Back to GetFilings.com
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended August 2, 2003
--------------
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: 33-59380
FINLAY FINE JEWELRY CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3287757
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
529 Fifth Avenue, New York, NY 10017
---------------------------------------- ----------
(Address of principal executive offices) (zip code)
(212) 808-2800
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark 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
----- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
----- -----
As of September 10, 2003 there were 1,000 shares of common stock, par value $.01
per share, of the registrant outstanding. As of such date, all shares of common
stock were owned by the registrant's parent, Finlay Enterprises, Inc., a
Delaware corporation.
*The registrant is not subject to the filing requirements of Section 13 or 15(d)
of the Exchange Act and is voluntarily filing this Quarterly Report on Form 10Q.
FINLAY FINE JEWELRY CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED AUGUST 2, 2003
INDEX
PAGE(S)
-------
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Statements of Operations for the thirteen weeks and
twenty-six weeks ended August 2, 2003 and August 3, 2002............................1
Consolidated Balance Sheets as of August 2, 2003 and
February 1, 2003....................................................................3
Consolidated Statements of Changes in Stockholder's Equity for the year
ended February 1, 2003 and the twenty-six weeks ended August 2, 2003................4
Consolidated Statements of Cash Flows for the thirteen weeks and
twenty-six weeks ended August 2, 2003 and August 3, 2002............................5
Notes to Consolidated Financial Statements..........................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................................15
Item 3. Quantitative and Qualitative Disclosures about Market Risk.........................24
Item 4. Controls and Procedures............................................................25
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................................26
SIGNATURES....................................................................................................28
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
FINLAY FINE JEWELRY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
THIRTEEN WEEKS ENDED
------------------------------------
AUGUST 3,
AUGUST 2, 2002
2003 (AS RESTATED)
--------------- ---------------
Sales............................................... $ 192,772 $ 187,130
Cost of sales....................................... 94,603 91,168
--------------- ---------------
Gross margin.................................... 98,169 95,962
Selling, general and administrative expenses........ 88,525 86,518
Depreciation and amortization....................... 4,353 4,437
--------------- ---------------
Income from operations.......................... 5,291 5,007
Interest expense, net............................... 4,245 4,565
--------------- ---------------
Income before income taxes ..................... 1,046 442
Provision (benefit) for income taxes................ 401 (5)
--------------- ---------------
Net income...................................... $ 645 $ 447
=============== ===============
The accompanying notes are an integral part of these consolidated
financial statements.
1
FINLAY FINE JEWELRY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
TWENTY-SIX WEEKS ENDED
------------------------------------
AUGUST 3,
AUGUST 2, 2002
2003 (AS RESTATED)
--------------- ---------------
Sales.................................................................... $ 378,980 $ 374,495
Cost of sales............................................................ 184,462 180,377
--------------- ---------------
Gross margin......................................................... 194,518 194,118
Selling, general and administrative expenses............................. 176,794 174,353
Depreciation and amortization............................................ 8,719 8,794
--------------- ---------------
Income from operations............................................... 9,005 10,971
Interest expense, net.................................................... 8,328 8,841
--------------- ---------------
Income before income taxes and cumulative effect
of accounting change........................................... 677 2,130
Provision for income taxes............................................... 266 493
--------------- ---------------
Income before cumulative effect of accounting change................ 411 1,637
Cumulative effect of accounting change, net of tax....................... - (17,209)
--------------- ---------------
Net income (loss).................................................... $ 411 $ (15,572)
=============== ===============
The accompanying notes are an integral part of these consolidated
financial statements.
2
FINLAY FINE JEWELRY CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
AUGUST 2, FEBRUARY 1,
2003 2003
------------- --------------
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 1,568 $ 68,485
Accounts receivable - department stores...................................... 36,311 19,985
Other receivables............................................................ 32,479 30,879
Merchandise inventories...................................................... 264,791 263,544
Prepaid expenses and other................................................... 5,701 3,237
Deferred income taxes....................................................... 9,464 9,858
------------- --------------
Total current assets...................................................... 350,314 395,988
------------- --------------
Fixed assets:
Building, equipment, fixtures and leasehold improvements..................... 125,895 120,946
Less - accumulated depreciation and amortization............................. 57,475 50,575
------------- --------------
Fixed assets, net......................................................... 68,420 70,371
------------- --------------
Deferred charges and other assets, net......................................... 19,394 21,170
Goodwill....................................................................... 91,046 91,046
------------- --------------
Total assets.............................................................. $ 529,174 $ 578,575
============= ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short-term borrowings........................................................ $ 33,772 $ -
Accounts payable - trade..................................................... 43,191 113,275
Accrued liabilities:
Accrued salaries and benefits............................................. 15,015 17,734
Accrued miscellaneous taxes............................................... 6,886 6,841
Accrued interest.......................................................... 3,623 3,733
Deferred income........................................................... 8,853 10,493
Other..................................................................... 16,959 14,450
Income taxes payable......................................................... 42,687 50,035
Due to parent................................................................ 6,703 5,467
------------- --------------
Total current liabilities................................................. 177,689 222,028
Long-term debt................................................................. 150,000 150,000
Deferred income taxes.......................................................... 20,057 18,527
Other non-current liabilities.................................................. 89 204
------------- --------------
Total liabilities......................................................... 347,835 390,759
------------- --------------
Stockholder's equity:
Common Stock, par value $.01 per share; authorized 5,000 shares;
issued and outstanding 1,000 shares....................................... - -
Additional paid-in capital .................................................. 82,975 82,975
Retained earnings............................................................ 97,811 104,786
Accumulated other comprehensive income....................................... 553 55
------------- --------------
Total stockholder's equity................................................ 181,339 187,816
------------- --------------
Total liabilities and stockholder's equity................................ $ 529,174 $ 578,575
============= ==============
The accompanying notes are an integral part of these consolidated
financial statements.
