10-Q 1 g73613e10-q.txt ALBECCA, INC. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended November 25, 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 [ ]. 1 ALBECCA INC. INDEX TO FORM 10-Q

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

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

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

The accompanying notes are an integral part of these consolidated financial statements. 5 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 26, 2001, 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 shareholders and members of the respective companies. The Company makes distributions to its 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 THE NETHERLANDS -- LEVER As of November 25, 2001, with respect to the Company's closure of its Lever manufacturing and distribution facility located in Bergambacht, The Netherlands, none of the original 28 team members remained at the facility. During the first quarter of fiscal 2002, cash payments of $76,000 were made with respect to severance costs, resulting in a balance of $84,000 in accrued liabilities at November 25, 2001. The Company anticipates that The Netherlands -- Lever restructuring plan will be completed prior to the end of fiscal 2002. CANADA -- EDMONTON As of November 25, 2001, with respect to the Company's closure of one of its Canadian distribution facilities, located in Edmonton, none of the original 5 team members remained at the facility. During the first quarter of fiscal 2002, cash payments relating to lease termination and other exit costs were made totaling $13,000, resulting in a balance of $93,000 in accrued liabilities at November 25, 2001. The Company anticipates that the Canada -- Edmonton restructuring plan will be substantially complete prior to the end of fiscal 2002. 6 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (unaudited) UNITED KINGDOM -- NORTHAMPTON As of November 25, 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 and the restructuring plan was substantially complete. The remaining accrual relates to the Company's continuing obligation under existing lease commitments for the closed facility and a severance payment that will be paid during fiscal 2002. Cash payments relating to lease termination costs of $58,000 were made during the first quarter of fiscal 2002. NEW ZEALAND As of November 25, 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 and the restructuring plan was complete. Cash payments relating to other exit costs of approximately $10,000 were made during the first quarter of fiscal 2002. GREECE As of November 25, 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 the third quarter of fiscal 2002. For more descriptive information on the above mentioned restructuring plans, please see the Company's Form 10-K for the fiscal year ended August 26, 2001, as filed with the Securities and Exchange Commission. SUMMARY OF 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 November 25, 2001, these restructuring plans had remaining financial and/or legal obligations: As of November 25, 2001, as it relates to the Company's previously reported restructuring plans, $405,000 of restructuring charges remained in accrued liabilities representing $89,000 of severance and other termination costs and $316,000 of lease termination and other exit costs. A summary of the previously reported restructuring plans and activity consist of the following estimated accrued future cash/non-cash requirements: CLOSURE OF UNITED KINGDOM -- NORTHAMPTON:

7 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (unaudited) CLOSURE OF OPERATIONS IN NEW ZEALAND:

CLOSURE OF OPERATIONS IN GREECE:

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 three months ended November 26, 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. The Company did not repurchase any of its senior subordinated notes during the three months ended November 25, 2001. 8 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (unaudited) Note 8. INVENTORIES Inventories consist of the following (in thousands):

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

Accumulated other comprehensive loss represents foreign currency translation adjustments of $14,625 and $16,259 at August 26, 2001 and November 25, 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). The Company adopted SFAS 133 on August 28, 2000. The adoption was not material to the consolidated financial statements. The Company has historically entered into forward exchange contracts to reduce the foreign currency exchange risks associated with its committed and anticipated foreign currency denominated purchases. Its U.S. operations purchase primarily the Euro 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 November 25, 2001 was a net liability of $48,000. During the three months ended November 25, 2001, a loss of $18,000 was recorded, net of tax, representing the change in fair value of the derivatives. As of November 25, 2001 the maximum period of time the Company was hedging its exposure to the variability in future cash flows for forecasted transactions was approximately six 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. 9 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (unaudited) Note 12. SUBSEQUENT EVENTS On December 15, 2001, the sole shareholder of the Company entered into an agreement to sell all of the issued and outstanding capital stock of the Company to Berkshire Hathaway Inc., as discussed more fully in Albecca's Form 8-K as filed with the Securities and Exchange Commission on December 21, 2001. Additionally, the agreement included provisions whereby the shareholder would also sell to Berkshire Hathaway Inc. the corporate office building currently leased by the Company. The consummation of the transaction is subject to regulatory approval under the Hart-Scott-Rodino Antitrust Improvements Act (which approval was received on January 3, 2002) and, to the extent applicable, similar Canadian and European laws and to other customary conditions. Completion of the sale is anticipated during the Company's fiscal 2002 second quarter. Following the sale, Albecca expects its current management to remain in place. Section 4.13 of the Indenture dated August 11, 1998 among Albecca Inc. and State Street Bank and Trust, as trustee, related to the Company's senior subordinated notes states that upon a "Change of Control", as defined, each holder of notes has the right to require the Company to repurchase all or any part of the holder's notes at an offer price of 101% of the principal amount. Following the consummation of the transaction, the Company will notify holders of the senior subordinated notes of the Change of Control and offer to repurchase the notes in accordance with the requirements of the Indenture. Note 13. RECLASSIFICATIONS Certain prior period amounts have been reclassified to conform to the current period presentation, including amounts related to the Company's implementation of EITF 00-10, as more fully explained in the Recent Accounting Pronouncements section of Management's Discussion and Analysis of Financial Condition and Results of Operations. 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. 10 ALBECCA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (unaudited) CONDENSED CONSOLIDATING BALANCE SHEETS (in thousands)

