~1,875 -- 518,~~956~~402 -------- --------- --------- -------- --------- (Loss) income before provision for income taxes, minority interest and extraordinary gain (413,~~317~~319) 426,~~046~~600 ~~(811)~~262 -- (113,~~082)~~543 Provision for income taxes -- ~~120~~360 ~~243~~1,223 -- ~~363~~1,583 Minority interest -- -- 90262 -- 90262 -------- --------- --------- -------- --------- (Loss) income before extraordinary gain (413,~~317~~319) 326,~~926~~240 (1,~~144~~223) -- (111,~~535)~~698 Extraordinary gain on ~~retirement~~repurchase of debt, net of tax 14,~~544~~524 -- -- -- 14,~~544~~524 Equity in earnings of subsidiaries 225,~~782~~017 -- -- (225,~~782~~017) -- -------- --------- --------- -------- --------- Net income (loss) $ 916,222 $ 326,~~926~~240 $ (1,~~144~~223) $(25,017) $ 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,~~782~~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 businesses -- -- 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 $ 918,443 $ 846 $ 5,696 $ -- $ 24,985 ======== ========= ========= ======== =========

14 15 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:

~~Six~~Three months ended ~~February~~Nine ~~25,~~months ~~2001~~ended ~~(Unaudited)~~ ------------------ ------------------~~---------------------------------------~~ ~~Consolidated~~May ~~Subsidiary~~28, ~~Subsidiary~~May ~~Elimination~~27, ~~Consolidated~~May ~~Albecca~~28, ~~Inc.~~May ~~Guarantors~~27, ~~Nonguarantors~~2000 ~~Entries~~2001 ~~Total~~2000 ~~------------~~2001 -------~~---~~ -------~~------~~ -------~~-----~~ -------~~-----~~ Net sales $100.0% --100.0% ~~$112,806~~100.0% $100.0% ~~57,028 $ (4,900) $164,934~~ Cost of sales --54.2 ~~57,084~~52.8 ~~34,734~~55.8 ~~(4,900)~~52.7 ~~86,918~~ -----~~---~~ ------- -----~~---~~ -----~~---~~ ~~--------~~ Gross profit --45.8 ~~55,722~~47.2 ~~22,294~~44.2 --47.3 ~~78,016~~ Operating expenses ~~190~~28.0 ~~32,062~~30.8 ~~18,802~~31.2 --30.9 ~~51,054~~Restructuring ~~--------~~charges ~~-------~~1.0 --~~------~~ ~~-------- -------- Operating (loss) income (190) 23,660~~ 0.3~~,492~~ -- ~~26,962~~Impairment ~~Interest~~of ~~income~~goodwill ~~(3,481)~~ -- -- --1.8 ~~(3,481) Interest expense 10,831 416 421~~ -- ~~11,668 Other income~~ -- -- ~~(69)~~ -- ~~(69)~~ -----~~---~~ ------- -----~~---~~ ~~--------~~Operating ~~-------- (Loss)~~ income ~~before~~16.8 ~~provision~~16.4 ~~for~~10.9 ~~income~~16.4 taxes, minority interest and extraordinary gain (7,540) 23,244 3,140 -- 18,844 Provision for income taxes -- 260 1,007 -- 1,267 Minority interest -- -- 54 -- 54 -------- ------- -------- -------- -------- (Loss) ~~income before extraordinary gain (7,540) 22,984 2,079 -- 17,523 Extraordinary gain~~ on ~~repurchase~~disposition of ~~debt,~~businesses ~~net~~0.5 ~~of tax 498~~ -- --0.7 -- ~~498~~Interest ~~Equity in earnings of subsidiaries 25,063 -- -- (25,063) -- -------- ------- -------- -------- -------- Net~~ income (loss) $ 18,021 $22,984 $ 2,079 $(25,063) $ 18,021 ======== ======= ======== ======== ======== CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 14,088 $(1~~,000~~.4) ~~$ 3,128 $ -- $ 16,216 -------- ------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment --~~ (~~388~~2.6) (1~~,059~~.1) -- (~~1,447~~2.3) ~~Proceeds~~Interest ~~from~~expense ~~sales~~6.9 of8.0 ~~property,~~6.5 ~~plant~~7.4 ~~and~~Other ~~equipment~~loss -- ~~432~~0.6 ~~236~~ -- ~~668~~0.1 ~~Changes in other long~~-~~term assets 190 (372) 125~~ -- ~~(57)~~ --~~------~~ ------- -----~~---~~ -----~~---~~ ~~--------~~Income ~~Net~~before ~~cash~~provision ~~provided~~for byincome ~~(used~~taxes, ~~in)~~minority ~~investing~~interest ~~activities~~and ~~190~~extraordinary (~~328~~loss) ~~(698)~~gain --10.8 ~~(836) -------- ------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit facilities -- 102~~ 10~~,907~~.4 --4.8 11~~,009 Repayments of revolving credit facilities -- (~~.2) ~~(10,939)~~Provision --for ~~(10,941)~~income ~~Proceeds~~taxes ~~from~~0.4 ~~long-term~~0.7 ~~debt~~0.6 ~~-- 600 103 -- 703 Repayments of long-term debt (~~0.7~~,503)~~ ~~(23)~~Minority ~~(2,797)~~interest --0.1 ~~(10,323)~~0.1 ~~Distributions~~0.1 to0.1 ~~shareholders (4,800)~~ -- -- -- ~~(4,800)~~ -----~~---~~ ------- -----~~---~~ ~~--------~~Income ~~--------~~before ~~Net~~extraordinary ~~cash~~ (~~used in~~loss) ~~provided~~gain by10.3 ~~financing~~9.6 ~~activities~~4.1 ~~(12,303)~~10.4 ~~677~~Extraordinary (~~2,726~~loss) --gain ~~(14,352)~~on ~~--------~~repurchase ~~-------~~of ~~--------~~debt, ~~--------~~net ~~--------~~of ~~EFFECT~~tax ~~OF EXCHANGE RATE ON CASH~~ -- (110.2) ~~217 -- 206 -------- ------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH~~ 1~~,975~~.6 ~~(662) (79) --~~ 0.1~~,234~~ ~~Cash and cash equivalents, beginning of period 13,745 1,855 7,721~~ -- ~~23,321~~ ---~~-----~~ ------- -----~~---~~ -----~~---~~ ~~--------~~Net ~~Cash~~income ~~and~~10.3% ~~cash~~9.4% ~~equivalents, end of period $ 15,720 $ 1,193 $~~ 5.7~~,642~~% $10.5% ~~-- $ 24,555~~ =====~~===~~ ======= =====~~===~~ =====~~=== ========~~