3
FINLAY FINE JEWELRY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
COMMON STOCK ACCUMULATED
------------------------- ADDITIONAL OTHER TOTAL
NUMBER PAID-IN RETAINED COMPREHENSIVE STOCKHOLDER'S
OF SHARES AMOUNT CAPITAL EARNINGS INCOME EQUITY
------------- --------- ---------- --------- ------------- -------------
Balance, February 2, 2002................. 1,000 $ - $ 82,975 $110,525 $ 96 $ 193,596
Net income............................ - - - 11,819 - 11,819
Change in fair value of gold
forward contracts, net of tax.... - - - - (41) (41)
Dividends on common stock ............ - - - (17,558) - (17,558)
------------- --------- ---------- --------- ------------- -------------
Balance, February 1, 2003................. 1,000 $ - $ 82,975 $104,786 $ 55 $ 187,816
Net income............................ - - - 411 - 411
Change in fair value of gold
forward contracts, net of tax.... - - - - 498 498
Dividends on common stock ............ - - - (7,386) - (7,386)
------------- --------- ---------- --------- ------------- -------------
Balance, August 2, 2003................... 1,000 $ - $ 82,975 $ 97,811 $ 553 $ 181,339
============= ========= ========== ========= ============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
4
FINLAY FINE JEWELRY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THIRTEEN WEEKS ENDED
----------------------------
AUGUST 3,
AUGUST 2, 2002
2003 (AS RESTATED)
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................... $ 645 $ 447
Adjustments to reconcile net income to net cash provided from operating
activities:
Depreciation and amortization............................................ 4,353 4,437
Amortization of deferred financing costs................................. 209 243
Non-current deferred income tax liabilities.............................. 765 430
Other, net............................................................... 446 (137)
Changes in operating assets and liabilities:
Decrease in accounts and other receivables............................ 7,346 2,476
Decrease in merchandise inventories................................... 15,079 17,304
(Increase) decrease in prepaid expenses and other..................... (796) 269
Increase in deferred income tax assets................................ (2,098) -
Decrease in accounts payable and accrued liabilities.................. (20,235) (23,682)
Decrease in deferred tax liabilities.................................. - (292)
Decrease in due to parent............................................. (1,214) (618)
------------ ------------
NET CASH PROVIDED FROM OPERATING ACTIVITIES....................... 4,500 877
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment, fixtures and leasehold improvements.............. (2,084) (2,613)
Deferred charges and other, net.......................................... - (2,520)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES.............................. (2,084) (5,133)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving credit facility.................................. 147,026 157,740
Principal payments on revolving credit facility.......................... (149,471) (153,300)
------------ ------------
NET CASH PROVIDED FROM (USED IN) FINANCING
ACTIVITIES ............................................... (2,445) 4,440
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................ (29) 184
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................. 1,597 2,259
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................... $ 1,568 $ 2,443
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid.......................................................... $ 934 $ 1,112
============ ============
Income taxes paid...................................................... $ 2,406 $ 2,427
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
5
FINLAY FINE JEWELRY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
TWENTY-SIX WEEKS ENDED
----------------------------
AUGUST 3,
AUGUST 2, 2002
2003 (AS RESTATED)
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................................ $ 411 $ (15,572)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Cumulative effect of accounting change, net of tax....................... - 17,209
Depreciation and amortization............................................ 8,719 8,794
Amortization of deferred financing costs................................. 415 485
Non-current deferred income tax liabilities.............................. 1,531 897
Other, net............................................................... 414 (36)
Changes in operating assets and liabilities:
Increase in accounts and other receivables............................ (17,926) (27,460)
(Increase) decrease in merchandise inventories........................ (1,247) 12,472
Increase in prepaid expenses and other................................ (2,464) (1,232)
Decrease in deferred income tax assets................................ 394 -
Decrease in accounts payable and accrued liabilities.................. (79,348) (80,473)
Increase in deferred tax liabilities.................................. - 489
Decrease in due to parent............................................. (2,775) (6,340)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES............................. (91,876) (90,767)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment, fixtures and leasehold improvements.............. (5,030) (5,516)
Deferred charges and other, net.......................................... 23 (3,274)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES.............................. (5,007) (8,790)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving credit facility.................................. 306,484 287,979
