##### Table of Contents



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 26, 2002.
|     |  |                                                                                                                                     
|     |  | or                                                                                                                                  
|     |  |                                                                                                                                     
|[  ] |  | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934                                            
|     |  | For the transition period from                     to                                                                               

Commission File Number: 333-67975

ALBECCA INC.
(Exact name of registrant as specified in its charter)

|                                                                      |  |                                               
|--------------------------------------------------------------------- |  | ----------------------------------------------
|GEORGIA(State or other jurisdiction of
incorporation or organization) |  | 39-1389732(I.R.S. Employer 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 [  ].





---

TABLE OF CONTENTS



|                               |                                                                                               |                                                           |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- | --------------------------------------------------------- |  |  |  |  |  | 
|Part I  Financial Information
|                               | Item 1. Financial Statements                                                                 
|                               |                                                                                               | CONSOLIDATED BALANCE SHEETS                              
|                               |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS                    
|                               |                                                                                               | CONSOLIDATED STATEMENTS OF SHAREHOLDERS (DEFICIT) EQUITY
|                               |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS                    
|                               |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS               
|                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                               | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|PART II  Other Information   
|                               | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                    



---



##### Table of Contents



ALBECCA INC.

INDEX TO FORM 10-Q

|                               |                                                                                               |                                                                    |                                                                                                                                     |    |          |   | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------- | -- | -------- | - | 
|                               |                                                                                               |                                                                    |                                                                                                                                     |    | Page No.
|                               |                                                                                               |                                                                    |                                                                                                                                     |    |         
|Part I  Financial Information |                                                                                               |                                                                    |                                                                                                                                     |   
|                               |                                                                                               |                                                                    |                                                                                                                                     |   
|                               | Item 1. Financial Statements                                                                  |                                                                    |                                                                                                                                     |    |         
|                               |                                                                                               |                                                                    |                                                                                                                                     |   
|                               |                                                                                               | Consolidated Balance Sheets as of August 26, 2001 and May 26, 2002 |                                                                                                                                     |    | 3        |  
|                               |                                                                                               |                                                                    |                                                                                                                                     |   
|                               |                                                                                               |                                                                    | Consolidated Statements of Operations for the three and nine months ended
May 27, 2001 and May 26, 2002                             |    |          | 4 | 
|                               |                                                                                               |                                                                    |                                                                                                                                     |   
|                               |                                                                                               |                                                                    | Consolidated Statements of Shareholders (Deficit) Equity for the year ended
August 26, 2001 and the nine months ended May 26, 2002 |    |          | 5 | 
|                               |                                                                                               |                                                                    |                                                                                                                                     |   
|                               |                                                                                               |                                                                    | Consolidated Statements of Cash Flows for the nine months ended
May 27, 2001 and May 26, 2002                                       |    |          | 6 | 
|                               |                                                                                               |                                                                    |                                                                                                                                     |   
|                               |                                                                                               |                                                                    | Notes to the Consolidated Financial Statements                                                                                      |    |          | 7 | 
|                               |                                                                                               |                                                                    |                                                                                                                                     |   
|                               | Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations |                                                                    |                                                                                                                                     | 16 |         
|                               |                                                                                               |                                                                    |                                                                                                                                     |   
|                               | Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                                    |                                                                                                                                     | 22 |         
|                               |                                                                                               |                                                                    |                                                                                                                                     |   
|Part II  Other Information    |                                                                                               |                                                                    |                                                                                                                                     |   
|                               |                                                                                               |                                                                    |                                                                                                                                     |   
|                               | Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                    |                                                                                                                                     | 23 |         
|                               |                                                                                               |                                                                    |                                                                                                                                     |   
|Signatures                     |                                                                                               |                                                                    | 24                                                                                                                                  |   

2



---



##### Table of Contents






Part I  Financial Information




Item 1. Financial Statements




ALBECCA INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

|                                        |                                                                                                                     |                                      |                                                |         |         |                 |         |              |         |  |  | 
|--------------------------------------- | ------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ---------------------------------------------- | ------- | ------- | --------------- | ------- | ------------ | ------- |  |  | 
|                                        |                                                                                                                     |                                      |                                                |         |         | August 26, 2001 |         | May 26, 2002
|                                        |                                                                                                                     |                                      |                                                |         |         |                 |         |             
|                                        |                                                                                                                     |                                      |                                                | ASSETS  |         |                 |         |              |         |  |  | 
|                                        |                                                                                                                     |                                      |                                                |         |         |                 |         |             
|CURRENT ASSETS:                         |                                                                                                                     |                                      |                                                |         |         |                 |         |             
|                                        | Cash and cash equivalents                                                                                           |                                      | $                                              | 19,146  |         |                 | $       | 29,014       |        
|                                        | Accounts receivable, less allowances for doubtful accounts of
$4,602 and $4,374 at August 26, 2001 and May 26, 2002 |                                      |                                                | 32,967  |         |                 |         | 33,853       |        
|                                        | Inventories                                                                                                         |                                      |                                                | 50,423  |         |                 |         | 47,808       |        
|                                        | Other current assets                                                                                                |                                      |                                                | 6,203   |         |                 |         | 11,691       |        
|                                        |                                                                                                                     |                                      |                                                |         |         |                 |         |             
|                                        |                                                                                                                     | Total current assets                 |                                                |         | 108,739 |                 |         |              | 122,366 | 
|PROPERTY, PLANT AND EQUIPMENT, net      |                                                                                                                     |                                      | 35,097                                         |         |         |                 | 39,389  |             
|DEFERRED INCOME TAXES                   |                                                                                                                     |                                      | 1,580                                          |         |         |                 | 93,020  |             
|GOODWILL                                |                                                                                                                     |                                      | 29,103                                         |         |         |                 | 28,574  |             
|OTHER LONG-TERM ASSETS                  |                                                                                                                     |                                      | 8,614                                          |         |         |                 | 6,822   |             
|                                        |                                                                                                                     |                                      |                                                |         |         |                 |         |             
|                                        |                                                                                                                     | $                                    | 183,133                                        |         |         | $               | 290,171 |             
|                                        |                                                                                                                     |                                      |                                                |         |         |                 |         |             
|                                        |                                                                                                                     |                                      |                                                |         |         |                 |         |             
|                                        |                                                                                                                     |                                      | LIABILITIES AND SHAREHOLDERS (DEFICIT) EQUITY |         |         |                 |         |              |         |  | 
|                                        |                                                                                                                     |                                      |                                                |         |         |                 |         |             
|CURRENT LIABILITIES:                    |                                                                                                                     |                                      |                                                |         |         |                 |         |             
|                                        | Current maturities of long-term debt                                                                                |                                      | $                                              | 5,917   |         |                 | $       | 4,695        |        
|                                        | Accounts payable                                                                                                    |                                      |                                                | 17,680  |         |                 |         | 13,491       |        
|                                        | Accrued liabilities                                                                                                 |                                      |                                                | 18,547  |         |                 |         | 27,771       |        
|                                        |                                                                                                                     |                                      |                                                |         |         |                 |         |             
|                                        |                                                                                                                     | Total current liabilities            |                                                |         | 42,144  |                 |         |              | 45,957  | 
|                                        |                                                                                                                     |                                      |                                                |         |         |                 |         |             
|LONG-TERM DEBT, less current maturities |                                                                                                                     |                                      | 145,240                                        |         |         |                 | 143,974 |             
|                                        |                                                                                                                     |                                      |                                                |         |         |                 |         |             
|OTHER LONG-TERM LIABILITIES             |                                                                                                                     |                                      | 8,976                                          |         |         |                 | 6,952   |             
|                                        |                                                                                                                     |                                      |                                                |         |         |                 |         |             
|                                        |                                                                                                                     |                                      |                                                |         |         |                 |         |             
|SHAREHOLDERS (DEFICIT) EQUITY:         |                                                                                                                     |                                      |                                                |         |         |                 |         |             
|                                        | Preferred stock                                                                                                     |                                      |                                                |        |         |                 |         |             |        
|                                        | Class A common stock                                                                                                |                                      |                                                | 4       |         |                 |         | 170          |        
|                                        | Class B common stock                                                                                                |                                      |                                                | 166     |         |                 |         |             |        
|                                        | Additional paid-in capital                                                                                          |                                      |                                                | 7,326   |         |                 |         | 101,503      |        
|                                        | Accumulated (deficit) earnings                                                                                      |                                      |                                                | (6,098  | )       |                 |         | 4,943        |        
|                                        | Accumulated other comprehensive loss  foreign currency translation adjustment                                      |                                      |                                                | (14,625 | )       |                 |         | (13,328      | )      
|                                        |                                                                                                                     |                                      |                                                |         |         |                 |         |             
|                                        |                                                                                                                     | Total shareholders (deficit) equity |                                                |         | (13,227 | )               |         |              | 93,288  | 
|                                        |                                                                                                                     |                                      |                                                |         |         |                 |         |             
|                                        |                                                                                                                     | $                                    | 183,133                                        |         |         | $               | 290,171 |             
|                                        |                                                                                                                     |                                      |                                                |         |         |                 |         |             

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

3



---



##### Table of Contents






ALBECCA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)

|                                                            |                                                                                           |            |        |                    |       |                   |        |              |       |              |         |         |        |   |         |         |        | 
|----------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ---------- | ------ | ------------------ | ----- | ----------------- | ------ | ------------ | ----- | ------------ | ------- | ------- | ------ | - | ------- | ------- | ------ | 
|                                                            |                                                                                           |            |        | Three months ended |       | Nine months ended
|                                                            |                                                                                           |            |        |                    |       |                  
|                                                            |                                                                                           |            |        | May 27, 2001       |       | May 26, 2002      |        | May 27, 2001 |       | May 26, 2002
|                                                            |                                                                                           |            |        |                    |       |                   |        |              |       |             
|Net sales                                                   |                                                                                           | $          | 76,122 |                    |       | $                 | 73,926 |              |       | $            | 242,508 |         |        | $ | 231,653 |        
|Cost of sales                                               |                                                                                           |            | 42,324 |                    |       |                   | 39,117 |              |       |              | 134,218 |         |        |   | 125,794 |        
|                                                            |                                                                                           |            |        |                    |       |                   |        |              |       |              |         |         |        |   |         |        
|                                                            | Gross profit                                                                              |            |        | 33,798             |       |                   |        | 34,809       |       |              |         | 108,290 |        |   |         | 105,859 |       
|Operating expenses                                          |                                                                                           |            | 21,468 |                    |       |                   | 23,875 |              |       |              | 68,998  |         |        |   | 74,721  |        
|                                                            |                                                                                           |            |        |                    |       |                   |        |              |       |              |         |         |        |   |         |        
|                                                            | Operating income                                                                          |            |        | 12,330             |       |                   |        | 10,934       |       |              |         | 39,292  |        |   |         | 31,138  |       
|Interest income                                             |                                                                                           |            | (1,954 | )                  |       |                   | (1,848 | )            |       |              | (5,435  | )       |        |   | (5,569  | )      
|Interest expense                                            |                                                                                           |            | 6,056  |                    |       |                   | 5,733  |              |       |              | 17,724  |         |        |   | 17,181  |        
|Other loss (income)                                         |                                                                                           |            | 422    |                    |       |                   | (532   | )            |       |              | 353     |         |        |   | (370    | )      
|                                                            |                                                                                           |            |        |                    |       |                   |        |              |       |              |         |         |        |   |         |        
|                                                            | Income before provision for income taxes,
minority interest and extraordinary (loss) gain |            |        | 7,806              |       |                   |        | 7,581        |       |              |         | 26,650  |        |   |         | 19,896  |       
|Income tax expense                                          |                                                                                           |            | 505    |                    |       |                   | 3,070  |              |       |              | 1,772   |         |        |   | 1,603   |        
|Minority interest                                           |                                                                                           |            | 35     |                    |       |                   | 38     |              |       |              | 89      |         |        |   | 86      |        
|                                                            |                                                                                           |            |        |                    |       |                   |        |              |       |              |         |         |        |   |         |        
|                                                            | Income before extraordinary (loss) gain                                                   |            |        | 7,266              |       |                   |        | 4,473        |       |              |         | 24,789  |        |   |         | 18,207  |       
|Extraordinary (loss) gain on repurchase of debt, net of tax |                                                                                           |            | (157   | )                  |       |                   |       |              |       |              | 341     |         |        |   |        |        
|                                                            |                                                                                           |            |        |                    |       |                   |        |              |       |              |         |         |        |   |         |        
|                                                            |                                                                                           | Net income |        | $                  | 7,109 |                   |        | $            | 4,473 |              |         | $       | 25,130 |   |         | $       | 18,207 | 
|                                                            |                                                                                           |            |        |                    |       |                   |        |              |       |              |         |         |        |   |         |        