NET SALES For the third quarter ended May 27, 2001, net sales were $75.4 million compared to $87.9 million for the third quarter ended May 28, 2000. For the nine months ended May 27, 2001, net sales were $240.3 million compared to $282.2 million for the nine months ended May 28, 2000. The decrease in net sales for the three and nine months ended May 27, 2001 was primarily the result of the sale of two international operations completed during the second and fourth quarters of fiscal 2000, the closure of an international operation completed during the third quarter of fiscal 2000, the negative impact of the continued strengthening of the U.S. Dollar, as well as the continued weakness in the global economy. Currency fluctuations decreased net sales by $2.9 million for the third quarter of fiscal 2001 and $9.0 million for the nine months ended May 27, 2001, primarily due to continued strengthening of the U.S. dollar against major European currencies and the Australian dollar. U.S. net sales decreased 8.1% and 1.8% for the three and nine months ended May 27, 2001 from the comparable periods in fiscal 2000, partially the result of a decrease in sales of non-core products, including the loss of sales of non-core products from prior acquisitions, as the Company continues to focus its efforts on sales of its core branded products. Management believes that sales were also affected by a decline in overall consumer purchases during the last nine months. International net sales decreased 24.1% and 32.7% for the three and nine months ended May 27, 2001 from the comparable periods in fiscal 2000, primarily due to the sale of the Mersch operations completed during the second quarter of fiscal 2000, the sale of the Brio operation completed early in the fourth quarter of fiscal 2000, the closure of the United Kingdom - Northampton operation completed during the third quarter of fiscal 2000, a decrease in sales in Finland, Korea and Sweden and the negative impact of the continued strengthening of the U.S. dollar. COST OF SALES Cost of sales was $39.8 million and $126.8 million for the three and nine months ended May 27, 2001 compared to $47.6 million and $157.3 million for the three and nine months ended May 28, 2000. In the U.S., gross profit increased to 48.9% and 49.4% for the three and nine months ended May 27, 2001 compared to 48.4% and 46.5% for the comparable periods in fiscal 2000. The increase for the quarter was primarily the result of continued strength in sales of branded products and favorable currency exchange rate movements in certain supplier markets. For the three and nine months ended May 27, 2001, International gross profit margin increased to 43.7% and 43.0% compared to 41.5% and 41.1% for the comparable periods in fiscal 2000. This increase was primarily the result of the decrease in net sales of lower margin products associated with the Mersch and Brio operations sold in the second and fourth quarters of fiscal 2000 and a continuing focus on sales of branded products. 15 16 OPERATING EXPENSES Operating expenses were $23.2 million and $74.3 million for the three and nine months ended May 27, 2001 compared to $24.6 million and $88.3 million for the three and nine months ended May 28, 2000. In the U.S., operating expenses as a percentage of net sales increased to 26.5% and 27.8% for the three and nine months ended May 27, 2001 compared to 21.1% and 26.8% for the comparable periods in fiscal 2000. Operating expenses for the three and nine months ended May 28, 2000 were reduced by the reversal of previously-provided reserves during the third quarter of fiscal 2000, as more fully discussed in Notes 12 and 13 to the consolidated financial statements in the Company's fiscal 2000 third quarter Form 10-Q. Had these reversals not taken place, U.S. operating expenses as a percentage of net sales would have been 30.6% and 29.9% for the three and nine months ended May 28, 2000, indicating a decrease in recurring operating expenses as a percentage of net sales for the comparable periods in fiscal 2001. The decrease in recurring costs is primarily the result of the continued integration of prior acquisitions and a focused internal effort to control costs. For the three and nine months ended May 27, 2001, International operating expenses as a percentage of net sales increased to 39.3% and decreased to 37.2% compared to 38.9% and 37.4% for the comparable periods in fiscal 2000. The increase in operating expenses as a percentage of sales for the quarter is primarily due to the costs of closing a distribution center in Canada that management has deemed to be duplicative. The decrease in operating expenses as a percentage of sales for the nine months is primarily attributable to improved efficiency following restructuring activities and closures or sales of operations in various European locations, as well as ongoing cost reduction activities. INTEREST INCOME Interest income was $2.0 million and $5.4 million for the three and nine months ended May 27, 2001 compared to $1.3 million and $3.1 million for the three and nine months ended May 28, 2000. 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 $6.1 million and $17.7 million for the three and nine months ended May 27, 2001 compared to $6.0 million and $18.4 million for the three and nine months ended May 28, 2000. The increase in interest expense for the three months ended May 27, 2001 is primarily due to the Industrial Revenue Bond issuance in the fourth quarter of fiscal 2000. The decrease in interest expense for the nine months ended May 27, 2001 is primarily due to the reduction of debt associated with the sale of the Mersch and Brio businesses as well as the company's continued focus to reduce its total debt. OTHER LOSS Other 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 10 of the Notes to Consolidated Financial Statements. 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, during the three and nine months ended May 27, 2001 the Company repurchased a portion of its senior subordinated notes with a face value of $6.0 million and $14.0 million. For the nine months ended May 27, 2001, the debt repurchases resulted in net extraordinary gains of $.3 million, net of state income taxes of $.01 million. NET INCOME For the reasons set forth above, net income was $7.1 million and $25.1 million for the three and nine months ended May 27, 2001 compared to $9.1 million and $16.2 million for the three and nine months ended May 28, 2000. 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 of May 27, 2001, the Company had cash and cash equivalents of $23.4 million compared to $23.3 million as of August 27, 2000. Net cash provided by operating activities was $26.5 million for the nine months ended May 27, 2001 compared to $36.0 million for the nine months ended May 28, 2000. Net income for the first nine months of fiscal 2001 was significantly higher than in the same period in the preceding year ($25.1 million vs. $16.2 million). However, the nine months ended May 28, 2000 included a number of significant items positively impacting cash flow that did not recur during the same period in fiscal 2001. This included a reduction of inventory both as a result of the disposition of the Mersch businesses as well as continued sell-down of acquisition inventories and an increase in accrued liabilities. These items were partially offset by an increase in accounts receivable. Items negatively impacting cash flow during the nine months ended May 27, 2001 included an increase in inventories and other current assets and a reduction in accrued liabilities, partially offset by the positive cash flow effect of a decrease in accounts receivable. Net cash used in investing activities was $.7 million for the nine months ended May 27, 2001 compared to net cash provided by investing activities of $8.7 million for the nine months ended May 28, 2000. The decrease from the comparable period in the prior year was primarily due to the proceeds from the disposition of the Mersch entities received during the second quarter of fiscal 2000, partially offset by a decrease in capital expenditures in the current year as a result of the completion of the 16 17 Company's manufacturing plant in Ashland, Wisconsin during fiscal 2000. Net cash used in financing activities decreased to $26.2 million for the nine months ended May 27, 2001 compared to $56.3 million for the nine months ended May 28, 2000, primarily due to the reduction of debt associated with the disposition of the Mersch and Brio businesses during the first nine months of fiscal 2000 and a decrease in the amount of its senior subordinated debt repurchased by the Company during the first nine months of fiscal 2001 compared to the prior comparable period. The Company repurchased senior subordinated debt with a face value of $14.0 million for the nine months ended May 27, 2001 compared to $23.8 million during the prior comparable period. As of May 27, 2001, the Company had outstanding indebtedness of approximately $152.6 million, consisting of $134.9 million in principal amount of the August 1998 senior subordinated debt and $17.7 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. 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. 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. Historically, a significant portion of the Company's revenue has been 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. 17 18 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 18 19 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: July 11, 2001 By: /s/ Craig A. Ponzio ------------- ------------------------------------------- Craig A. Ponzio, Chairman of the Board, President, Chief Executive Officer (Principal Executive Officer) Date: July 11, 2001 By: /s/ R. Bradley Goodson ------------- ------------------------------------------- R. Bradley Goodson, Vice President Finance, Chief Financial Officer (Principal Financial Officer) 19