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

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

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

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. In July and September 2000, the Emerging Issues Task Force (EITF) reached a consensus on Issue 00-10 "Accounting for Shipping and Handling Fees and Costs." EITF Issue 00-10 requires that all amounts billed to a customer in a sale transaction for shipping and handling be classified as sales, and recommends that shipping and handling expenses be classified as cost of sales. As required, the Company implemented EITF 00-10 during the fourth quarter of fiscal 2001. Prior to implementation, the Company classified most shipping and handling revenues and costs, on a net basis, in selling and administrative expense. Accordingly, these costs have been reclassified to sales and cost of sales for the current period and all prior periods presented as well as for the purposes of the Management's Discussion and Analysis of Financial Position and Results of Operations that follows. Costs reclassified to cost of sales for the purpose of EITF Issue 00-10 include all third party shipping expenses as well as variable handling costs such as shipping supplies. The following table sets forth certain consolidated statements of operations data as a percentage of net sales for the periods indicated:

NET SALES For the first quarter ended November 25, 2001, net sales were $80.5 million compared to $85.0 million for the first quarter ended November 26, 2000. The decrease in net sales for the three months ended November 25, 2001 was primarily the result of the continued weakness in the U.S. and Canadian economies, as well as the impact of the events of September 11, 2001. The impact of currency fluctuations during this period were negligible ($.1 million). U.S. net sales decreased 6.4% for the three months ended November 25, 2001 from the comparable period in fiscal 2001, primarily the result of decreased consumer purchases due to the slowing U.S. economy. However, the rate of the sales decline decelerated throughout the quarter. U.S. sales were also impacted by product discontinuation decisions made by the Company. International net sales decreased 3.2% for the three months ended November 25, 2001 from the comparable period in fiscal 2001, primarily due to a decrease in sales in Canada. Management believes that Canadian sales in the first quarter of fiscal 2002 followed the trend of decreased consumer purchases in the U.S. during the same period as the two economies are closely linked. International sales excluding Canada remained substantially unchanged for the first quarter of fiscal 2002 compared to the first quarter of fiscal 2001, with sales increases in France and Japan offset by sales declines in Finland, Korea and Italy. 15 COST OF SALES Cost of sales was $44.8 million for the three months ended November 25, 2001 compared to $47.9 million for the three months ended November 26, 2000. In the U.S., gross profit increased to 48.0% for the three months ended November 25, 2001 compared to 46.6% for the comparable period in fiscal 2001. The increase for the quarter was primarily the result of the continued shift in sales to core, branded products and away from lower margin products. For the three months ended November 25, 2001, International gross profit margin decreased slightly to 37.4% compared to 37.9% for the comparable period in fiscal 2001. This decrease was primarily the result a margin decline in Finland, Japan and Sweden, partially offset by increasing margins in France and the UK. OPERATING EXPENSES Operating expenses were $23.1 million for the three months ended November 25, 2001 compared to $23.7 million for the three months ended November 26, 2000. In the U.S., operating expenses as a percentage of net sales increased to 28.1% for the three months ended November 25, 2001 compared to 26.7% for the comparable period in fiscal 2001. Management continues to aggressively pursue cost control measures in the U.S. However, nonrecurring costs related to the sale of the Company and to management changes during the first quarter of fiscal 2002 were the primary drivers of the increase in operating expenses as a percentage of net sales in the U.S. For the three months ended November 25, 2001, International operating expenses as a percentage of net sales decreased slightly to 30.1% compared to 30.2% for the comparable period in fiscal 2001. The decrease in operating expenses as a percentage of sales for the quarter was primarily attributable to improved efficiency following restructuring activities in various European locations as well as a focused effort to control costs internationally. INTEREST INCOME Interest income was $1.9 million for the three months ended November 25, 2001 compared to $1.6 million for the three months ended November 26, 2000. The increase resulted primarily from the interest income associated with the Company's acquisition of its senior subordinated notes over the past 