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

4



---



##### Table of Contents






ALBECCA INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS (DEFICIT) EQUITY
(in thousands, except share data)
(unaudited)

|                         |                                                                 |                                                                      |            |              |   |              |     |            |   |             |            |               |   |          |     |               |   |       |         |        |   |   |         |         |   |   |         |             |       |   |         |         |        | 
|------------------------ | --------------------------------------------------------------- | -------------------------------------------------------------------- | ---------- | ------------ | - | ------------ | --- | ---------- | - | ----------- | ---------- | ------------- | - | -------- | --- | ------------- | - | ----- | ------- | ------ | - | - | ------- | ------- | - | - | ------- | ----------- | ----- | - | ------- | ------- | ------ | 
|                         |                                                                 |                                                                      |            |              |   |              |     |            |   |             |            |               |   |          |     |               |   |       |         |        |   |   |         |         |   |   |         | Accumulated |       |   |         |        
|                         |                                                                 |                                                                      |            | Class A      |   | Class B      |     | Additional |   | Accumulated |            | Other         |   |          |     |              
|                         |                                                                 |                                                                      |            | Common Stock |   | Common Stock |     | Paid-In    |   | (Deficit)   |            | Comprehensive |   |          |     |              
|                         |                                                                 |                                                                      |            | Shares       |   | Amount       |     | Shares     |   | Amount      |            | Capital       |   | Earnings |     | (Loss) Income |   | Total
|                         |                                                                 |                                                                      |            |              |   |              |     |            |   |             |            |               |   |          |     |               |   |      
|BALANCE, August 27, 2000 |                                                                 |                                                                      | 374,000    |              |   | $            | 4   |            |   |             | 16,626,000 |               |   | $        | 166 |               |   | $     | 7,326   |        |   | $ | (23,578 | )       |   | $ | (13,795 | )           |       | $ | (29,877 | )      
|                         | Net income                                                      |                                                                      |            |             |   |              |     |           |   |             |            |              |   |          |     |              |   |       |         |       |   |   |         | 31,580  |   |   |         |            |       |   |         |         |       
|                         |                                                                 | Other comprehensive loss  foreign
currency translation adjustment   |            |              |  |              |     |            |  |             |            |               |  |          |     |               |  |       |         |        |  |   |         |         |  |   |         |             | (830  | ) |         |         |        | 
|                         |                                                                 | Total comprehensive income                                           |            |              |   |              |     |            |   |             |            |               |   |          |     |               |   |       |         |        |   |   |         |         |   |   |         |             |       |   |         |         | 30,750 | 
|                         | Distribution to shareholders                                    |                                                                      |            |             |   |              |     |           |   |             |            |              |   |          |     |              |   |       |         |       |   |   |         | (14,100 | ) |   |         |            |       |   |         | (14,100 | )     
|                         |                                                                 |                                                                      |            |              |   |              |     |            |   |             |            |               |   |          |     |               |   |       |         |        |   |   |         |         |   |   |         |             |       |   |         |        
|BALANCE, August 26, 2001 |                                                                 |                                                                      | 374,000    |              |   |              | 4   |            |   |             | 16,626,000 |               |   |          | 166 |               |   |       | 7,326   |        |   |   | (6,098  | )       |   |   | (14,625 | )           |       |   | (13,227 | )      
|                         |                                                                 |                                                                      |            |              |   |              |     |            |   |             |            |               |   |          |     |               |   |       |         |        |   |   |         |         |   |   |         |             |       |   |         |        
|                         | Net income                                                      |                                                                      |            |             |   |              |     |           |   |             |            |              |   |          |     |              |   |       |         |       |   |   |         | 18,207  |   |   |         |            |       |   |         |         |       
|                         |                                                                 | Other comprehensive income  foreign
currency translation adjustment |            |              |  |              |     |            |  |             |            |               |  |          |     |               |  |       |         |        |  |   |         |         |  |   |         |             | 1,297 |   |         |         |        | 
|                         |                                                                 | Total comprehensive income                                           |            |              |   |              |     |            |   |             |            |               |   |          |     |               |   |       |         |        |   |   |         |         |   |   |         |             |       |   |         |         | 19,504 | 
|                         | Distribution to shareholder                                     |                                                                      |            |             |   |              |     |           |   |             |            |              |   |          |     |              |   |       |         |       |   |   |         | (7,166  | ) |   |         |            |       |   |         | (7,166  | )     
|                         | Recognition of deferred taxes upon
change in ownership (Note 2) |                                                                      |            |             |   |              |     |           |   |             |            |              |   |          |     |              |   |       |         | 94,177 |   |   |         |        |   |   |         |            |       |   |         | 94,177  |       
|                         | Conversion of Class B Common
Stock to Class A Common Stock      |                                                                      |            | 16,626,000   |   |              |     | 166        |   |             |            | (16,626,000   | ) |          |     | (166          | ) |       |         |       |   |   |         |        |   |   |         |            |       |   |         |        |       
|                         |                                                                 |                                                                      |            |              |   |              |     |            |   |             |            |               |   |          |     |               |   |       |         |        |   |   |         |         |   |   |         |             |       |   |         |        
|BALANCE, May 26, 2002    |                                                                 |                                                                      | 17,000,000 |              |   | $            | 170 |            |   |             |           |               |   | $        |    |               |   | $     | 101,503 |        |   | $ | 4,943   |         |   | $ | (13,328 | )           |       | $ | 93,288  |        
|                         |                                                                 |                                                                      |            |              |   |              |     |            |   |             |            |               |   |          |     |               |   |       |         |        |   |   |         |         |   |   |         |             |       |   |         |        

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

5



---



##### Table of Contents






ALBECCA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

|                                               |                                                                                   |                                                   |                      |                                           |       |                   |         |              |       |        |        |  
|---------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------- | -------------------- | ----------------------------------------- | ----- | ----------------- | ------- | ------------ | ----- | ------ | ------ | -
|                                               |                                                                                   |                                                   |                      |                                           |       | Nine months ended
|                                               |                                                                                   |                                                   |                      |                                           |       |                  
|                                               |                                                                                   |                                                   |                      |                                           |       | May 27, 2001      |         | May 26, 2002
|                                               |                                                                                   |                                                   |                      |                                           |       |                   |         |             
|NET CASH PROVIDED BY OPERATING ACTIVITIES:     |                                                                                   |                                                   |                      |                                           |       |                   |         |             
|                                               | Net income                                                                        |                                                   | $                    | 25,130                                    |       |                   | $       | 17,955       |      
|                                               | Adjustments to reconcile net income to net cash
provided by operating activities: |                                                   |                      |                                           |       |                   |         |              |      
|                                               |                                                                                   | Minority interest                                 |                      |                                           | 89    |                   |         |              | 86    |       
|                                               |                                                                                   | Depreciation and amortization                     |                      |                                           | 3,847 |                   |         |              | 3,979 |       
|                                               |                                                                                   | Gain on disposal of property, plant and equipment |                      |                                           | (191  | )                 |         |              | (238  | )     
|                                               |                                                                                   | Deferred taxes                                    |                      |                                           |      |                   |         |              | 444   |       
|                                               |                                                                                   | Extraordinary gain on repurchase of debt          |                      |                                           | (341  | )                 |         |              |      |       
|                                               |                                                                                   | Changes in operating assets and liabilities:      |                      |                                           |       |                   |         |              |       |       
|                                               |                                                                                   |                                                   | Accounts receivable  |                                           |       | 1,412             |         |              |       | (773   | )     
|                                               |                                                                                   |                                                   | Inventories          |                                           |       | (2,189            | )       |              |       | 3,193  |       
|                                               |                                                                                   |                                                   | Other current assets |                                           |       | (1,886            | )       |              |       | (2,584 | )     
|                                               |                                                                                   |                                                   | Accounts payable     |                                           |       | (397              | )       |              |       | (4,121 | )     
|                                               |                                                                                   |                                                   | Accrued liabilities  |                                           |       | (249              | )       |              |       | 9,331  |       
|                                               |                                                                                   |                                                   | Other                |                                           |       | 1,260             |         |              |       | (2,811 | )     
|                                               |                                                                                   |                                                   |                      |                                           |       |                   |         |              |      
|                                               |                                                                                   |                                                   |                      | Net cash provided by operating activities |       |                   | 26,485  |              |       |        | 24,461 |  
|                                               |                                                                                   |                                                   |                      |                                           |       |                   |         |             
|                                               |                                                                                   |                                                   |                      |                                           |       |                   |         |             
|CASH FLOWS FROM INVESTING ACTIVITIES:          |                                                                                   |                                                   |                      |                                           |       |                   |         |             
|                                               | Purchases of property, plant and equipment                                        |                                                   |                      | (2,065                                    | )     |                   |         | (7,518       | )    
|                                               | Proceeds from sales of property, plant and equipment                              |                                                   |                      | 1,355                                     |       |                   |         | 1,634        |      
|                                               | Changes in other long-term assets                                                 |                                                   |                      | 44                                        |       |                   |         | 1,289        |      
|                                               |                                                                                   |                                                   |                      |                                           |       |                   |         |              |      
|                                               |                                                                                   |                                                   |                      | Net cash used in investing activities     |       |                   | (666    | )            |       |        | (4,595 | )
|                                               |                                                                                   |                                                   |                      |                                           |       |                   |         |             
|                                               |                                                                                   |                                                   |                      |                                           |       |                   |         |             
|CASH FLOWS FROM FINANCING ACTIVITIES:          |                                                                                   |                                                   |                      |                                           |       |                   |         |             
|                                               | Proceeds from revolving credit facilities                                         |                                                   |                      | 16,200                                    |       |                   |         | 12,848       |      
|                                               | Repayments of revolving credit facilities                                         |                                                   |                      | (15,801                                   | )     |                   |         | (12,901      | )    
|                                               | Proceeds from long-term debt                                                      |                                                   |                      | 1,335                                     |       |                   |         | 287          |      
|                                               | Repayments of long-term debt                                                      |                                                   |                      | (18,290                                   | )     |                   |         | (2,859       | )    
|                                               | Distributions to shareholders                                                     |                                                   |                      | (9,600                                    | )     |                   |         | (7,166       | )    
|                                               |                                                                                   |                                                   |                      |                                           |       |                   |         |              |      
|                                               |                                                                                   |                                                   |                      | Net cash used in financing activities     |       |                   | (26,156 | )            |       |        | (9,791 | )
|                                               |                                                                                   |                                                   |                      |                                           |       |                   |         |             
|EFFECT OF EXCHANGE RATE ON CASH                |                                                                                   |                                                   | 442                  |                                           |       |                   | (207    | )           
|                                               |                                                                                   |                                                   |                      |                                           |       |                   |         |             
|                                               |                                                                                   |                                                   |                      |                                           |       |                   |         |             
|NET INCREASE IN CASH AND CASH EQUIVALENTS      |                                                                                   |                                                   | 105                  |                                           |       |                   | 9,868   |             
|Cash and cash equivalents, beginning of period |                                                                                   |                                                   | 23,321               |                                           |       |                   | 19,146  |             
|                                               |                                                                                   |                                                   |                      |                                           |       |                   |         |              |      
|Cash and cash equivalents, end of period       |                                                                                   | $                                                 | 23,426               |                                           |       | $                 | 29,014  |             
|                                               |                                                                                   |                                                   |                      |                                           |       |                   |         |             
|                                               |                                                                                   |                                                   |                      |                                           |       |                   |         |             
|SUPPLEMENTAL INFORMATION:                      |                                                                                   |                                                   |                      |                                           |       |                   |         |             
|                                               | Interest paid                                                                     |                                                   | $                    | 12,263                                    |       |                   | $       | 11,961       |      
|                                               |                                                                                   |                                                   |                      |                                           |       |                   |         |             
|                                               | Income taxes paid                                                                 |                                                   | $                    | 3,365                                     |       |                   | $       | 2,588        |      
|                                               |                                                                                   |                                                   |                      |                                           |       |                   |         |             

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

6



---



##### Table of Contents






ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1. Change in Ownership

On February 8, 2002, Albecca Inc. and its subsidiaries (the Company,
Albecca) were acquired by Berkshire Hathaway Inc. (Berkshire), a Delaware
holding company owning subsidiaries engaged in a number of diverse business
activities. Under the terms of the Purchase and Sale Agreement, all of the
outstanding shares of common stock of Albecca were acquired from its sole
shareholder for cash consideration of $223,425,000. As part of the
transaction, all Class B common shares were converted to Class A common shares.

In connection with the acquisition, the Company has incurred and expensed
transaction-related expenditures of approximately $5,569,000, consisting of
$536,000 for legal fees and other professional fees, $1,939,000 for the
accelerated vesting of stock options due to change of control provisions, a
one-time discretionary $1,000,000 contribution to the Companys 401(K) plan for
the benefit of all plan participants, and $2,094,000 for other compensation
arrangements. Additionally, the Company will accrue and expense additional
compensation amounts over related vesting periods of 12- and 24-months from the
transaction date totaling $6,930,000. The Company expensed approximately
$1,251,000 and $1,396,000 of such amounts during the three and nine months
ended May 26, 2002, respectively. Based on the above, expenses of $1,321,000
and $6,965,000 are reflected in operating expenses within the accompanying
statement of operations for the three and nine months ended May 26, 2002,
respectively.

Note 2. Significant Accounting Policies

Basis of Interim Financial Statement Presentation

As permitted under Staff Accounting Bulletin (SAB) No. 54, Push Down
Basis of Accounting Required in Certain Limited Circumstances, the Company
elected not to apply push down accounting in its consolidated financial
statements as it is a public registrant as a result of public debt that was
outstanding prior to the acquisition. As such, the accompanying consolidated
financial statements are reported on the Companys historical cost basis. If
push down accounting had been elected, the Company would have been required to
establish a new basis for its assets and liabilities based on the amount of
consideration paid and the fair value of the acquired assets and liabilities as
of the date of acquisition.

The unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information. Accordingly, the unaudited interim
consolidated financial statements do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, all
adjustments (consisting of only normal recurring adjustments) considered
necessary for a fair presentation have been included. On a quarterly basis,
the Companys results may vary. The results of operations for any interim
period are not necessarily indicative of the results of operations to be
expected for a full year. For further information, refer to the consolidated
financial statements and accompanying footnotes included in the Companys Form
10-K for the fiscal year ended August 26, 2001, as filed with the Securities
and Exchange Commission.