Principal payments on revolving credit facility.......................... (272,712) (231,345)
Capitalized financing costs ............................................. (431) -
Payment of dividends..................................................... (3,375) (3,856)
------------ ------------
NET CASH PROVIDED FROM FINANCING ACTIVITIES .................... 29,966 52,778
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS........................... (66,917) (46,779)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................. 68,485 49,222
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................... $ 1,568 $ 2,443
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid.......................................................... $ 8,022 $ 8,222
============ ============
Income taxes paid...................................................... $ 7,652 $ 5,908
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
6
FINLAY FINE JEWELRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF ACCOUNTING AND PRESENTATION
The accompanying unaudited consolidated financial statements of Finlay Fine
Jewelry Corporation and its wholly owned subsidiaries ("Finlay Jewelry" or the
"Registrant"), a wholly owned subsidiary of Finlay Enterprises, Inc. (the
"Holding Company"), have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information. References to "Finlay" mean collectively, the Holding Company and
Finlay Jewelry. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments necessary to present
fairly the financial position of Finlay Jewelry as of August 2, 2003, and the
results of operations and cash flows for the thirteen weeks and twenty-six weeks
ended August 2, 2003 and August 3, 2002. Due to the seasonal nature of the
business, results for interim periods are not indicative of annual results. The
unaudited consolidated financial statements have been prepared on a basis
consistent with that of the audited consolidated financial statements as of
February 1, 2003 referred to below. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission (the "Commission").
These consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in
Finlay Jewelry's Annual Report on Form 10-K for the fiscal year ended February
1, 2003 ("Form 10-K") previously filed with the Commission.
The consolidated financial statements for the thirteen weeks and twenty-six
weeks ended August 3, 2002 have been restated to reflect the retroactive
adoption in the fiscal year ended February 1, 2003 of Emerging Issues Task Force
("EITF") Issue No. 02-16 ("EITF 02-16"), "Accounting by a Customer (Including a
Reseller) for Cash Consideration Received from a Vendor." See Note 2 herein and
Form 10-K. Additionally, certain prior period balances have been reclassified to
conform to the current period presentation.
Finlay Jewelry's fiscal year ends on the Saturday closest to January 31.
References to 2003, 2002, 2001 and 2000 relate to the fiscal years ending
January 31, 2004, February 1, 2003, February 2, 2002 and February 3, 2001,
respectively. Each of the fiscal years includes 52 weeks, except 2000 includes
53 weeks.
Finlay Jewelry recorded a tax provision based on an estimated annual income
tax rate. In addition, Finlay Jewelry has recognized an intraperiod tax benefit
as it has projected that there will be a profit in the fourth quarter and for
the fiscal year.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
MERCHANDISE INVENTORIES: Consolidated inventories are stated at the lower
of cost or market determined by the last-in, first-out ("LIFO") method.
Inventory is reduced for estimated obsolescence or unmarketable inventory equal
to the difference between the cost of inventory and the estimated market value
based upon assumptions about future demand and market conditions.
7
FINLAY FINE JEWELRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The cost to Finlay of gold merchandise sold on consignment, which typically
varies with the price of gold, is not fixed until the merchandise is sold.
Finlay, at times, enters into forward contracts based upon the anticipated sales
of gold product in order to hedge against the risk of gold price fluctuations.
Such contracts typically have durations ranging from one to nine months. At
August 2, 2003 and February 1, 2003, Finlay Jewelry had several open positions
in gold forward contracts totaling 53,000 fine troy ounces and 4,000 fine troy
ounces, respectively, to purchase gold for $18.0 million and $1.4 million,
respectively.
VENDOR ALLOWANCES: Finlay Jewelry receives allowances from its vendors
through a variety of programs and arrangements, including cooperative
advertising. The allowances are generally intended to offset Finlay Jewelry's
costs of promoting, advertising and selling the vendors' products in its
departments. Vendor allowances are recognized as a reduction of cost of sales
upon the sale of merchandise or selling, general and administrative expenses
("SG&A") when the purpose for which the vendor funds were intended to be used
has been fulfilled. Accordingly, a reduction or increase in vendor allowances
has an inverse impact on cost of sales and/or SG&A.
Effective February 3, 2002, Finlay Jewelry adopted EITF 02-16. EITF 02-16
addresses the accounting treatment for vendor allowances and provides that cash
consideration received from a vendor should be presumed to be a reduction of the
prices of the vendors' product and should therefore be shown as a reduction in
the purchase price of the merchandise. Further, these allowances should be
recognized as a reduction in cost of sales when the related product is sold. To
the extent that the cash consideration represents a reimbursement of a specific,
incremental and identifiable cost, then those vendor allowances should be used
to offset such costs.