Six months ended February 27, 2000 (Unaudited) -------------------------------------------------------------------------- Consolidated Subsidiary Subsidiary Elimination Consolidated Albecca Inc. Guarantors Nonguarantors Entries Total ------------ ---------- ------------- ------------ ------------ Net sales $ -- $111,832 $ 86,609 $ (4,168) $194,273 Cost of sales -- 60,907 52,949 (4,168) 109,688 -------- -------- -------- -------- -------- Gross profit -- 50,925 33,660 -- 84,585 Operating expenses 97 33,898 29,624 -- 63,619 Impairment of goodwill -- 4,997 -- -- 4,997 -------- -------- -------- -------- -------- Operating (loss) income (97) 12,030 4,036 -- 15,969 Loss on disposition of businesses -- -- 1,382 -- 1,382 Interest income (1,831) -- -- -- (1,831) Interest expense 10,840 159 1,370 -- 12,369 -------- -------- -------- -------- -------- (Loss) income before provision for income taxes, minority interest and extraordinary gain (9,106) 11,871 1,284 -- 4,049 Provision for income taxes -- 240 985 -- 1,225 Minority interest -- -- 204 -- 204 -------- -------- -------- -------- -------- (Loss) income before extraordinary gain (9,106) 11,631 95 -- 2,620 Extraordinary gain on repurchase of debt, net of tax 4,524 -- -- -- 4,524 Equity in earnings of subsidiaries 11,726 -- -- (11,726) -- -------- -------- -------- -------- -------- Net income (loss) $ 7,144 $ 11,631 $ 95 $(11,726) $ 7,144 ======== ======== ======== ======== ======== CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS NET CASH PROVIDED BY OPERATING ACTIVITIES $ 14,194 $ 3,009 $ 5,107 $ -- $ 22,310 -------- -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment -- (3,537) (2,779) -- (6,316) Proceeds from sales of property, plant and equipment -- 61 1,350 -- 1,411 Proceeds from disposition of businesses -- -- 16,278 -- 16,278 Changes in other long-term assets 722 (196) 161 -- 687 -------- -------- -------- -------- -------- Net cash provided by (used in) investing activities 722 (3,672) 15,010 -- 12,060 -------- -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit facilities -- -- 14,424 -- 14,424 Repayments of revolving credit facilities -- -- (20,242) -- (20,242) Proceeds from long-term debt -- -- 2,752 -- 2,752 Repayments of long-term debt (19,297) (1,518) (15,056) -- (35,871) Distributions to shareholders (3,000) 325 (325) -- (3,000) -------- -------- -------- -------- -------- Net cash used in financing activities (22,297) (1,193) (18,447) -- (41,937) -------- -------- -------- -------- -------- EFFECT OF EXCHANGE RATE ON CASH -- 248 89 -- 337 -------- -------- -------- -------- -------- NET (DECREASE) INCREASE IN CASH (7,381) (1,608) 1,759 -- (7,230) Cash and cash equivalents, beginning of period 27,424 1,747 5,887 -- 35,058 -------- -------- -------- -------- -------- Cash and cash equivalents, end of period $ 20,043 $ 139 $ 7,646 $ -- $ 27,828 ======== ======== ======== ======== ========