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.

Principles of Consolidation

The consolidated financial statements include the accounts of Albecca and
its subsidiaries. All significant intercompany transactions have been
eliminated. Minority interest represents minority shareholders interest in
majority-owned subsidiaries.

Revenue Recognition

Sales are recognized upon the shipment of finished goods to customers.
Allowances for cash discounts and returns are recorded in the period in which
the related sale is recognized.

7



---



##### Table of Contents



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

Income Taxes

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and tax credit carryforwards. Deferred tax assets and liabilities are
measured using statutory tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.

Prior to the acquisition, the Company was treated as a S corporation for
federal income tax purposes and several of its subsidiaries were classified as
either partnerships or single member entities. As such, these entities were not
subject to federal, and certain state, income taxes. Instead, the related
taxable income was included in the tax returns of the shareholders and members
of the respective entities. The Company made distributions to its shareholders
to pay income tax obligations as a result of the Companys status as a S
corporation.

Albeccas S corporation status automatically terminated upon the closing
of the acquisition and the Company became subject to entity level taxes at C
corporation tax rates for federal income tax purposes. The single member
entities and partnerships will retain their tax entity status and continue to
have their results combined with Albeccas, which consolidated federal income
will be included in Berkshires consolidated federal income tax filing. Even
though the Company is now a subsidiary of Berkshire Hathaway, its federal and
state income taxes are computed as if it was a stand-alone entity. The foreign
subsidiaries not included in the Companys federal income tax filings were not
impacted by this conversion.

In the Purchase and Sale Agreement, Berkshire and the former sole
shareholder have agreed to jointly elect to treat the sale of the Company for
federal and certain state income tax purposes as an asset acquisition under
section 338(h)(10) (the 338 election) of the Internal Revenue Code of 1986,
as amended. A preliminary allocation of the purchase price to the tax basis of
assets and liabilities based on their respective estimated fair values at
February 8, 2002 has been made for income tax purposes. As a result of the 338
election, the automatic termination of S corporation status for federal income
tax purposes and the Companys election not to push down the accounting
associated with the acquisition, the Company initially recorded a deferred tax
asset of approximately $85,076,000. This net deferred tax asset, which
primarily consists of tax deductible goodwill, results from the excess of the
adjusted tax basis over the historical cost basis of the Companys assets and
liabilities for financial reporting purposes. A corresponding credit was made
to additional paid-in capital in accordance with Emerging Issues Task Force
(EITF) 94-10, Accounting by a Company for the Income Tax Effects of
Transactions Among or with its Shareholders Under FASB Statement 109. The
deferred tax asset was adjusted to $94,177,000 during the third quarter of
fiscal 2002 as a result of refinement of the tax purchase price allocation
among the assets and liabilities of the Company. As the allocation of the
purchase price to the acquired assets is subject to change in upcoming periods
as appraisals and other allocation methods are finalized, additional changes to
additional paid-in capital may occur. The Company anticipates finalizing the
purchase price allocation by the end of calendar year 2002.

Reclassifications

Certain prior period amounts have been reclassified to conform to the
current period presentation, including amounts related to the Companys
implementation of EITF 00-10, Accounting for Shipping and Handling Fees and
Costs, as more fully explained in the Recent Accounting Pronouncements section
of Managements Discussion and Analysis of Financial Condition and Results of
Operations.

Note 3. Other Loss (Income)

During fiscal 2002, the Company received a dividend of shares from
Prudential Financial as a result of the insurance companys conversion from a
mutual company to a stock company. The value of the shares at the time of
issuance was $232,000, which was reflected in other income on the consolidated
statement of operations for the nine months ended May 26, 2002. The remaining
other loss (income) 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 7.

Note 4. 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 an extraordinary gain of $341,000, net of state
income taxes of $12,000. The Company did not repurchase any of its senior
subordinated notes during the nine months ended May 26, 2002.

8



---



##### Table of Contents



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

Note 5. Inventories

Inventories consist of the following (in thousands):

|                |  |                 |        |              |  |   |        | 
|--------------- |  | --------------- | ------ | ------------ |  | - | ------ | 
|                |  | August 26, 2001 |        | May 26, 2002
|                |  |                 |        |             
|Raw materials   |  | $               | 6,218  |              |  | $ | 6,500  | 
|Work in process |  |                 | 1,812  |              |  |   | 2,204  | 
|Finished goods  |  |                 | 42,393 |              |  |   | 39,104 | 
|                |  |                 |        |              |  |   |        | 
|                |  | $               | 50,423 |              |  | $ | 47,808 | 
|                |  |                 |        |              |  |   |        | 

Note 6. Comprehensive Income

Comprehensive income for the Company is as follows (in thousands):

|                                         |  |                    |        |                   |  |              |       |              |  |   |        |   |  |   |        | 
|---------------------------------------- |  | ------------------ | ------ | ----------------- |  | ------------ | ----- | ------------ |  | - | ------ | - |  | - | ------ | 
|                                         |  | Three months ended |        | Nine months ended
|                                         |  |                    |        |                  
|                                         |  | May 27, 2001       |        | May 26, 2002      |  | May 27, 2001 |       | May 26, 2002
|                                         |  |                    |        |                   |  |              |       |             
|Net income, as reported                  |  | $                  | 7,109  |                   |  | $            | 4,473 |              |  | $ | 25,130 |   |  | $ | 18,207 | 
|Foreign currency translation adjustments |  |                    | (2,084 | )                 |  |              | 2,679 |              |  |   | (2,533 | ) |  |   | 1,297  | 
|                                         |  |                    |        |                   |  |              |       |              |  |   |        |   |  |   |        | 
|Total comprehensive income               |  | $                  | 5,025  |                   |  | $            | 7,152 |              |  | $ | 22,597 |   |  | $ | 19,504 | 
|                                         |  |                    |        |                   |  |              |       |              |  |   |        |   |  |   |        | 

Accumulated other comprehensive loss represents foreign currency
translation adjustments of $14,625 and $13,328 at August 26, 2001 and May 26,
2002, respectively.

Note 7. 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, 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 designated as 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, as amended, on August 28, 2000. The adoption was
not material to the consolidated financial statements.

The Company has historically entered into forward exchange contracts to
reduce the foreign currency exchange risks associated with its committed and
anticipated foreign currency denominated purchases. Its U.S. operations
purchase primarily Euro forward exchange contracts and its United Kingdom
subsidiary primarily enters into U.S. dollar and Euro forward exchange
contracts. Contracts used are not designated as hedges under SFAS
133, as amended,
and accordingly are marked to market through earnings.

The carrying amount of derivatives at fair value as of May 26, 2002 was a
net asset of $21,000. During the nine months ended May 26, 2002 a gain of
$13,000 was recorded in the accompanying statement of operations, net of tax,
representing the change in fair value of the derivatives. As of May 26, 2002
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.

9



---



##### Table of Contents



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

Note 8. 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 9. Related Party Transactions

Pursuant to the Purchase and Sale Agreement between the Company and
Berkshire, the Company acquired, during the second quarter of fiscal 2002, the
corporate headquarters office building in Norcross, Georgia for $5,575,000 from
an entity controlled by the selling shareholder of the Company. The purchase
price was based on a recent third-party appraisal. In addition, under the
terms of the agreement, the selling shareholder is required to reimburse the
Company for certain state income taxes resulting from the 338 election. In
connection with this obligation, the Company has recorded, on a preliminary
basis, a receivable due from the former shareholder of approximately
$2,209,000. This amount has been adjusted from the $1,050,000 receivable
reflected in the Companys second quarter 10Q filing as a result of refinement
of the estimated taxable gain on the transaction and the associated state tax
liabilities.

Note 10. Geographic Information

Albecca primarily manages its business geographically. The geographic
regions are organized into the following categories: United States, Canada and
International. These segments represent the informational format of internal
management reporting used by the chief decision-maker. Relevant data for these
reportable segments is presented below (in thousands):

|                        |                  |   |                                |        |                                |   |               |       |       |   |               |       |        |   |               |        |       |   |         |        |  |   |        |       |  |   |        |       |  |   |         |        | 
|----------------------- | ---------------- | - | ------------------------------ | ------ | ------------------------------ | - | ------------- | ----- | ----- | - | ------------- | ----- | ------ | - | ------------- | ------ | ----- | - | ------- | ------ |  | - | ------ | ----- |  | - | ------ | ----- |  | - | ------- | ------ | 
|                        |                  |   | Nine months ended May 27, 2001 |        | Nine months ended May 26, 2002
|                        |                  |   |                                |        |                                |  
|                        |                  |   | United States                  |        | Canada                         |   | International |       | Total |   | United States |       | Canada |   | International |        | Total
|                        |                  |   |                                |        |                                |   |               |       |       |   |               |       |        |   |               |        |      
|Net sales, aggregate    |                  | $ | 164,117                        |        |                                | $ | 20,238        |       |       | $ | 68,173        |       |        | $ | 252,528       |        |       | $ | 158,596 |        |  | $ | 18,107 |       |  | $ | 63,414 |       |  | $ | 240,117 |       
|Net sales, intersegment |                  |   | 2,087                          |        |                                |   | 2,852         |       |       |   | 5,081         |       |        |   | 10,020        |        |       |   | 1,917   |        |  |   | 2,747  |       |  |   | 3,800  |       |  |   | 8,464   |       
|                        |                  |   |                                |        |                                |   |               |       |       |   |               |       |        |   |               |        |       |   |         |        |  |   |        |       |  |   |        |       |  |   |         |       
|Net sales, external     |                  |   | 162,030                        |        |                                |   | 17,386        |       |       |   | 63,092        |       |        |   | 242,508       |        |       |   | 156,679 |        |  |   | 15,360 |       |  |   | 59,614 |       |  |   | 231,653 |       
|                        |                  |   |                                |        |                                |   |               |       |       |   |               |       |        |   |               |        |       |   |         |        |  |   |        |       |  |   |        |       |  |   |         |       
|                        | Operating income |   | $                              | 34,682 |                                |   | $             | 1,281 |       |   | $             | 3,329 |        |   | $             | 39,292 |       |   | $       | 26,462 |  |   | $      | 1,454 |  |   | $      | 3,222 |  |   | $       | 31,138 | 
|                        |                  |   |                                |        |                                |   |               |       |       |   |               |       |        |   |               |        |       |   |         |        |  |   |        |       |  |   |        |       |  |   |         |       

|                        |                  |   |                                 |        |                                 |   |               |     |       |   |               |     |        |   |               |        |       |   |        |       |  |   |       |     |  |   |        |       |  |   |        |        | 
|----------------------- | ---------------- | - | ------------------------------- | ------ | ------------------------------- | - | ------------- | --- | ----- | - | ------------- | --- | ------ | - | ------------- | ------ | ----- | - | ------ | ----- |  | - | ----- | --- |  | - | ------ | ----- |  | - | ------ | ------ | 
|                        |                  |   | Three months ended May 27, 2001 |        | Three months ended May 26, 2002
|                        |                  |   |                                 |        |                                 |  
|                        |                  |   | United States                   |        | Canada                          |   | International |     | Total |   | United States |     | Canada |   | International |        | Total
|                        |                  |   |                                 |        |                                 |   |               |     |       |   |               |     |        |   |               |        |      
|Net sales, aggregate    |                  | $ | 51,335                          |        |                                 | $ | 6,266         |     |       | $ | 22,255        |     |        | $ | 79,856        |        |       | $ | 50,452 |       |  | $ | 6,187 |     |  | $ | 20,862 |       |  | $ | 77,501 |       
|Net sales, intersegment |                  |   | 805                             |        |                                 |   | 828           |     |       |   | 2,101         |     |        |   | 3,734         |        |       |   | 640    |       |  |   | 1,214 |     |  |   | 1,721  |       |  |   | 3,575  |       
|                        |                  |   |                                 |        |                                 |   |               |     |       |   |               |     |        |   |               |        |       |   |        |       |  |   |       |     |  |   |        |       |  |   |        |       
|Net sales, external     |                  |   | 50,530                          |        |                                 |   | 5,438         |     |       |   | 20,154        |     |        |   | 76,122        |        |       |   | 49,812 |       |  |   | 4,973 |     |  |   | 19,141 |       |  |   | 73,926 |       
|                        |                  |   |                                 |        |                                 |   |               |     |       |   |               |     |        |   |               |        |       |   |        |       |  |   |       |     |  |   |        |       |  |   |        |       
|                        | Operating income |   | $                               | 11,211 |                                 |   | $             | 150 |       |   | $             | 969 |        |   | $             | 12,330 |       |   | $      | 9,036 |  |   | $     | 680 |  |   | $      | 1,218 |  |   | $      | 10,934 | 
|                        |                  |   |                                 |        |                                 |   |               |     |       |   |               |     |        |   |               |        |       |   |        |       |  |   |       |     |  |   |        |       |  |   |        |       