12 months. INTEREST EXPENSE Interest expense was $5.7 million for the three months ended November 25, 2001 compared to $5.9 million for the three months ended November 26, 2000. The decrease in interest expense for the three months ended November 25, 2001 is primarily due to the Company reducing 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 During the three months ended November 26, 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 of $.3 million, net of state income taxes of $.06 million. The Company did not repurchase any of its senior subordinated notes during the three months ended November 25, 2001. NET INCOME For the reasons set forth above, net income was $7.8 million for the three months ended November 25, 2001 compared to $8.1 million for the three months ended November 26, 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 November 25, 2001, the Company had cash and cash equivalents of $22.8 million compared to $19.1 million as of August 26, 2001. 16 Net cash provided by operating activities was $7.0 million for the three months ended November 25, 2001 compared to $9.7 million for the three months ended November 26, 2000. The decrease in net cash provided by operating activities versus the prior comparable period was primarily due to a significant decrease in accounts payable as a result of the Company's focus on managing its inventories during a period of slower sales, as well as the seasonal increase in accounts receivable being slightly higher in the first quarter of fiscal 2002 versus fiscal 2001. These items were partially offset by a reduction in inventory, as well as an increase in accrued liabilities, largely related to the timing of payments of certain recurring year-end related items between the two comparable periods, as well as a decrease in accruals related to the sale of the Brio business at the end of the first quarter of fiscal 2001 that did not recur in the first quarter of fiscal 2002. During the quarter, the Company, to facilitate the relocation of an officer, loaned certain amounts to the officer under a secured note. The note is anticipated to be repaid prior to the end of fiscal 2002. Net cash used in investing activities was $.7 million for the three months ended November 25, 2001 and for the three months ended November 26, 2000. Net cash used in financing activities decreased to $2.8 million for the three months ended November 25, 2001 compared to $7.3 million for the three months ended November 26, 2000, primarily due to a decrease in the amount of its senior subordinated debt repurchased by the Company during the first three months of fiscal 2002 compared to the prior comparable period. The Company made no repurchases of its senior subordinated debt during the three months ended November 25, 2001 compared to a repurchase of notes with a face value of $4.0 million for the three months ended November 26, 2000. As of November 25, 2001, the Company had outstanding indebtedness of approximately $151.0 million, consisting of $134.9 million in principal amount of the August 1998 senior subordinated debt and $16.1 million of other indebtedness. At August 26, 2001, the Company had outstanding indebtedness of approximately $151.2 million, consisting of $134.9 million in principal amount of the notes and $16.3 million of other indebtedness. 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. As required, the Company implemented EITF Issue 00-10 during the fourth quarter of fiscal 2001. Prior to implementation, the Company classified most shipping and handling revenues and costs, on a net basis, in selling and administrative expense. Accordingly, these costs were reclassified to sales and cost of sales for the current period and all prior periods presented. Costs reclassified to cost of sales for the purpose of EITF Issue 00-10 included all third party shipping expenses as well as variable handling costs such as shipping supplies. In July 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, eliminating the pooling-of-interests method. SFAS No. 141 also establishes criteria to be used in identifying intangible assets to be recognized separately from goodwill in an acquisition. SFAS No. 142 outlines the methods to be used to account for goodwill and other intangible assets after their acquisition. Specifically, goodwill and intangible assets with indefinite useful lives will no longer be amortized, but instead be tested for impairment annually. Intangible assets with definite useful lives will be amortized over their estimated useful life, which will no longer be limited to forty years. The Company intends to implement SFAS No. 142, as required, on the first day of fiscal 2003. Management is currently evaluating the effect of this Statement on the Company's financial position and results of operations. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This Statement addresses financial accounting and reporting for asset retirement costs of long-lived assets resulting from legal obligations associated with acquisition, construction or development transactions. As required, the Company plans to adopt SFAS No. 143 on the first day of fiscal 2003. The adoption of this Statement is not expected to have a material impact on the Company's financial position or results of operations. 