In accordance with EITF 02-16, Finlay Jewelry recorded a cumulative effect
of accounting change as of February 3, 2002, the date of adoption, that
increased the net loss for the twenty-six weeks ended August 3, 2002 by $17.2
million, net of tax. As of August 2, 2003 and February 1, 2003, deferred vendor
allowances totaled (i) $18.0 million and $18.5 million, respectively, for owned
merchandise, which allowances are included as an offset to merchandise
inventories on Finlay Jewelry's Consolidated Balance Sheet, and (ii) $8.9
million and $10.5 million, respectively, for merchandise received on
consignment, which allowances are included as deferred income on Finlay
Jewelry's Consolidated Balance Sheet. The consolidated financial statements for
the thirteen weeks and twenty-six weeks ended August 3, 2002 have been restated
to reflect this change in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 3, "Reporting Accounting Changes in Interim Financial
Statements" as follows (in thousands):
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
AUGUST 3, 2002 AUGUST 3, 2002
------------------- ---------------------
Net income, as previously reported.......................... $ 718 $ 1,558
Less: Cumulative effect of accounting change, net of tax.... - (17,209)
Add: Impact on operating income, net of tax................. (271) 79
------------------- ---------------------
Net income (loss), as restated.............................. $ 447 $ (15,572)
=================== =====================
8
FINLAY FINE JEWELRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
HEDGING: SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. Under SFAS No. 133, all
derivatives, whether designated in hedging relationships or not, are required to
be recorded on the balance sheet at fair value. SFAS No. 133 defines
requirements for designation and documentation of hedging relationships, as well
as ongoing effectiveness assessments, which must be met in order to qualify for
hedge accounting. For a derivative that does not qualify as a hedge, changes in
fair value would be recorded in earnings immediately. Finlay Jewelry has
designated its existing derivative instruments, consisting of gold forward
contracts, as cash flow hedges. For derivative instruments designated as cash
flow hedges, the effective portion of the change in the fair value of the
derivative is recorded in accumulated other comprehensive income, a separate
component of stockholder's equity, and is reclassified into cost of sales when
the offsetting effects of the hedged transaction affects earnings. Changes in
the fair value of the derivative attributable to hedge ineffectiveness are
recorded in earnings immediately. At August 2, 2003 and February 1, 2003, the
fair value of the gold forward contracts resulted in the recognition of an asset
of $929,000 and $94,000, respectively. The amount recorded in accumulated other
comprehensive income at August 2, 2003 of $553,000, net of tax, is expected to
be reclassified into earnings during the remainder of 2003. The amount recorded
in accumulated other comprehensive income at February 1, 2003 of $55,000, net of
tax, was reclassified into earnings in the first quarter of 2003.
In April 2003, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 149, "Amendment of Statement No. 133 on Derivative Instruments and
Hedging Activities". SFAS No. 149 amends and clarifies the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under SFAS No. 133. This Statement
is effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. The adoption of SFAS No.
149 did not have a material impact on the financial position or results of
operations of Finlay Jewelry.
Finlay Jewelry has documented all relationships between hedging instruments
and hedged items, as well as its risk management objectives and strategy for
undertaking various hedge transactions. Finlay Jewelry also assesses, both at
the hedge's inception and on an ongoing basis, whether the derivatives that are
used in hedging transactions are highly effective in offsetting changes in cash
flows of hedged items. Finlay Jewelry believes that the designated hedges will
be highly effective.
STOCK-BASED COMPENSATION: In December 2002, the FASB issued SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure" which
became effective in 2002. This Statement amends SFAS No. 123 "Accounting for
Stock-Based Compensation", to provide alternative methods of transition for an
entity that voluntarily changes to the fair value method of accounting for
stock-based compensation. As permitted by SFAS No. 123, Finlay has elected to
continue to recognize stock-based compensation using the intrinsic value method.
Accordingly, no compensation expense has been recognized for its stock-based
compensation plans. Had the fair value method of accounting been applied to the
Holding Company's stock option plans, which requires recognition of compensation
costs ratably over the vesting period of the stock options, the net income
(loss) would be as follows:
9
FINLAY FINE JEWELRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
------------------------------- ------------------------------
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
2003 2002 2003 2002
------------- ------------- -------------- ------------
(IN THOUSANDS)
Reported net income (loss) .......................... $ 645 $ 447 $ 411 $ (15,572)
Add: Stock-based compensation determined under
the fair value method, net of tax.............. (149) (192) (298) (390)
------------- ------------- -------------- ------------
Pro forma net income (loss) ......................... $ 496 $ 255 $ 113 $ (15,962)
============= ============= ============== ============
COMPREHENSIVE INCOME: SFAS No. 130, "Reporting Comprehensive Income"
requires disclosure of comprehensive income, defined as the total of net income
and all other non-owner changes in equity, which under generally accepted
accounting principles, are recorded directly to the stockholder's equity section
of the consolidated balance sheet and, therefore, bypass net income. For 2003
and 2002, the only non-owner change in equity related to the change in fair
value of Finlay Jewelry's outstanding gold forward contracts. For the thirteen
weeks ended August 2, 2003 and August 3, 2002, the comprehensive income,
calculated as the total of the net income (loss) plus the change in fair value
of Finlay Jewelry's outstanding gold forward contracts, was $1.2 million and
$0.2 million, respectively. For the twenty-six weeks ended August 2, 2003, the
comprehensive income was $0.9 million and for the twenty-six weeks ended August
3, 2002 the comprehensive loss was $15.9 million.