Note 11. 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



---



##### Table of Contents



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

CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)

|                                        |                                                |                                      |                           |         |         |              |         |                       |         |               |         |                     |         |              |          |              |              |          |         |         |        |         |  | 
|--------------------------------------- | ---------------------------------------------- | ------------------------------------ | ------------------------- | ------- | ------- | ------------ | ------- | --------------------- | ------- | ------------- | ------- | ------------------- | ------- | ------------ | -------- | ------------ | ------------ | -------- | ------- | ------- | ------ | ------- |  | 
|                                        |                                                |                                      |                           |         |         |              |         |                       |         |               |         |                     |         | May 26, 2002 |          |              |              |          |         |         |        |        
|                                        |                                                |                                      |                           |         |        
|                                        |                                                |                                      |                           |         |         |              |         |                       |         |               |         |                     |         | Subsidiary   |          | Consolidated | Consolidated
|                                        |                                                |                                      |                           |         |         | Albecca Inc. |         | Subsidiary Guarantors |         | Nonguarantors |         | Elimination Entries |         | Total       
|                                        |                                                |                                      |                           |         |         |              |         |                       |         |               |         |                     |         |             
|                                        |                                                |                                      |                           | ASSETS  |         |              |         |                       |         |               |         |                     |         |              |          |              |              |          |         |         |        |         |  | 
|CURRENT ASSETS:                         |                                                |                                      |                           |         |         |              |         |                       |         |               |         |                     |         |              |          |              |              |          |         |        
|                                        | Cash and cash equivalents                      |                                      | $                         | 20,434  |         |              | $       | 947                   |         |               | $       | 7,633               |         |              | $        |             |              |          | $       | 29,014  |       
|                                        | Accounts receivable, net                       |                                      |                           |        |         |              |         | 19,412                |         |               |         | 14,441              |         |              |          |             |              |          |         | 33,853  |       
|                                        | Intercompany accounts receivable               |                                      |                           |        |         |              |         | 135,072               |         |               |         | 1,811               |         |              |          | (136,883     | )            |          |         |        |       
|                                        | Inventories                                    |                                      |                           |        |         |              |         | 24,625                |         |               |         | 23,183              |         |              |          |             |              |          |         | 47,808  |       
|                                        | Other current assets                           |                                      |                           | 6,923   |         |              |         | 1,260                 |         |               |         | 3,508               |         |              |          |             |              |          |         | 11,691  |       
|                                        |                                                |                                      |                           |         |         |              |         |                       |         |               |         |                     |         |              |          |              |              |          |         |        
|                                        |                                                |                                      | Total current assets      |         |         | 27,357       |         |                       |         | 181,316       |         |                     |         | 50,576       |          |              |              | (136,883 | )       |         |        | 122,366 | 
|PROPERTY, PLANT AND EQUIPMENT, net      |                                                |                                      |                          |         |         |              | 15,989  |                       |         |               | 23,400  |                     |         |              |         |              |              |          | 39,389  |        
|DEFERRED INCOME TAXES                   |                                                |                                      | 91,498                    |         |         |              |        |                       |         |               | 1,522   |                     |         |              |         |              |              |          | 93,020  |        
|GOODWILL                                |                                                |                                      |                          |         |         |              | 10,423  |                       |         |               | 18,151  |                     |         |              |         |              |              |          | 28,574  |        
|OTHER LONG-TERM ASSETS                  |                                                |                                      | 3,857                     |         |         |              | 1,947   |                       |         |               | 1,018   |                     |         |              |         |              |              |          | 6,822   |        
|INVESTMENT IN SUBSIDIARIES              |                                                |                                      | 183,031                   |         |         |              |        |                       |         |               | 7,885   |                     |         |              | (190,916 | )            |              |          |        |        
|INTERCOMPANY LOANS RECEIVABLE           |                                                |                                      | 88,429                    |         |         |              |        |                       |         |               | 370     |                     |         |              | (88,799  | )            |              |          |        |        
|                                        |                                                |                                      |                           |         |         |              |         |                       |         |               |         |                     |         |              |          |              |              |          |         |         |       
|                                        |                                                | $                                    | 394,172                   |         |         | $            | 209,675 |                       |         | $             | 102,922 |                     |         | $            | (416,598 | )            |              | $        | 290,171 |        
|                                        |                                                |                                      |                           |         |         |              |         |                       |         |               |         |                     |         |              |          |              |              |          |         |        
|                                        | LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT) |                                     
|CURRENT LIABILITIES:                    |                                                |                                      |                           |         |         |              |         |                       |         |               |         |                     |         |              |          |              |              |          |         |        
|                                        | Current maturities of long-term debt           |                                      | $                         |        |         |              | $       | 862                   |         |               | $       | 3,833               |         |              | $        |             |              |          | $       | 4,695   |       
|                                        | Accounts payable                               |                                      |                           |        |         |              |         | 6,797                 |         |               |         | 6,694               |         |              |          |             |              |          |         | 13,491  |       
|                                        | Intercompany accounts payable                  |                                      |                           | 130,739 |         |              |         | 1,016                 |         |               |         | 5,128               |         |              |          | (136,883     | )            |          |         |        |       
|                                        | Accrued liabilities                            |                                      |                           | 6,658   |         |              |         | 10,547                |         |               |         | 10,566              |         |              |          |             |              |          |         | 27,771  |       
|                                        |                                                |                                      |                           |         |         |              |         |                       |         |               |         |                     |         |              |          |              |              |          |         |         |       
|                                        |                                                |                                      | Total current liabilities |         |         | 137,397      |         |                       |         | 19,222        |         |                     |         | 26,221       |          |              |              | (136,883 | )       |         |        | 45,957  | 
|                                        |                                                |                                      |                           |         |         |              |         |                       |         |               |         |                     |         |              |          |              |              |          |         |        
|LONG-TERM DEBT, less current maturities |                                                |                                      | 134,930                   |         |         |              | 5,595   |                       |         |               | 3,449   |                     |         |              |         |              |              |          | 143,974 |        
|                                        |                                                |                                      |                           |         |         |              |         |                       |         |               |         |                     |         |              |          |              |              |          |         |        
|INTERCOMPANY LOANS PAYABLE              |                                                |                                      |                          |         |         |              | 371     |                       |         |               | 88,428  |                     |         |              | (88,799  | )            |              |          |        |        
|                                        |                                                |                                      |                           |         |         |              |         |                       |         |               |         |                     |         |              |          |              |              |          |         |        
|OTHER LONG-TERM LIABILITIES             |                                                |                                      | 709                       |         |         |              | 3,573   |                       |         |               | 2,670   |                     |         |              |         |              |              |          | 6,952   |        
|                                        |                                                |                                      |                           |         |         |              |         |                       |         |               |         |                     |         |              |          |              |              |          |         |        
|SHAREHOLDERS EQUITY (DEFICIT):         |                                                |                                      |                           |         |         |              |         |                       |         |               |         |                     |         |              |          |              |              |          |         |        
|                                        | Preferred stock                                |                                      |                           |        |         |              |         |                      |         |               |         |                    |         |              |          |             |              |          |         |        |       
|                                        | Class A common stock                           |                                      |                           | 170     |         |              |         |                      |         |               |         |                    |         |              |          |             |              |          |         | 170     |       
|                                        | Additional paid-in capital                     |                                      |                           | 101,503 |         |              |         | 41,825                |         |               |         | 7,927               |         |              |          | (49,752      | )            |          |         | 101,503 |       
|                                        | Accumulated earnings (deficit)                 |                                      |                           | 19,463  |         |              |         | 138,708               |         |               |         | (12,064             | )       |              |          | (141,164     | )            |          |         | 4,943   |       
|                                        | Accumulated other comprehensive gain (loss)    |                                      |                           |        |         |              |         | 381                   |         |               |         | (13,709             | )       |              |          |             |              |          |         | (13,328 | )     
|                                        |                                                |                                      |                           |         |         |              |         |                       |         |               |         |                     |         |              |          |              |              |          |         |         |       
|                                        |                                                | Total shareholders equity (deficit) |                           |         | 121,136 |              |         |                       | 180,914 |               |         |                     | (17,846 | )            |          |              | (190,916     | )        |         |         | 93,288 |        
|                                        |                                                |                                      |                           |         |         |              |         |                       |         |               |         |                     |         |              |          |              |              |          |         |        
|                                        |                                                | $                                    | 394,172                   |         |         | $            | 209,675 |                       |         | $             | 102,922 |                     |         | $            | (416,598 | )            |              | $        | 290,171 |        
|                                        |                                                |                                      |                           |         |         |              |         |                       |         |               |         |                     |         |              |          |              |              |          |         |        

11



---



##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)

CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)

|                                        |                                                |                           |                                      |         |  |              |         |                       |  |               |         |                     |   |                 |          |              |              |          |         |         |   |         |   | 
|--------------------------------------- | ---------------------------------------------- | ------------------------- | ------------------------------------ | ------- |  | ------------ | ------- | --------------------- |  | ------------- | ------- | ------------------- | - | --------------- | -------- | ------------ | ------------ | -------- | ------- | ------- | - | ------- | - | 
|                                        |                                                |                           |                                      |         |  |              |         |                       |  |               |         |                     |   | August 26, 2001 |          |              |              |          |         |         |   |        
|                                        |                                                |                           |                                      |         | 
|                                        |                                                |                           |                                      |         |  |              |         |                       |  |               |         |                     |   | Subsidiary      |          | Consolidated | Consolidated
|                                        |                                                |                           |                                      |         |  | Albecca Inc. |         | Subsidiary Guarantors |  | Nonguarantors |         | Elimination Entries |   | Total          
|                                        |                                                |                           |                                      |         |  |              |         |                       |  |               |         |                     |   |                
|ASSETS                                  |                                                |                           |                                      |         |  |              |         |                       |  |               |         |                     |   |                 |          |              |              |          |         |        
|CURRENT
ASSETS:                         |                                                |                           |                                      |         |  |              |         |                       |  |               |         |                     |   |                 |         |              |              |          |         |        
|                                        | Cash and cash equivalents                      |                           | $                                    | 11,929  |  |              | $       | 1,169                 |  |               | $       | 6,048               |   |                 | $        |             |              |          | $       | 19,146  |  
|                                        | Accounts receivable, net                       |                           |                                      |        |  |              |         | 19,364                |  |               |         | 13,603              |   |                 |          |             |              |          |         | 32,967  |  
|                                        | Intercompany accounts receivable               |                           |                                      |        |  |              |         | 109,363               |  |               |         | 1,025               |   |                 |          | (110,388     | )            |          |         |        |  
|                                        | Inventories                                    |                           |                                      |        |  |              |         | 26,679                |  |               |         | 23,744              |   |                 |          |             |              |          |         | 50,423  |  
|                                        | Other current assets                           |                           |                                      | 215     |  |              |         | 1,478                 |  |               |         | 4,510               |   |                 |          |             |              |          |         | 6,203   |  
|                                        |                                                |                           |                                      |         |  |              |         |                       |  |               |         |                     |   |                 |          |              |              |          |         |        
|                                        |                                                |                           | Total current assets                 |         |  | 12,144       |         |                       |  | 158,053       |         |                     |   | 48,930          |          |              |              | (110,388 | )       |         |   | 108,739 |  
|PROPERTY, PLANT AND EQUIPMENT, net      |                                                |                           |                                     |         |  |              | 10,752  |                       |  |               | 24,345  |                     |   |                 |         |              |              |          | 35,097  |        
|DEFERRED INCOME TAXES                   |                                                |                           |                                     |         |  |              |        |                       |  |               | 1,580   |                     |   |                 |         |              |              |          | 1,580   |        
|GOODWILL                                |                                                |                           |                                      |        |  |              |         | 10,684                |  |               |         | 18,419              |   |                 |          |             |              |          |         | 29,103  |  
|OTHER LONG-TERM ASSETS                  |                                                |                           | 4,174                                |         |  |              | 3,000   |                       |  |               | 1,440   |                     |   |                 |         |              |              |          | 8,614   |        
|INVESTMENT IN SUBSIDIARIES              |                                                |                           | 151,703                              |         |  |              |        |                       |  |               | 7,884   |                     |   |                 | (159,587 | )            |              |          |        |        
|INTERCOMPANY LOANS RECEIVABLE           |                                                |                           | 89,819                               |         |  |              |        |                       |  |               | 360     |                     |   |                 | (90,179  | )            |              |          |        |        
|                                        |                                                |                           |                                      |         |  |              |         |                       |  |               |         |                     |   |                 |          |              |              |          |         |         |  
|                                        |                                                | $                         | 257,840                              |         |  | $            | 182,489 |                       |  | $             | 102,958 |                     |   | $               | (360,154 | )            |              | $        | 183,133 |        
|                                        |                                                |                           |                                      |         |  |              |         |                       |  |               |         |                     |   |                 |          |              |              |          |         |        
|                                        | LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)
|CURRENT LIABILITIES:                    |                                                |                           |                                      |         |  |              |         |                       |  |               |         |                     |   |                 |          |              |              |          |         |        
|                                        | Current maturities of long-term debt           |                           | $                                    |        |  |              | $       | 888                   |  |               | $       | 5,029               |   |                 | $        |             |              |          | $       | 5,917   |  
|                                        | Accounts payable                               |                           |                                      |        |  |              |         | 8,998                 |  |               |         | 8,682               |   |                 |          |             |              |          |         | 17,680  |  
|                                        | Intercompany accounts payable                  |                           |                                      | 104,238 |  |              |         | 486                   |  |               |         | 5,664               |   |                 |          | (110,388     | )            |          |         |        |  
|                                        | Accrued liabilities                            |                           |                                      | 723     |  |              |         | 8,538                 |  |               |         | 9,286               |   |                 |          |             |              |          |         | 18,547  |  
|                                        |                                                |                           |                                      |         |  |              |         |                       |  |               |         |                     |   |                 |          |              |              |          |         |         |  
|                                        |                                                | Total current liabilities |                                      | 104,961 |  |              |         | 18,910                |  |               |         | 28,661              |   |                 |          | (110,388     | )            |          |         | 42,144  |  
|                                        |                                                |                           |                                      |         |  |              |         |                       |  |               |         |                     |   |                 |          |              |              |          |         |        
|LONG-TERM DEBT, less current maturities |                                                |                           | 134,930                              |         |  |              | 6,001   |                       |  |               | 4,309   |                     |   |                 |         |              |              |          | 145,240 |        
|                                        |                                                |                           |                                      |         |  |              |         |                       |  |               |         |                     |   |                 |          |              |              |          |         |        
|INTERCOMPANY LOANS PAYABLE              |                                                |                           |                                     |         |  |              | 360     |                       |  |               | 89,819  |                     |   |                 | (90,179  | )            |              |          |        |        
|                                        |                                                |                           |                                      |         |  |              |         |                       |  |               |         |                     |   |                 |          |              |              |          |         |        
|OTHER LONG-TERM LIABILITIES             |                                                |                           | 2,031                                |         |  |              | 4,470   |                       |  |               | 2,475   |                     |   |                 |         |              |              |          | 8,976   |        
|                                        |                                                |                           |                                      |         |  |              |         |                       |  |               |         |                     |   |                 |          |              |              |          |         |        
|SHAREHOLDERS EQUITY (DEFICIT):         |                                                |                           |                                      |         |  |              |         |                       |  |               |         |                     |   |                 |          |              |              |          |         |        
|                                        | Preferred stock                                |                           |                                      |        |  |              |         |                      |  |               |         |                    |   |                 |          |             |              |          |         |        |  
|                                        | Class A common stock                           |                           |                                      | 4       |  |              |         |                      |  |               |         |                    |   |                 |          |             |              |          |         | 4       |  
|                                        | Class B common stock                           |                           |                                      | 166     |  |              |         |                      |  |               |         |                    |   |                 |          |             |              |          |         | 166     |  
|                                        | Additional paid-in capital                     |                           |                                      | 7,326   |  |              |         | 41,825                |  |               |         | 7,926               |   |                 |          | (49,751      | )            |          |         | 7,326   |  
|                                        | Accumulated earnings (deficit)                 |                           |                                      | 8,422   |  |              |         | 110,550               |  |               |         | (15,234             | ) |                 |          | (109,836     | )            |          |         | (6,098  | )
|                                        | Accumulated other comprehensive gain (loss)    |                           |                                      |        |  |              |         | 373                   |  |               |         | (14,998             | ) |                 |          |             |              |          |         | (14,625 | )
|                                        |                                                |                           |                                      |         |  |              |         |                       |  |               |         |                     |   |                 |          |              |              |          |         |        
|                                        |                                                |                           | Total shareholders equity (deficit) |         |  | 15,918       |         |                       |  | 152,748       |         |                     |   | (22,306         | )        |              |              | (159,587 | )       |         |   | (13,227 | )
|                                        |                                                |                           |                                      |         |  |              |         |                       |  |               |         |                     |   |                 |          |              |              |          |         |        
|                                        |                                                | $                         | 257,840                              |         |  | $            | 182,489 |                       |  | $             | 102,958 |                     |   | $               | (360,154 | )            |              | $        | 183,133 |        
|                                        |                                                |                           |                                      |         |  |              |         |                       |  |               |         |                     |   |                 |          |              |              |          |         |        