Three months ended Six months ended ---------------------------- --------------------------- February 27, February 25, February 27, February 25, 2000 2001 2000 2001 ------------ ------------- ------------ ------------ Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 55.6 52.0 56.5 52.7 ------ ------ ------ ------ Gross profit 44.4 48.0 43.5 47.3 Operating expenses 33.5 31.4 32.7 30.9 Impairment of goodwill 5.3 -- 2.6 -- ------ ------ ------ ------ Operating income 5.6 16.6 8.2 16.4 Loss on disposition of businesses 1.5 -- 0.6 -- Interest income (1.1) (2.3) (0.9) (2.1) Interest expense 6.3 7.1 6.4 7.1 Other income -- (0.5) -- -- ------ ------ ------ ------ (Loss) income before provision for income taxes, minority interest and extraordinary gain (1.1) 12.3 2.1 11.4 Provision for income taxes 0.4 0.5 0.6 0.8 Minority interest 0.1 -- 0.1 -- ------ ------ ------ ------ (Loss) income before extraordinary gain (1.6) 11.8 1.4 10.6 Extraordinary gain on repurchase of debt, net of tax 1.6 0.3 2.3 0.3 ------ ------ ------ ------ Net income 0.0% 12.1% 3.7% 10.9% ====== ====== ====== ======

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).

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