NEW ACCOUNTING PRONOUNCEMENT: In May 2003, the FASB issued SFAS No. 150,
"Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity". This Statement establishes standards for how a company
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. This Statement is effective for financial
instruments entered into or modified after May 31, 2003 and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of SFAS No. 150 did not have a material impact on Finlay
Jewelry's results of operations, financial position or cash flows.
NOTE 3 - DESCRIPTION OF BUSINESS
Finlay is a retailer of fine jewelry products and operates leased fine
jewelry departments in department stores throughout the United States. Over the
past three fiscal years, the fourth quarter accounted for an average of 41% of
Finlay's sales and approximately 79% of its income from operations, due to the
seasonality of the retail jewelry industry. Approximately 49% of Finlay's sales
in 2002 were from operations in The May Department Stores Company ("May") and
22% in departments operated in store groups owned by Federated Department Stores
("Federated").
NOTE 4 - SHORT AND LONG-TERM DEBT
On January 22, 2003, Finlay Jewelry's revolving credit agreement with
General Electric Capital Corporation and certain other lenders was amended and
restated (the "Revolving Credit Agreement"). The Revolving Credit Agreement,
which matures in January 2008, provides Finlay Jewelry with a senior secured
revolving line of credit up to $225.0 million (the "Revolving Credit Facility").
At August 2, 2003, $33.8 million was outstanding under this facility and $154.3
million was available for borrowing.
10
FINLAY FINE JEWELRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - SHORT AND LONG-TERM DEBT (CONTINUED)
The Holding Company has outstanding 9% Senior Debentures, due May 1, 2008,
having an aggregate principal amount of $75.0 million (the "Senior Debentures")
and Finlay Jewelry has outstanding 83/8% Senior Notes, due May 1, 2008, having
an aggregate principal amount of $150.0 million (the "Senior Notes"). The
indenture relating to the Senior Notes is referred to as the "Senior Note
Indenture".
NOTE 5 - MERCHANDISE INVENTORIES
Merchandise inventories consisted of the following:
AUGUST 2, FEBRUARY 1,
2003 2003
---------------- ------------------
(IN THOUSANDS)
Jewelry goods - rings, watches and other fine jewelry
(first-in, first-out ("FIFO") basis)......................... $ 278,067 $ 275,339
Less: Excess of FIFO cost over LIFO inventory value.............. 13,276 11,795
---------------- ------------------
$ 264,791 $ 263,544
================ ==================
In accordance with EITF 02-16, merchandise inventories have been reduced by
$18.0 million and $18.5 million at August 2, 2003 and February 1, 2003,
respectively, to reflect the vendor allowances as a reduction in the cost of
merchandise. The LIFO method had the effect of decreasing income before taxes
for the thirteen weeks ended August 2, 2003 and August 3, 2002 by $1.3 million
and $0.7 million, respectively. The LIFO method had the effect of decreasing
income before income taxes for the twenty-six weeks ended August 2, 2003 by $1.5
million and increasing the loss before taxes for the twenty-six weeks ended
August 3, 2002 by $0.8 million, respectively. Finlay determines its LIFO
inventory value by utilizing selected producer price indices published for
jewelry and watches by the Bureau of Labor Statistics.
Approximately $352,138,000 and $359,676,000 at August 2, 2003 and February
1, 2003, respectively, of merchandise received on consignment is not included in
merchandise inventories and accounts payable-trade in the accompanying
Consolidated Balance Sheets.
Finlay Jewelry is party to an amended and restated gold consignment
agreement (as amended, the "Gold Consignment Agreement"), which enables Finlay
Jewelry to receive consignment merchandise by providing gold, or otherwise
making payment, to certain vendors. While the merchandise involved remains
consigned, title to the gold content of the merchandise transfers from the
vendors to the gold consignor.
Effective September 30, 2002, Finlay Jewelry amended the Gold Consignment
Agreement to extend the term to July 31, 2005, and to permit Finlay Jewelry to
consign up to the lesser of (i) 165,000 fine troy ounces or (ii) $50.0 million
worth of gold, subject to a formula as prescribed by the Gold Consignment
Agreement. In the event this agreement is terminated, Finlay Jewelry will be
required to return or purchase the outstanding gold at the prevailing gold rate
in effect on that date. At August 2, 2003 and February 1, 2003, amounts
outstanding under the Gold Consignment Agreement totaled 135,190 and 134,785
fine troy ounces, respectively, valued at approximately $48.0 million and $49.5
million, respectively. For financial statement purposes, the consigned gold is
not included
11
FINLAY FINE JEWELRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - MERCHANDISE INVENTORIES (CONTINUED)
in merchandise inventories on Finlay Jewelry's Consolidated Balance Sheets and,
therefore, no related liability has been recorded.