12



---



##### Table of Contents



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

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands)

|                                   |                                                                       |                                         |            |        |                    |       |            |        |               |        |            |       |             |       |              |   |              |         |        |        |       |       | 
|---------------------------------- | --------------------------------------------------------------------- | --------------------------------------- | ---------- | ------ | ------------------ | ----- | ---------- | ------ | ------------- | ------ | ---------- | ----- | ----------- | ----- | ------------ | - | ------------ | ------- | ------ | ------ | ----- | ----- | 
|                                   |                                                                       |                                         |            |        | Three months ended
|                                   |                                                                       |                                         |            |        | May 26, 2002      
|                                   |                                                                       |                                         |            |        |                   
|                                   |                                                                       |                                         |            |        |                    |       |            |        |               |        |            |       |             |       |              |   | Consolidated |         |        |        |      
|                                   |                                                                       |                                         |            |        |                    |       |            |        | Subsidiary    |        | Subsidiary |       | Elimination |       | Consolidated
|                                   |                                                                       |                                         |            |        | Albecca Inc.       |       | Guarantors |        | Nonguarantors |        | Entries    |       | Total      
|                                   |                                                                       |                                         |            |        |                    |       |            |        |               |        |            |       |            
|Net sales                          |                                                                       | $                                       |           |        |                    | $     | 51,020     |        |               | $      | 25,962     |       |             | $     | (3,056       | ) |              | $       | 73,926 |       
|Cost of sales                      |                                                                       |                                         |           |        |                    |       | 25,905     |        |               |        | 16,268     |       |             |       | (3,056       | ) |              |         | 39,117 |       
|                                   |                                                                       |                                         |            |        |                    |       |            |        |               |        |            |       |             |       |              |   |              |         |        |       
|                                   | Gross profit                                                          |                                         |            |       |                    |       |            | 25,115 |               |        |            | 9,694 |             |       |              |  |              |         |        | 34,809 |      
|Operating expenses                 |                                                                       |                                         | 1,377      |        |                    |       | 14,902     |        |               |        | 7,596      |       |             |       |             |   |              |         | 23,875 |       
|                                   |                                                                       |                                         |            |        |                    |       |            |        |               |        |            |       |             |       |              |   |              |         |        |       
|                                   | Operating (loss) income                                               |                                         |            | (1,377 | )                  |       |            | 10,213 |               |        |            | 2,098 |             |       |              |  |              |         |        | 10,934 |      
|Interest income                    |                                                                       |                                         | (1,813     | )      |                    |       |           |        |               |        | (35        | )     |             |       |             |   |              |         | (1,848 | )     
|Interest expense                   |                                                                       |                                         | 5,514      |        |                    |       | 98         |        |               |        | 121        |       |             |       |             |   |              |         | 5,733  |       
|Other income                       |                                                                       |                                         |           |        |                    |       | (137       | )      |               |        | (395       | )     |             |       |             |   |              |         | (532   | )     
|                                   |                                                                       |                                         |            |        |                    |       |            |        |               |        |            |       |             |       |              |   |              |         |        |       
|                                   | (Loss) income before provision for income taxes
and minority interest |                                         |            | (5,078 | )                  |       |            | 10,252 |               |        |            | 2,407 |             |       |              |  |              |         |        | 7,581  |      
|Income tax expense (benefit)       |                                                                       |                                         | 2,711      |        |                    |       | (119       | )      |               |        | 478        |       |             |       |             |   |              |         | 3,070  |       
|Minority interest                  |                                                                       |                                         |           |        |                    |       |           |        |               |        | 38         |       |             |       |             |   |              |         | 38     |       
|                                   |                                                                       |                                         |            |        |                    |       |            |        |               |        |            |       |             |       |              |   |              |         |        |       
|                                   |                                                                       | (Loss) income before equity in earnings |            |        | (7,789             | )     |            |        | 10,371        |        |            |       | 1,891       |       |              |   |             |         |        |        | 4,473 |      
|Equity in earnings of subsidiaries |                                                                       |                                         | 12,262     |        |                    |       |           |        |               |        |           |       |             |       | (12,262      | ) |              |         |       |       
|                                   |                                                                       |                                         |            |        |                    |       |            |        |               |        |            |       |             |       |              |   |              |         |        |       
|                                   |                                                                       |                                         | Net income |        | $                  | 4,473 |            |        | $             | 10,371 |            |       | $           | 1,891 |              |   | $            | (12,262 | )      |        | $     | 4,473 | 
|                                   |                                                                       |                                         |            |        |                    |       |            |        |               |        |            |       |             |       |              |   |              |         |        |       

|                                                     |                                                                                            |                                         |                   |        |                    |       |            |        |               |        |            |       |             |     |              |   |              |         |        |        |       |       | 
|---------------------------------------------------- | ------------------------------------------------------------------------------------------ | --------------------------------------- | ----------------- | ------ | ------------------ | ----- | ---------- | ------ | ------------- | ------ | ---------- | ----- | ----------- | --- | ------------ | - | ------------ | ------- | ------ | ------ | ----- | ----- | 
|                                                     |                                                                                            |                                         |                   |        | Three months ended
|                                                     |                                                                                            |                                         |                   |        | May 27, 2001      
|                                                     |                                                                                            |                                         |                   |        |                   
|                                                     |                                                                                            |                                         |                   |        |                    |       |            |        |               |        |            |       |             |     |              |   | Consolidated |         |        |        |      
|                                                     |                                                                                            |                                         |                   |        |                    |       |            |        | Subsidiary    |        | Subsidiary |       | Elimination |     | Consolidated
|                                                     |                                                                                            |                                         |                   |        | Albecca Inc.       |       | Guarantors |        | Nonguarantors |        | Entries    |       | Total      
|                                                     |                                                                                            |                                         |                   |        |                    |       |            |        |               |        |            |       |            
|Net sales                                            |                                                                                            | $                                       |                  |        |                    | $     | 51,568     |        |               | $      | 27,373     |       |             | $   | (2,819       | ) |              | $       | 76,122 |       
|Cost of sales                                        |                                                                                            |                                         |                  |        |                    |       | 27,443     |        |               |        | 17,700     |       |             |     | (2,819       | ) |              |         | 42,324 |       
|                                                     |                                                                                            |                                         |                   |        |                    |       |            |        |               |        |            |       |             |     |              |   |              |         |        |       
|                                                     | Gross profit                                                                               |                                         |                   |       |                    |       |            | 24,125 |               |        |            | 9,673 |             |     |              |  |              |         |        | 33,798 |      
|Operating expenses                                   |                                                                                            |                                         | 6                 |        |                    |       | 12,964     |        |               |        | 8,498      |       |             |     |             |   |              |         | 21,468 |       
|                                                     |                                                                                            |                                         |                   |        |                    |       |            |        |               |        |            |       |             |     |              |   |              |         |        |       
|                                                     | Operating (loss) income                                                                    |                                         |                   | (6     | )                  |       |            | 11,161 |               |        |            | 1,175 |             |     |              |  |              |         |        | 12,330 |      
|Interest income                                      |                                                                                            |                                         | (1,824            | )      |                    |       |           |        |               |        | (130       | )     |             |     |             |   |              |         | (1,954 | )     
|Interest expense                                     |                                                                                            |                                         | 5,475             |        |                    |       | 256        |        |               |        | 325        |       |             |     |             |   |              |         | 6,056  |       
|Other loss                                           |                                                                                            |                                         |                  |        |                    |       | 116        |        |               |        | 306        |       |             |     |             |   |              |         | 422    |       
|                                                     |                                                                                            |                                         |                   |        |                    |       |            |        |               |        |            |       |             |     |              |   |              |         |        |       
|                                                     | (Loss) income before provision for income taxes,
minority interest, and extraordinary loss |                                         |                   | (3,657 | )                  |       |            | 10,789 |               |        |            | 674   |             |     |              |  |              |         |        | 7,806  |      
|Income tax expense                                   |                                                                                            |                                         |                  |        |                    |       | 168        |        |               |        | 337        |       |             |     |             |   |              |         | 505    |       
|Minority interest                                    |                                                                                            |                                         |                  |        |                    |       |           |        |               |        | 35         |       |             |     |             |   |              |         | 35     |       
|                                                     |                                                                                            |                                         |                   |        |                    |       |            |        |               |        |            |       |             |     |              |   |              |         |        |       
|                                                     |                                                                                            | (Loss) income before extraordinary loss |                   |        | (3,657             | )     |            |        | 10,621        |        |            |       | 302         |     |              |   |             |         |        |        | 7,266 |      
|Extraordinary loss on repurchase of debt, net of tax |                                                                                            |                                         | (157              | )      |                    |       |           |        |               |        |           |       |             |     |             |   |              |         | (157   | )     
|Equity in earnings of subsidiaries                   |                                                                                            |                                         | 10,923            |        |                    |       |           |        |               |        |           |       |             |     | (10,923      | ) |              |         |       |       
|                                                     |                                                                                            |                                         |                   |        |                    |       |            |        |               |        |            |       |             |     |              |   |              |         |        |       
|                                                     |                                                                                            |                                         | Net income (loss) |        | $                  | 7,109 |            |        | $             | 10,621 |            |       | $           | 302 |              |   | $            | (10,923 | )      |        | $     | 7,109 | 
|                                                     |                                                                                            |                                         |                   |        |                    |       |            |        |               |        |            |       |             |     |              |   |              |         |        |       