17 In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This Statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of." This Statement clarifies accounting and reporting for assets held for sale, scheduled for abandonment or other disposal, and recognition of impairment loss related to the carrying value of long-lived assets. This Statement is effective for fiscal years beginning after December 15, 2001. The adoption of this Statement is not expected to have a material impact on the Company's financial position or results of operations. EUROPEAN UNION CURRENCY CONVERSION On January 1, 1999, eleven member nations of the European Economic and Monetary Union began using a common currency, the Euro. For a three-year transition period ending June 30, 2002, both the Euro and each of the currencies for such member countries will remain in circulation. After June 30, 2002, the Euro will be the sole legal tender for those countries. The adoption of the Euro will affect many financial systems and business applications as the commerce of those countries may be transacted both in the Euro and the existing national currency during the transition period. Historically, a significant portion of the Company's revenue has been generated in Europe. Of the countries currently using the Euro, the Company has subsidiary operations in Austria, Finland, France, Germany, Italy, and The Netherlands. The Company has assessed the potential impact of the Euro conversion in a number of areas, particularly on pricing and other marketing strategies. Although the Company does not currently expect that the conversion, either during or after the transition period, will have an adverse effect on its operations or financial condition, there can be no assurance that it will not have some unexpected adverse impact. FORWARD LOOKING STATEMENTS When used in this Form 10-Q and in future filings by the Company with the Securities and Exchange Commission and in its press releases, and in other written or oral statements made by the Company's representatives, the words and phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimates," "projects," "believes," "plans," "anticipates," "intends," "may," or similar expressions, are intended to identify "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements include, without limitation, the Company's expectations regarding sales, earnings, or other future financial performance and liquidity, and general statements about future operations and operating results. Although the Company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. Factors that could cause actual results to differ from expectations include, without limitation, (i) the timing and expense associated with, and effects of, cost-reduction and integration initiatives being implemented by the Company; (ii) general competitive factors and the overall financial condition of the custom framing industry, the retail industry and the general economy; (iii) change in retailer or consumer acceptance of the Company's products; (iv) consolidations and restructurings in the retail industry causing a decrease in the number of stores that sell the Company's products; (v) social, political, and economic risks to the Company's foreign operations and customers; (vi) changes in the laws, regulations, and policies, including changes in accounting standards, that affect, or will affect, the Company in the United States and internationally; (vii) shipment delays, depletion of inventory, service problems; and (viii) changes in product mix to ones which are less profitable. The Company assumes no responsibility to update forward-looking statements made herein or elsewhere. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes to the Company's disclosures related to certain market risks as reported under Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," in the Company's Form 10-K for the fiscal year ended August 26, 2001, as filed with the Securities and Exchange Commission. 18 PART II -- OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits:

b. Reports on Form 8-K: On December 21, 2001, the Company filed a Current Report on Form 8-K to report an agreement dated December 15, 2001 providing for the sale of all Albecca's issued and outstanding capital stock to Berkshire Hathaway Inc. by Albecca's sole shareholder Craig A. Ponzio. 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: January 9, 2002 By: /s/ Stephen E. McKenzie ---------------- ---------------------------------------- Stephen E. McKenzie President, Chief Executive Officer (Principal Executive Officer) Date: January 9, 2002 By: /s/ R. Bradley Goodson ---------------- ---------------------------------------- R. Bradley Goodson, Senior Vice President Finance, Chief Financial Officer (Principal Financial Officer) 20

ALBECCA INC 10-Q