NOTE 6 - LEASE AGREEMENTS
Finlay conducts all of its operations as leased departments in department
stores. All of these leases, as well as rentals for office space and equipment,
are accounted for as operating leases. A substantial number of such operating
leases expire on various dates through 2008. All references herein to leased
departments refer to departments operated pursuant to license agreements or
other arrangements with host department stores.
Substantially all of the department store leases provide that the title to
certain fixed assets of Finlay transfers upon termination of the leases, and
that Finlay will receive the undepreciated value of such fixed assets from the
host store in the event such transfers occur. The values of such fixed assets
are recorded at cost at the inception of the lease arrangement and are reflected
in the accompanying Consolidated Balance Sheets.
In several cases, Finlay is subject to limitations under its lease
agreements with host department stores which prohibit Finlay from operating
departments for other store groups within a certain geographical radius of the
host store.
The store leases provide for the payment of fees based on sales, plus, in
some instances, installment payments for fixed assets. Only minimum fees, as
represented in the table below, are guaranteed by the lease agreements with host
department stores. Lease expense, included in Selling, general and
administrative expenses, is as follows:
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
--------------------------------- ---------------------------------
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
2003 2002 2003 2002
--------------- -------------- -------------- ---------------
(IN THOUSANDS)
Minimum fees.............. $ 398 $ 633 $ 784 $ 1,273
Contingent fees........... 31,500 30,256 61,924 60,659
--------------- -------------- -------------- ---------------
Total................... $ 31,898 $ 30,889 $ 62,708 $ 61,932
=============== ============== ============== ===============
NOTE 7 - SALE AND CLOSURE OF SONAB
In January 2000, Societe Nouvelle d' Achat de Bijouterie - S.O.N.A.B.
("Sonab"), Finlay Jewelry's European leased jewelry department subsidiary, sold
the majority of its assets for approximately $9.9 million. After the sale, the
buyer operated more than 80 locations previously included in Sonab's
130-location base in France. The remaining departments were closed.
Finlay Jewelry recorded a pre-tax charge in the fourth quarter of 1999 of
$28.6 million for the write-down of assets for disposition and related closure
expenses. All of Sonab's employees, excluding those that were hired by the
buyer, were involuntarily terminated, including sales associates, supervisors
and corporate personnel. As of August 2, 2003, the Company's exit plan has been
completed with the exception of certain employee litigation and other legal
matters. To date, Finlay Jewelry has charged a
12
FINLAY FINE JEWELRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - SALE AND CLOSURE OF SONAB (CONTINUED)
total of $26.4 million against its estimate of $27.2 million. Finlay Jewelry
does not believe future results will be materially impacted by any remaining
payments.
NOTE 8 - STOCK REPURCHASE PROGRAM AND RESTRICTED STOCK
On December 1, 2000, the Holding Company announced that its Board of
Directors had approved a stock repurchase program to acquire up to $20 million
of outstanding Common Stock. The stock repurchase program has been extended from
time to time and, on June 19, 2003, the Holding Company's Board of Directors
approved the repurchase of an additional $20 million of outstanding Common
Stock. The Holding Company may, at the discretion of management, purchase its
Common Stock, from time to time through September 29, 2004. The extent and
timing of repurchases will depend upon general business and market conditions,
stock prices, availability under the Revolving Credit Facility, compliance with
certain restrictive covenants and Finlay's cash position and requirements going
forward. The repurchase program may be modified, extended or terminated by the
Board of Directors at any time. Through fiscal 2002, the Holding Company
repurchased a total of 1,332,942 shares for approximately $13,793,000. For the
twenty-six weeks ended August 2, 2003 and August 3, 2002, the Holding Company
repurchased 225,688 shares and 577,562 shares for $2,848,000 and $6,515,000
respectively.
On February 4, 2001, an executive officer of Finlay was issued 100,000
shares of Common Stock of the Holding Company, subject to restrictions
("Restricted Stock"), pursuant to a restricted stock agreement. The Restricted
Stock becomes fully vested after four years of continuous employment by Finlay
and is accounted for as a component of the Holding Company's stockholders'
equity.
On August 14, 2003, an executive officer of Finlay was issued an
additional 50,000 shares of Restricted Stock, pursuant to a restricted stock
agreement. The Restricted Stock vests fifty percent on January 31, 2005, with
the remaining fifty percent vesting on June 30, 2007, subject to the provisions
of the restricted stock agreement.