13



---



##### Table of Contents



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

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands)

|                                   |                                                                       |                                         |            |         |                   |        |            |        |               |        |            |        |             |       |              |   |              |         |         |         |        |        | 
|---------------------------------- | --------------------------------------------------------------------- | --------------------------------------- | ---------- | ------- | ----------------- | ------ | ---------- | ------ | ------------- | ------ | ---------- | ------ | ----------- | ----- | ------------ | - | ------------ | ------- | ------- | ------- | ------ | ------ | 
|                                   |                                                                       |                                         |            |         | Nine months ended
|                                   |                                                                       |                                         |            |         | May 26, 2002     
|                                   |                                                                       |                                         |            |         |                  
|                                   |                                                                       |                                         |            |         |                   |        |            |        |               |        |            |        |             |       |              |   | Consolidated |         |         |         |       
|                                   |                                                                       |                                         |            |         |                   |        |            |        | Subsidiary    |        | Subsidiary |        | Elimination |       | Consolidated
|                                   |                                                                       |                                         |            |         | Albecca Inc.      |        | Guarantors |        | Nonguarantors |        | Entries    |        | Total      
|                                   |                                                                       |                                         |            |         |                   |        |            |        |               |        |            |        |            
|Net sales                          |                                                                       | $                                       |           |         |                   | $      | 160,142    |        |               | $      | 78,045     |        |             | $     | (6,534       | ) |              | $       | 231,653 |        
|Cost of sales                      |                                                                       |                                         |           |         |                   |        | 82,630     |        |               |        | 49,698     |        |             |       | (6,534       | ) |              |         | 125,794 |        
|                                   |                                                                       |                                         |            |         |                   |        |            |        |               |        |            |        |             |       |              |   |              |         |         |        
|                                   | Gross profit                                                          |                                         |            |        |                   |        |            | 77,512 |               |        |            | 28,347 |             |       |              |  |              |         |         | 105,859 |       
|Operating expenses                 |                                                                       |                                         | 2,111      |         |                   |        | 48,765     |        |               |        | 23,845     |        |             |       |             |   |              |         | 74,721  |        
|                                   |                                                                       |                                         |            |         |                   |        |            |        |               |        |            |        |             |       |              |   |              |         |         |        
|                                   | Operating (loss) income                                               |                                         |            | (2,111  | )                 |        |            | 28,747 |               |        |            | 4,502  |             |       |              |  |              |         |         | 31,138  |       
|Interest income                    |                                                                       |                                         | (5,423     | )       |                   |        |           |        |               |        | (146       | )      |             |       |             |   |              |         | (5,569  | )      
|Interest expense                   |                                                                       |                                         | 16,349     |         |                   |        | 364        |        |               |        | 468        |        |             |       |             |   |              |         | 17,181  |        
|Other (income) loss                |                                                                       |                                         | (232       | )       |                   |        | 28         |        |               |        | (166       | )      |             |       |             |   |              |         | (370    | )      
|                                   |                                                                       |                                         |            |         |                   |        |            |        |               |        |            |        |             |       |              |   |              |         |         |        
|                                   | (Loss) income before provision for income taxes
and minority interest |                                         |            | (12,805 | )                 |        |            | 28,355 |               |        |            | 4,346  |             |       |              |  |              |         |         | 19,896  |       
|Income tax expense                 |                                                                       |                                         | 316        |         |                   |        | 197        |        |               |        | 1,090      |        |             |       |             |   |              |         | 1,603   |        
|Minority interest                  |                                                                       |                                         |           |         |                   |        |           |        |               |        | 86         |        |             |       |             |   |              |         | 86      |        
|                                   |                                                                       |                                         |            |         |                   |        |            |        |               |        |            |        |             |       |              |   |              |         |         |        
|                                   |                                                                       | (Loss) income before equity in earnings |            |         | (13,121           | )      |            |        | 28,158        |        |            |        | 3,170       |       |              |   |             |         |         |         | 18,207 |       
|Equity in earnings of subsidiaries |                                                                       |                                         | 31,328     |         |                   |        |           |        |               |        |           |        |             |       | (31,328      | ) |              |         |        |        
|                                   |                                                                       |                                         |            |         |                   |        |            |        |               |        |            |        |             |       |              |   |              |         |         |        
|                                   |                                                                       |                                         | Net income |         | $                 | 18,207 |            |        | $             | 28,158 |            |        | $           | 3,170 |              |   | $            | (31,328 | )       |         | $      | 18,207 | 
|                                   |                                                                       |                                         |            |         |                   |        |            |        |               |        |            |        |             |       |              |   |              |         |         |        

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(in thousands)

|                                                     |                                                      |   |        |        |   |   |       |        |   |   |       |         |   |   |   |   |  |   |        |         |  
|---------------------------------------------------- | ---------------------------------------------------- | - | ------ | ------ | - | - | ----- | ------ | - | - | ----- | ------- | - | - | - | - |  | - | ------ | ------- | -
|NET CASH PROVIDED BY
OPERATING ACTIVITIES            |                                                      | $ | 17,454 |        |   | $ | 5,361 |        |   | $ | 1,646 |         |   | $ |  |   |  | $ | 24,461 |        
|                                                     |                                                      |   |        |        |   |   |       |        |   |   |       |         |   |   |   |   |  |   |        |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                                                      |   |        |        |   |   |       |        |   |   |       |         |   |   |   |   |  |   |        |        
|                                                     | Purchases of property, plant and equipment           |   |        |       |   |   |       | (6,158 | ) |   |       | (1,360  | ) |   |   |  |  |   |        | (7,518  | )
|                                                     | Proceeds from sales of property, plant and equipment |   |        |       |   |   |       | 13     |   |   |       | 1,621   |   |   |   |  |  |   |        | 1,634   |  
|                                                     | Changes in other long-term assets                    |   |        | (1,783 | ) |   |       | 1,016  |   |   |       | 2,056   |   |   |   |  |  |   |        | 1,289   |  
|                                                     |                                                      |   |        |        |   |   |       |        |   |   |       |         |   |   |   |   |  |   |        |        
|                                                     | Net cash (used in) provided by investing activities  |   |        | (1,783 | ) |   |       | (5,129 | ) |   |       | 2,317   |   |   |   |  |  |   |        | (4,595  | )
|                                                     |                                                      |   |        |        |   |   |       |        |   |   |       |         |   |   |   |   |  |   |        |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                                                      |   |        |        |   |   |       |        |   |   |       |         |   |   |   |   |  |   |        |        
|                                                     | Proceeds from revolving credit facilities            |   |        |       |   |   |       | 163    |   |   |       | 12,685  |   |   |   |  |  |   |        | 12,848  |  
|                                                     | Repayments of revolving credit facilities            |   |        |       |   |   |       |       |   |   |       | (12,901 | ) |   |   |  |  |   |        | (12,901 | )
|                                                     | Proceeds from long-term debt                         |   |        |       |   |   |       |       |   |   |       | 287     |   |   |   |  |  |   |        | 287     |  
|                                                     | Repayments of long-term debt                         |   |        |       |   |   |       | (617   | ) |   |       | (2,242  | ) |   |   |  |  |   |        | (2,859  | )
|                                                     | Distributions to shareholder                         |   |        | (7,166 | ) |   |       |       |   |   |       |        |   |   |   |  |  |   |        | (7,166  | )
|                                                     |                                                      |   |        |        |   |   |       |        |   |   |       |         |   |   |   |   |  |   |        |        
|                                                     | Net cash used in financing activities                |   |        | (7,166 | ) |   |       | (454   | ) |   |       | (2,171  | ) |   |   |  |  |   |        | (9,791  | )
|                                                     |                                                      |   |        |        |   |   |       |        |   |   |       |         |   |   |   |   |  |   |        |        
|EFFECT OF EXCHANGE RATE ON CASH                      |                                                      |   |       |        |   |   |      |        |   |   | (207  | )       |   |   |  |   |  |   | (207   | )      
|                                                     |                                                      |   |        |        |   |   |       |        |   |   |       |         |   |   |   |   |  |   |        |        
|NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS |                                                      |   | 8,505  |        |   |   | (222  | )      |   |   | 1,585 |         |   |   |  |   |  |   | 9,868  |        
|Cash and cash equivalents, beginning of period       |                                                      |   | 11,929 |        |   |   | 1,169 |        |   |   | 6,048 |         |   |   |  |   |  |   | 19,146 |        
|                                                     |                                                      |   |        |        |   |   |       |        |   |   |       |         |   |   |   |   |  |   |        |        
|Cash and cash equivalents, end of period             |                                                      | $ | 20,434 |        |   | $ | 947   |        |   | $ | 7,633 |         |   | $ |  |   |  | $ | 29,014 |        
|                                                     |                                                      |   |        |        |   |   |       |        |   |   |       |         |   |   |   |   |  |   |        |        

14



---



##### Table of Contents



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

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands)

|                                                     |                                                                                           |                                         |            |         |                   |        |            |        |               |        |            |        |             |       |              |   |              |         |         |         |        |        | 
|---------------------------------------------------- | ----------------------------------------------------------------------------------------- | --------------------------------------- | ---------- | ------- | ----------------- | ------ | ---------- | ------ | ------------- | ------ | ---------- | ------ | ----------- | ----- | ------------ | - | ------------ | ------- | ------- | ------- | ------ | ------ | 
|                                                     |                                                                                           |                                         |            |         | Nine months ended
|                                                     |                                                                                           |                                         |            |         | May 27, 2001     
|                                                     |                                                                                           |                                         |            |         |                  
|                                                     |                                                                                           |                                         |            |         |                   |        |            |        |               |        |            |        |             |       |              |   | Consolidated |         |         |         |       
|                                                     |                                                                                           |                                         |            |         |                   |        |            |        | Subsidiary    |        | Subsidiary |        | Elimination |       | Consolidated
|                                                     |                                                                                           |                                         |            |         | Albecca Inc.      |        | Guarantors |        | Nonguarantors |        | Entries    |        | Total      
|                                                     |                                                                                           |                                         |            |         |                   |        |            |        |               |        |            |        |            
|Net sales                                            |                                                                                           | $                                       |           |         |                   | $      | 165,556    |        |               | $      | 84,671     |        |             | $     | (7,719       | ) |              | $       | 242,508 |        
|Cost of sales                                        |                                                                                           |                                         |           |         |                   |        | 87,159     |        |               |        | 54,778     |        |             |       | (7,719       | ) |              |         | 134,218 |        
|                                                     |                                                                                           |                                         |            |         |                   |        |            |        |               |        |            |        |             |       |              |   |              |         |         |        
|                                                     | Gross profit                                                                              |                                         |            |        |                   |        |            | 78,397 |               |        |            | 29,893 |             |       |              |  |              |         |         | 108,290 |       
|Operating expenses                                   |                                                                                           |                                         | 196        |         |                   |        | 43,576     |        |               |        | 25,226     |        |             |       |             |   |              |         | 68,998  |        
|                                                     |                                                                                           |                                         |            |         |                   |        |            |        |               |        |            |        |             |       |              |   |              |         |         |        
|                                                     | Operating (loss) income                                                                   |                                         |            | (196    | )                 |        |            | 34,821 |               |        |            | 4,667  |             |       |              |  |              |         |         | 39,292  |       
|Interest income                                      |                                                                                           |                                         | (5,305     | )       |                   |        |           |        |               |        | (130       | )      |             |       |             |   |              |         | (5,435  | )      
|Interest expense                                     |                                                                                           |                                         | 16,306     |         |                   |        | 672        |        |               |        | 746        |        |             |       |             |   |              |         | 17,724  |        
|Other loss                                           |                                                                                           |                                         |           |         |                   |        | 116        |        |               |        | 237        |        |             |       |             |   |              |         | 353     |        
|                                                     |                                                                                           |                                         |            |         |                   |        |            |        |               |        |            |        |             |       |              |   |              |         |         |        
|                                                     | (Loss) income before provision for income taxes,
minority interest and extraordinary gain |                                         |            | (11,197 | )                 |        |            | 34,033 |               |        |            | 3,814  |             |       |              |  |              |         |         | 26,650  |       
|Income tax expense                                   |                                                                                           |                                         |           |         |                   |        | 428        |        |               |        | 1,344      |        |             |       |             |   |              |         | 1,772   |        
|Minority interest                                    |                                                                                           |                                         |           |         |                   |        |           |        |               |        | 89         |        |             |       |             |   |              |         | 89      |        
|                                                     |                                                                                           |                                         |            |         |                   |        |            |        |               |        |            |        |             |       |              |   |              |         |         |        
|                                                     |                                                                                           | (Loss) income before extraordinary gain |            |         | (11,197           | )      |            |        | 33,605        |        |            |        | 2,381       |       |              |   |             |         |         |         | 24,789 |       
|Extraordinary gain on repurchase of debt, net of tax |                                                                                           |                                         | 341        |         |                   |        |           |        |               |        |           |        |             |       |             |   |              |         | 341     |        
|Equity in earnings of subsidiaries                   |                                                                                           |                                         | 35,986     |         |                   |        |           |        |               |        |           |        |             |       | (35,986      | ) |              |         |        |        
|                                                     |                                                                                           |                                         |            |         |                   |        |            |        |               |        |            |        |             |       |              |   |              |         |         |        
|                                                     |                                                                                           |                                         | Net income |         | $                 | 25,130 |            |        | $             | 33,605 |            |        | $           | 2,381 |              |   | $            | (35,986 | )       |         | $      | 25,130 | 
|                                                     |                                                                                           |                                         |            |         |                   |        |            |        |               |        |            |        |             |       |              |   |              |         |         |        

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(in thousands)

|                                                     |                                                      |   |        |         |   |   |       |       |   |   |       |         |   |   |   |   |  |   |        |         |  
|---------------------------------------------------- | ---------------------------------------------------- | - | ------ | ------- | - | - | ----- | ----- | - | - | ----- | ------- | - | - | - | - |  | - | ------ | ------- | -
|NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES  |                                                      | $ | 24,160 |         |   | $ | (947  | )     |   | $ | 3,272 |         |   | $ |  |   |  | $ | 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                         |   |        | (13,660 | ) |   |       | (590  | ) |   |       | (4,040  | ) |   |   |  |  |   |        | (18,290 | )
|                                                     | Distributions to shareholders                        |   |        | (9,600  | ) |   |       |      |   |   |       |        |   |   |   |  |  |   |        | (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
AND CASH EQUIVALENTS |                                                      |   | 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 |        
|                                                     |                                                      |   |        |         |   |   |       |       |   |   |       |         |   |   |   |   |  |   |        |        

15



---



##### Table of Contents






Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies

The preparation of these financial statements requires the Company to make
estimates and judgments that affect the reported amount of assets and
liabilities at the date of the financial statements and revenues and expenses
during the period reported. The Company bases its estimates on historical
experience and trends, projections of future results, economic and seasonal
fluctuations and on various other assumptions. Although the Company believes
these estimates are reasonable under the circumstances, there can be no
assurances as application of these accounting policies involves the exercise of
judgment and use of assumptions as to future uncertainties. Actual results may
differ from these estimates under different assumptions or conditions.

The Company believes the following critical accounting policies require
the most significant judgments and estimates used in the preparation of its
consolidated financial statements.

Allowances for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
This allowance includes the specific identification of certain customers for
which all or a part of amounts owed are considered to be uncollectible, as well
as a general reserve for uncollectible accounts receivable. The general reserve
is an estimate based on the Companys collection experience, bad debt write-off
history, economic factors that may affect customers ability to pay, and
accounts receivable aging trends. If the Companys estimate of economic
conditions or customers ability to pay differs from actual results, further
increases in the receivable allowance could be required.

Inventory Valuation

The Company writes down its inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of the
inventory and the estimated market value based upon assumptions about future
demand and market conditions. These write-downs are estimates that could vary
significantly, either favorably or unfavorably, from actual results if future
economic conditions, customer purchasing levels or competitive conditions
differ from the Companys expectations. If actual market conditions are less
favorable than those projected by management, additional inventory write-downs
could be required.

Impairment of Long-Lived Assets

The Company evaluates the recoverability of its identifiable intangible
assets, goodwill and other long-lived assets in accordance with SFAS
No. 121,
which generally requires assessing these assets for recoverability when events
or circumstances indicate a potential impairment by estimating the undiscounted
cash flows to be generated from the use and ultimate disposition of these
assets. Upon implementation of SFAS No. 142 on September 2, 2002, the Company
will use fair value methodologies to assess its existing goodwill and will
reassess such fair value on an annual basis. SFAS No. 142 contemplates the use
of methods which will require the Company to make estimates of the operating
cashflows for each reporting unit where goodwill exists. To the extent that
actual results differ from these estimates, such fair value assessments could
result in impairment charges to reduce the carrying values of these assets in
future periods.

Recent Developments

Change in Ownership and Basis of Accounting

On February 8, 2002, Albecca Inc. and its subsidiaries (the Company,
Albecca) were acquired by Berkshire Hathaway Inc. (Berkshire), a Delaware
holding company owning subsidiaries engaged in a number of diverse business
activities. Under the terms of the Purchase and Sale Agreement, all of the
outstanding shares of common stock of Albecca were acquired from its sole
shareholder for cash consideration of $223.4 million. As part of the
transaction, all Class B common shares were converted to Class A common shares.

In connection with the acquisition, the Company has incurred and expensed
transaction-related expenditures of approximately $5.6 million, consisting of
$.6 million for legal fees and other professional fees, $1.9 million for the
accelerated vesting of stock options due to change of control provisions, a
one-time discretionary $1.0 million contribution to the Companys 401(K) plan
for the benefit of all plan participants, and $2.1 million for other
compensation arrangements. Additionally, the Company will accrue and expense
additional compensation amounts over related vesting periods of 12- and
24-months from the transaction date totaling $6.9 million.

16



---



##### Table of Contents



The Company expensed approximately $1.3 million and $1.4 million of such
amounts during the three and nine months ended May 26, 2002, respectively.
Based on the above, expenses of $1.3 million and $7.0 million are reflected in
operating expenses within the accompanying statement of operations for the
three and nine months ended May 26, 2002, respectively.

As permitted under Staff Accounting Bulletin (SAB) No. 54, Push Down
Basis of Accounting Required in Certain Limited Circumstances, the Company
elected not to apply push down accounting in its consolidated financial
statements as it is a public registrant as a result of public debt that was
outstanding prior to the acquisition. As such, the accompanying consolidated
financial statements are reported on the Companys historical cost basis. If
push down accounting had been elected, the Company would have been required to
establish a new basis for its assets and liabilities based on the amount of
consideration paid and the fair value of the acquired assets and liabilities as
of the date of acquisition.

Change in Tax Status

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and tax credit carryforwards. Deferred tax assets and liabilities are
measured using statutory tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.

Prior to the acquisition, the Company was treated as a S corporation for
federal income tax purposes and several of its subsidiaries were classified as
either partnerships or single member entities. As such, these entities were not
subject to federal, and certain state, income taxes. Instead, the related
taxable income was included in the tax returns of the shareholders and members
of the respective entities. The Company made distributions to its shareholders
to pay income tax obligations as a result of the Companys status as a S
corporation.

Albeccas S corporation status automatically terminated upon the closing
of the acquisition and the Company became subject to entity level taxes at C
corporation tax rates for federal income tax purposes. The single member
entities and partnerships will retain their tax entity status and continue to
have their results combined with Albeccas, which consolidated federal income
will be included in Berkshires consolidated federal income tax
filing. Even though the Company is now a subsidiary of Berkshire
Hathaway, its federal and state income taxes are computed as if it
was a stand-alone entity. The
foreign subsidiaries not included in the Companys federal income tax filings
were not impacted by this conversion.

In the Purchase and Sale Agreement, Berkshire and the former sole
shareholder have agreed to jointly elect to treat the sale of the Company for
federal and certain state income tax purposes as an asset acquisition under
section 338(h)(10) (the 338 election) of the Internal Revenue Code of 1986,
as amended. A preliminary allocation of the purchase price to the tax basis of
assets and liabilities based on their respective estimated fair values at
February 8, 2002 has been made for income tax purposes. As a result of the 338
election, the automatic termination of S corporation status for federal income
tax purposes and the Companys election not to push down the accounting
associated with the acquisition, the Company initially recorded a deferred tax
asset of approximately $85.1 million. This net deferred tax asset, which
primarily consists of tax deductible goodwill, results from the excess of the
adjusted tax basis over the historical cost basis of the Companys assets and
liabilities for financial reporting purposes. A corresponding credit was made
to additional paid-in capital in accordance with Emerging Issues Task Force
(EITF) 94-10, Accounting by a Company for the Income Tax Effects of
Transactions Among or with its Shareholders Under FASB Statement 109. The
deferred tax asset was adjusted to $94.2 million during the third quarter of
fiscal 2002 as a result of refinement of the tax purchase price allocation
among the assets and liabilities of the Company. As the allocation of the
purchase price to the acquired assets is subject to change in upcoming periods
as appraisals and other allocation methods are finalized, additional changes to
additional paid-in capital may occur. The Company anticipates finalizing the
purchase price allocation by the end of calendar year 2002.

Overview

Albecca primarily does business under the Larson-Juhl name. Albecca
designs, manufactures and distributes a complete line of high quality, branded
custom framing products, including wood and metal moulding, matboard,
foamboard, glass, equipment and other framing supplies. Albeccas principal
brands include the Craig Ponzio Custom Frame Collection and the Larson-Juhl
Classic Collection. For over 100 years, Albecca has been designing,
manufacturing and distributing custom framing products that enhance the
aesthetic qualities of prints, paintings, drawings and other art and
memorabilia.

Results of Operations

The following discussion and analysis should be read in conjunction with
Albeccas unaudited consolidated financial statements as of and for the nine
month period ended May 26, 2002 and the related notes thereto. In this
Managements Discussion and

17



---



##### Table of Contents



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:

|                                                            |                                                                                           |            |       |                    |     |                   |       |         |         |      |       |      |      |   |       |      |     |  
|----------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ---------- | ----- | ------------------ | --- | ----------------- | ----- | ------- | ------- | ---- | ----- | ---- | ---- | - | ----- | ---- | --- | -
|                                                            |                                                                                           |            |       | Three months ended |     | Nine months ended
|                                                            |                                                                                           |            |       |                    |     |                  
|                                                            |                                                                                           |            |       | May 27,            |     | May 26,           |       | May 27, | May 26,
|                                                            |                                                                                           |            |       | 2001               |     | 2002              |       | 2001    |         | 2002
|                                                            |                                                                                           |            |       |                    |     |                   |       |         |         |     
|Net sales                                                   |                                                                                           |            | 100.0 | %                  |     |                   | 100.0 | %       |         |      | 100.0 | %    |      |   | 100.0 | %   
|Cost of sales                                               |                                                                                           |            | 55.6  |                    |     |                   | 52.9  |         |         |      | 55.3  |      |      |   | 54.3  |     
|                                                            |                                                                                           |            |       |                    |     |                   |       |         |         |      |       |      |      |   |       |     
|                                                            | Gross profit                                                                              |            |       | 44.4               |     |                   |       | 47.1    |         |      |       | 44.7 |      |   |       | 45.7 |    
|Operating expenses                                          |                                                                                           |            | 28.2  |                    |     |                   | 32.3  |         |         |      | 28.5  |      |      |   | 32.3  |     
|                                                            |                                                                                           |            |       |                    |     |                   |       |         |         |      |       |      |      |   |       |     
|                                                            | Operating income                                                                          |            |       | 16.2               |     |                   |       | 14.8    |         |      |       | 16.2 |      |   |       | 13.4 |    
|Interest income                                             |                                                                                           |            | (2.6  | )                  |     |                   | (2.5  | )       |         |      | (2.2  | )    |      |   | (2.4  | )   
|Interest expense                                            |                                                                                           |            | 8.0   |                    |     |                   | 7.7   |         |         |      | 7.3   |      |      |   | 7.4   |     
|Other loss (income)                                         |                                                                                           |            | 0.5   |                    |     |                   | (0.7  | )       |         |      | 0.1   |      |      |   | (0.2  | )   
|                                                            |                                                                                           |            |       |                    |     |                   |       |         |         |      |       |      |      |   |       |     
|                                                            | Income before provision for income taxes,
minority interest and extraordinary (loss) gain |            |       | 10.3               |     |                   |       | 10.3    |         |      |       | 11.0 |      |   |       | 8.6  |    
|Income tax expense                                          |                                                                                           |            | 0.7   |                    |     |                   | 4.2   |         |         |      | 0.7   |      |      |   | 0.7   |     
|Minority interest                                           |                                                                                           |            | 0.1   |                    |     |                   | 0.1   |         |         |      | 0.1   |      |      |   | 0.1   |     
|                                                            |                                                                                           |            |       |                    |     |                   |       |         |         |      |       |      |      |   |       |     
|                                                            | Income before extraordinary (loss) gain                                                   |            |       | 9.5                |     |                   |       | 6.0     |         |      |       | 10.2 |      |   |       | 7.8  |    
|Extraordinary (loss) gain on repurchase of debt, net of tax |                                                                                           |            | (0.2  | )                  |     |                   |      |         |         |      | 0.1   |      |      |   |      |     
|                                                            |                                                                                           |            |       |                    |     |                   |       |         |         |      |       |      |      |   |       |     
|                                                            |                                                                                           | Net income |       |                    | 9.3 | %                 |       |         | 6.0     | %    |       |      | 10.3 | % |       |      | 7.8 | %
|                                                            |                                                                                           |            |       |                    |     |                   |       |         |         |      |       |      |      |   |       |     

Net Sales

For the third quarter ended May 26, 2002, net sales were $73.9 million
compared to $76.1 million for the third quarter ended May 27, 2001. For the
nine months ended May 26, 2002, net sales were $231.7 million compared to
$242.5 million for the nine months ended May 27, 2001. The decrease in net
sales for the three and nine months ended May 26, 2002 was primarily the result
of the continued weakness in the U.S., Canadian and European markets and the
impact of unfavorable changes in foreign exchange rates, especially in the
first and second quarters. Currency fluctuations decreased net sales by $.3
million and $.8 million for the three and nine months ended May 26, 2002,
respectively, primarily due to the value of the U.S. dollar against most of the
currencies in which the Companys subsidiaries trade, including the Euro,
British Pound, Japanese Yen and Australian Dollar. U.S. net sales decreased
1.4% and 3.3%, respectively, for the three and nine months ended May 26, 2002
from the comparable periods in fiscal 2001, primarily the result of continuing
weakness in the U.S. economy. The rate of sales decline continued to
decelerate versus the first two quarters of fiscal 2002. International net
sales decreased 5.8% and 6.8% for the three and nine months ended May 26, 2002
from the comparable periods in fiscal 2001, reflecting general weakness in the
International markets. Sales decreases in Canada, France, Austria, Finland,
the Netherlands and Italy were partially offset by sales increases in the U.K.,
Norway, and Japan. Management believes that Canadian sales decreases during
fiscal 2002, compared to the comparable quarters of fiscal 2001, follow the
trend of decreased consumer purchases in the U.S. during the same period as the
two economies are closely linked.

Cost of Sales

Cost of sales was $39.1 million and $125.8 million for the three and nine
months ended May 26, 2002 compared to $42.3 million and $134.2 million for the
three and nine months ended May 27, 2001. In the U.S., gross profit margin
increased to 49.5% and 48.6%

18



---



##### Table of Contents



for the three and nine months ended May 26, 2002 compared to 47.1% and
47.7% for the comparable periods in fiscal 2001. The increase for the three
and nine months was primarily the result of a shift in the product sales mix
including a greater percentage of branded wood moulding sales, better control
of product sample costs, as well as an improvement in inventory quality. For
the three and nine months ended May 26, 2002, International gross profit margin
increased to 42.1% and 39.6% compared to 39.1% and 38.6% for the comparable
periods in fiscal 2001. The increase in gross profit margin is largely due to
the continuing emphasis on increasing sales of common products and branded wood
moulding.