NOTE 9 - EXECUTIVE AND DIRECTOR DEFERRED COMPENSATION AND STOCK
PURCHASE PLANS
On April 16, 2003, the Board of Directors of the Holding Company
adopted the Executive Deferred Compensation and Stock Purchase Plan and the
Director Deferred Compensation and Stock Purchase Plan, which was approved by
the Holding Company's stockholders on June 19, 2003 (the "New Plans"). Under the
New Plans, key executives of Finlay and the Holding Company's non-employee
directors as directed by the Holding Company's Compensation Committee, will be
eligible to acquire restricted stock units ("RSUs"). An RSU is a unit of
measurement equivalent to one share of common stock, but with none of the
attendant rights of a stockholder of a share of common stock. Two types of RSUs
will be awarded under the New Plans: (i) participant RSUs, where a plan
participant may elect to defer, in the case of an executive employee, a portion
of his or her actual or target bonus, and in the case of a non-employee
director, his or her retainer fees and Committee chairmanship fees, and receive
RSUs in lieu thereof and (ii) matching RSUs, where the Holding Company will
credit a participant's plan account with one matching RSU for each participant
RSU that a participant elects to purchase. While participant RSUs are fully
vested at all times, matching RSUs will be subject to vesting and forfeiture as
set forth in the New Plans. At the time of distribution under the New Plans,
RSUs will be converted into actual
13
shares of Common Stock of the Holding Company. Purchases and awards of RSUs
under the New Plans will not further dilute any stockholder's ownership
percentage beyond the dilution already permitted under the existing long term
incentive plans because the shares of Common Stock to be issued or used under
the New Plans will be funded solely from shares of Common Stock already
available for issuance under the existing long term incentive plans.
NOTE 10 - STORE GROUP AND DEPARTMENT CLOSINGS
On August 26, 2003, the Holding Company announced that Federated will
not renew Finlay's lease in the Burdine's department store division due to the
planned consolidation of the Burdine's and Macy's fine jewelry departments in
2004. The termination of the lease, which expires January 31, 2004, will result
in the closure of 46 Finlay departments in the Burdine's division. In fiscal
2002, Finlay generated approximately $50 million of revenue from the Burdine's
departments. Finlay intends to record charges amounting to approximately $1.5
million for closing costs associated with losses on fixed asset disposal and
severance, excluding any potential charge for impairment of goodwill resulting
from the department closings.
On July 30, 2003, May announced its intention to divest 32 Lord & Taylor
stores, as well as two other stores in its Famous-Barr division. Finlay
currently operates the jewelry departments in each of these locations and
achieved sales in fiscal 2002 of approximately $17 million from these
departments. At this time, May has not announced a specific timeline for when
these stores will close. However, Finlay intends to record charges amounting to
approximately $1.5 million for closing costs associated with losses on fixed
asset disposal and severance from the date of the announcement through the dates
of the store closings, excluding any potential charge for impairment of goodwill
resulting from the department closings.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
From time to time, Finlay is involved in litigation relating to claims
arising out of its operations in the normal course of business. As of September
10, 2003, Finlay is not a party to any legal proceedings that, individually or
in the aggregate, are reasonably expected to have a material adverse effect on
Finlay's business, results of operations, financial condition or cash flows.
However, the results of these matters cannot be predicted with certainty, and an
unfavorable resolution of one or more of these matters could have a material
adverse effect on Finlay's business, results of operations, financial condition
or cash flows.
Finlay Jewelry has not provided any third-party financial guarantees as of
August 2, 2003.
14
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Finlay Jewelry's Consolidated Financial Statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America. These generally accepted accounting principles require management to
make estimates and assumptions that affect certain financial statement accounts
reported and disclosed at the date of the financial statements. Actual results
may differ from those estimates.
Certain of Finlay Jewelry's significant accounting policies are described
in Note 2 of Notes to the Consolidated Financial Statements in Finlay Jewelry's
Form 10-K for the fiscal year ended February 1, 2003. Finlay believes that the
following discussion addresses the critical accounting policies, which are those
that are most important to the portrayal of Finlay Jewelry's financial condition
and results of operations and require management's most difficult, subjective or
complex judgments. Finlay Jewelry is not aware of any likely events or
circumstances which would result in different amounts being reported that would
materially affect its financial condition or results of operations.
MERCHANDISE INVENTORIES
Finlay Jewelry values its inventories at the lower of cost or market. The
cost is determined by the last-in, first-out method utilizing selected producer
price indices published for jewelry and watches by the Bureau of Labor
Statistics. Factors related to inventories such as future consumer demand and
the economy's impact on consumer discretionary spending, inventory aging,
ability to return merchandise to vendors, merchandise condition and anticipated
markdowns are analyzed to determine estimated net realizable values. An
adjustment is recorded to reduce the LIFO cost of inventories, if required. Any
significant unanticipated changes in the factors above could have a significant
impact on the value of the inventories and Finlay Jewelry's reported operating
results.