Operating Expenses

Operating expenses were $23.9 million and $74.7 million for the three and
nine months ended May 26, 2002 compared to $21.5 million and $69.0 million for
the three and nine months ended May 27, 2001. In the U.S., operating expenses
as a percentage of net sales increased to 31.4% and 31.7% for the three and
nine months ended May 26, 2002 compared to 24.9% and 26.3% for the comparable
periods in fiscal 2001. The increase is primarily the result of $1.3 million
and $7.0 million of transaction-related expenses for the three and nine months
ended May 26, 2002, respectively. These expenses included $.6 million for
legal fees and other professional fees, $1.9 million for the accelerated
vesting of stock options due to change of control provisions, a one-time
discretionary $1.0 million contribution to the Companys 401(K) plan for the
benefit of all plan participants, $2.1 million of other compensation
arrangements as well as additional accrued compensation of $1.4 million.
Absent these transaction-related expenses, operating expenses as a percentage
of net sales would have been 28.6% and 27.2% for the three and nine months
ended May 26, 2002. During the third quarter of fiscal 2001, the rapid onset
of the economic slowdown in the U.S. caused management to review certain
incentive compensation arrangements that would be impacted and reduce accruals
related to these arrangements, resulting in lower operating expenses for the
three and nine months of fiscal 2001. In addition, during the third
quarter of fiscal 2001, the Company recorded a gain of $.3 million on
the sale of the former manufacturing facility in Ashland, Wisconsin
as a reduction to operating expenses, which did not recur during
fiscal 2002. Also, while the Company continues to focus on
controlling its costs, sales have decreased at a slightly higher rate
than the rate at which operating expenses are decreasing. For the three and nine months ended May
26, 2002, International operating expenses as a percentage of net sales
decreased to 34.2% and increased to 33.4% compared to 34.7% and 32.8% for the
comparable periods in fiscal 2001. The increase in operating expenses for the
nine months as a percentage of net sales is primarily attributable to the
decrease in International sales while achieving expense reductions at a slower
rate.

Interest Income

Interest income was $1.8 million and $5.6 million for the three and nine
months ended May 26, 2002 compared to $2.0 million and $5.4 million for the
three and nine months ended May 27, 2001.

Interest Expense

Interest expense was down slightly at $5.7 million and $17.2 million for
the three and nine months ended May 26, 2002 compared to $6.1 million and $17.7
million for the three and nine months ended May 27, 2001, reflecting the
Companys continued focus on reducing its debt.

Other Loss (Income)

During fiscal 2002, the Company received a dividend of shares from
Prudential Financial as a result of the insurance companys conversion from a
mutual company to a stock company. The value of the shares at the time of
issuance was $.2 million, which was reflected in other income on the
consolidated statement of operations for the nine months ended May 26, 2002.
The remaining other loss (income) 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 7.

Income Tax Expense

Income tax expense was $3.1 million and $1.6 million for the three and
nine months ended May 26, 2002 compared to $.5 million and $1.8 million for the
three and nine months ended May 27, 2001. Pretax income was
higher during the nine months ended May 27, 2001 at $26.7
million compared to $19.9 million for the nine months ended
May 26, 2002, resulting in higher state and local income tax
expense in the prior year, partially mitigated by additional federal
income tax expense during fiscal 2002 due to the conversion of the
Company from a S to a C corporation. The Companys
change in status from a S corporation to a C corporation during fiscal 2002, resulted in a
significant change in the tax position of the company, as discussed in more
detail in the Recent Developments section above.

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 $14.0 million.
The debt repurchases resulted in an extraordinary gain of $.3 million, net of
state income taxes of $.01 million. The Company did not repurchase any of its
senior subordinated notes during the nine months ended May 26, 2002.

19



---



##### Table of Contents



Net Income

For the reasons set forth above, net income was $4.5 million and $18.2
million for the three and nine months ended May 26, 2002 compared to $7.1
million and $25.1 million for the three and nine months ended May 27, 2001.

Liquidity and Capital Resources

The Companys principal sources of funds have been, and are expected to
continue to be, cash flow from operations and its on-hand cash and cash
equivalents. The Companys principal need for funds historically has been to
finance its working capital (principally inventory and accounts receivable),
capital expenditures, acquisitions and distributions to the Companys
shareholder to pay income taxes as a result of its status as a S corporation.
As described in Note 2 to the consolidated financial statements, due to the
termination of S corporation status for federal income tax purposes, the
Company, at a minimum, will be making distributions to its new parent,
Berkshire, for payment of federal income taxes associated with being included
in Berkshires consolidated federal income tax filings. As of May 26, 2002,
the Company had cash and cash equivalents of $29.0 million compared to $19.1
million as of August 26, 2001.

Net cash provided by operating activities was $24.5 million for the nine
months ended May 26, 2002 compared to $26.5 million for the nine months ended
May 27, 2001. The decrease in net cash provided by operating activities was
primarily due to a decrease in net income for the period (for the reasons
enumerated above), a decrease in accounts payable, and an increase in accounts
receivable. These uses of cash were partially offset by an increase in accrued
liabilities, a reduction in inventory and changes in other components of other
working capital. Net cash used in investing activities was $4.6 million for the
nine months ended May 26, 2002 compared to $.7 million for the nine months
ended May 27, 2001. This increase is largely due to the $5.6 million
acquisition by the Company of its corporate offices from its former
shareholder, as more fully explained in Note 9 of the notes to the
consolidated financial statements. Net cash used in financing activities
decreased to $9.8 million for the nine months ended May 26, 2002 compared to
$26.2 million for the nine months ended May 27, 2001. The decrease is
primarily due to no repurchases of its senior subordinated debt by the Company
during the first nine months of fiscal 2002 compared to the prior comparable
period as well as a $2.4 million decrease in shareholder distributions. The
Company repurchased no senior subordinated debt during the nine months ended
May 26, 2002 compared to a repurchase of notes with a face value of $14.0
million for the nine months ended May 27, 2001.

As of May 26, 2002, the Company had outstanding indebtedness of
approximately $148.7 million, consisting of $134.9 million in principal amount
of the August 1998 senior subordinated debt and $13.8 million of other
indebtedness. At August 26, 2001, the Company had outstanding indebtedness of
approximately $151.2 million, consisting of $134.9 million in principal amount
of the notes and $16.3 million of other indebtedness.

On March 11, 2002, the Company, pursuant to Sections 3.09 and 4.13 of the
Indenture dated August 11, 1998 between Albecca Inc. and State Street Bank and
Trust, as trustee, issued a Notice of Change of Control and Offer to Purchase
for cash any and all of the Companys senior subordinated notes at an offer
price of 101% of the principal amount. The offer expired on April 5, 2002 and
no notes were tendered for repurchase.

Albeccas ability to make scheduled payments of the principal of, or to
pay the interest or liquidated damages, if any, on, or to refinance its
indebtedness, including the August 1998 senior subordinated debt, or to fund
planned capital or other expenditures, will depend on its future financial or
operating performance, which will be affected by prevailing economic conditions
and financial, business and other factors, many of which are beyond its
control. Based upon the current levels of operations, management believes that
cash flow from operations and available cash and cash equivalents will provide
adequate funds for the Companys foreseeable working capital needs, capital
expenditures, scheduled payments of principal and interest on its indebtedness,
including the senior subordinated debt, and acquisitions. However, there is no
certainty that Albeccas business will generate sufficient cash flow from
operations or that future borrowings will be available in an amount sufficient
to enable Albecca to service its indebtedness, including the senior
subordinated debt, or to make anticipated capital and other expenditures.

Related Party Transactions

Pursuant to the Purchase and Sale Agreement between the Company and
Berkshire, the Company acquired during the second quarter of fiscal 2002 the
corporate headquarters office building in Norcross, Georgia for $5.6 million
from an entity controlled by the selling shareholder of the Company. The
purchase price was based on a recent third-party appraisal. In addition, under
the terms of the agreement, the selling shareholder is required to reimburse
the Company for certain state income taxes resulting from the 338 election. In
connection with this obligation, the Company has recorded on a preliminary
basis a receivable due from the former shareholder of approximately $2.2
million. This amount has been adjusted from the $1.1 million receivable
reflected in the Companys second quarter 10Q filing as a result of refinement
of the estimated taxable gain on the transaction and the associated state tax
liability.

20



---



##### Table of Contents



Recent Accounting Pronouncements

In July and September 2000, the Emerging Issues Task Force (EITF) reached
a consensus on Issue 00-10 Accounting for Shipping and Handling Fees and
Costs. EITF Issue 00-10 requires that all amounts billed to a customer in a
sale transaction for shipping and handling be classified as sales and
recommends that shipping and handling expenses be classified as cost of sales.
As required, the Company implemented EITF Issue 00-10 during the fourth quarter
of fiscal 2001. Prior to implementation, the Company classified most shipping
and handling revenues and costs, on a net basis, in selling and administrative
expense. Accordingly, these costs were reclassified to sales and cost of sales
for the current period and all prior periods presented. Costs reclassified to
cost of sales for the purpose of EITF Issue 00-10 included all third party
shipping expenses as well as variable handling costs such as shipping supplies.

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets. SFAS No.
141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, eliminating the
pooling-of-interests method. SFAS No. 141 also establishes criteria to be used
in identifying intangible assets to be recognized separately from goodwill in
an acquisition. SFAS No. 142 outlines the methods to be used to account for
goodwill and other intangible assets after their acquisition. Specifically,
goodwill and intangible assets with indefinite useful lives will no longer be
amortized, but instead be tested for impairment annually. Intangible assets
with definite useful lives will be amortized over their estimated useful life,
which will no longer be limited to forty years. The Company intends to
implement SFAS No. 142, as required, on the first day of fiscal 2003.
Management is currently evaluating the effect of this Statement on the
Companys financial position and results of operations. During the nine months
ended May 26, 2002, amortization of goodwill and other intangibles totaled $1.3
million. As of May 26, 2002, the Company had $28.6 million of recorded
goodwill, which will no longer be subject to amortization effective September
2, 2002. The Company had $6.0 million of other net intangible assets as of May
26, 2002, which will continue to be amortized over periods ranging from 6 to 10
years.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. This Statement addresses financial accounting and
reporting for asset retirement costs of long-lived assets resulting from legal
obligations associated with acquisition, construction or development
transactions. As required, the Company plans to adopt SFAS No. 143 on the
first day of fiscal 2003. The adoption of this Statement is not expected to
have a material impact on the Companys financial position or results of
operations.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This Statement supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets to be Disposed
Of, and clarifies accounting and reporting for assets held for sale, scheduled
for abandonment or other disposal, and recognition of impairment loss related
to the carrying value of long-lived assets. This Statement is effective for
fiscal years beginning after December 15, 2001. The adoption of this Statement
is not expected to have a material impact on the Companys financial position
or results of operations.

European Union Currency Conversion

On January 1, 1999, eleven member nations of the European Economic and
Monetary Union began using a common currency, the Euro. For a three-year
transition period ending June 30, 2002, both the Euro and each of the
currencies for such member countries will remain in circulation. After June 30,
2002, the Euro will be the sole legal tender for those countries. The adoption
of the Euro will affect many financial systems and business applications as the
commerce of those countries may be transacted both in the Euro and the existing
national currency during the transition period. Historically, a significant
portion of the Companys revenue has been generated in Europe. Of the countries
currently using the Euro, the Company has subsidiary operations in Austria,
Finland, France, Germany, Italy, and the Netherlands. The Company has assessed
the potential impact of the Euro conversion in a number of areas, particularly
on pricing and other marketing strategies. Although the Company does not
currently expect that the conversion, either during or after the transition
period, will have an adverse effect on its operations or financial condition,
there can be no assurance that it will not have some unexpected adverse impact.

Forward Looking Statements

When used in this Form 10-Q and in future filings by the Company with the
Securities and Exchange Commission and in its press releases, and in other
written or oral statements made by the Companys representatives, the words and
phrases will likely result, are expected to, will continue, is
anticipated, estimates, projects, believes, plans, anticipates,
intends, may, or similar expressions, are intended to identify forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward looking statements include, without
limitation, the Companys expectations regarding sales, earnings, or other
future financial performance and liquidity, and general statements about future
operations and operating results.

21



---



##### Table of Contents



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.

22



---



##### Table of Contents






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:                                                                                                                                                                                                                                                                                                                                
|   
|    |  | On December 21, 2001, the Company filed a Current Report on Form 8-K to
report an agreement dated December 15, 2001 providing for the sale of all
Albeccas issued and outstanding capital stock to Berkshire Hathaway Inc.
by Albeccas sole shareholder Craig A. Ponzio.                                                                          
|   
|    |  | On February 8, 2002, the Company filed a Current Report on Form 8-K to
report the closing of the purchase of the Company by Berkshire Hathaway
from Albeccas sole shareholder Craig A. Ponzio, as well as a change in
the composition of the Companys board of directors.                                                                         
|   
|    |  | On May 22, 2002, the Company filed a Current Report on Form 8-K to report
a change in the Companys principal public accountants from Arthur
Andersen LLP to Deloitte and Touche LLP.                                                                                                                                                               

23



---



##### Table of Contents






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 10, 2002 |  | By: /s/ Stephen E. McKenzieStephen E. McKenzie
President, Chief Executive Officer
(Principal Executive Officer)                   
|     
|      |  |               |  |                                                                                                                                   
|     
|Date: |  | July 10, 2002 |  | By: /s/ R. Bradley GoodsonR. Bradley Goodson,
Senior Vice President Finance,
Chief Financial Officer
(Principal Financial Officer)

24