DERIVATIVE INSTRUMENTS
Finlay is exposed to market risk related to changes in the price of gold
and at times enters into forward contracts to hedge against the risk of gold
price fluctuations. In 2001, Finlay Jewelry adopted SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities", which requires that all
derivative instruments be recorded on the balance sheet as either an asset or a
liability measured at its fair value. Accounting for derivative instruments
under this pronouncement did not have a material impact on the Company's
financial condition, results of operations and cash flows for the thirteen weeks
and twenty-six weeks ended August 2, 2003.
VENDOR ALLOWANCES
Finlay Jewelry receives allowances from its vendors through a variety of
programs and arrangements, including cooperative advertising. The allowances are
generally intended to offset Finlay Jewelry's costs of promoting, advertising
and selling the vendors' products in its departments. Vendor allowances are
recognized as a reduction of cost of sales upon the sale of merchandise or SG&A
when the purpose for which the vendor funds were intended to be used has been
fulfilled. Accordingly, a reduction or increase in vendor allowances has an
inverse impact on cost of sales and/or SG&A.
15
Effective in 2002, Finlay Jewelry adopted Emerging Issues Task Force Issue
No. 02-16, "Accounting by a Customer (Including a Reseller) for Cash
Consideration Received from a Vendor" ("EITF 02-16"). EITF 02-16 addresses the
accounting treatment for vendor allowances and provides that cash consideration
received from a vendor should be presumed to be a reduction of the prices of the
vendors' product and should therefore be shown as a reduction in the purchase
price of the merchandise. Further, these allowances should be recognized as a
reduction in cost of sales when the related product is sold. To the extent that
the cash consideration represents a reimbursement of a specific, incremental and
identifiable cost, then those vendor allowances should be used to offset such
costs.
In accordance with EITF 02-16, Finlay Jewelry recorded a cumulative effect
of accounting change as of February 3, 2002, the date of adoption, that
decreased net income for the twenty-six weeks ended August 3, 2002 by $17.2
million, net of tax. As of August 2, 2003 and February 1, 2003, deferred vendor
allowances totaled (i) $18,020,000 and $18,452,000, respectively, for owned
merchandise, which allowances are included as an offset to merchandise
inventories on Finlay Jewelry's Consolidated Balance Sheet, and (ii) $8,853,000
and $10,493,000, respectively, for merchandise received on consignment, which
allowances are included as deferred income on Finlay Jewelry's Consolidated
Balance Sheet. The adoption of EITF 02-16 did not have a material impact on the
financial position or results of operations of Finlay Jewelry for the thirteen
weeks and twenty-six weeks ended August 2, 2003. Previously reported results for
the thirteen weeks and twenty-six weeks ended August 3, 2002 have been restated
as a result of the retroactive adoption of EITF 02-16.
LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets may not be
recoverable. If the undiscounted future cash flows from the long-lived assets
are less than the carrying value, Finlay Jewelry recognizes a loss equal to the
difference between the carrying value and the discounted future cash flows of
the assets. Factors used in the valuation of long-lived assets include, but are
not limited to, management's plans for future operations, recent operating
results and projected cash flows.
GOODWILL
Finlay Jewelry evaluates goodwill for impairment annually or whenever
events and changes in circumstances suggest that the carrying amount may not be
recoverable from its estimated future cash flows. To the extent these future
projections or Finlay's strategies change, the conclusion regarding impairment
may differ from current estimates.
REVENUE RECOGNITION
Finlay Jewelry recognizes revenue upon the sale of merchandise, either
owned or consigned, to its customers, net of anticipated returns. The provision
for sales returns is based on Finlay Jewelry's historical return rate.
COVENANT REQUIREMENTS
Finlay Jewelry's agreements covering the Revolving Credit Agreement and the
Senior Notes each require that Finlay comply with certain restrictive and
financial covenants. In addition, Finlay Jewelry is party to the Gold
Consignment Agreement, which also contains certain covenants. As of and for the
twenty-six weeks ended August 2, 2003, Finlay Jewelry was in compliance with all
of its covenants. Management expects to be in compliance with all of its
covenants through 2003. Because compliance is based, in part, on management
estimates and actual results can differ from those estimates, there can be
16
no assurance that Finlay Jewelry will be in compliance with the covenants in the
future or that the lenders will waive or amend any of the covenants should
Finlay Jewelry be in violation of any such covenants. Finlay Jewelry believes
the assumptions used are appropriate.
The Revolving Credit Agreement contains customary covenants, including
limitations on, or relating to capital expenditures, liens, indebtedness,
investments, mergers, acquisitions, affiliate transactions, management
compensation and the payment of dividends and other restricted payments. The
Revolving Credit Agreement also contains various financial covenants, including
minimum earnings and fixed charge coverage ratio requirements and certain
maximum debt limitations.
The Senior Note Indenture contain restrictions relating to, among other
things, the payment of dividends, the making of certain investments or other
restricted payments, the incurrence of additional indebtedness, the creation of
certain liens, entering into transactions with affiliates, the disposition of
certain assets and engaging in mergers and consolidations.
The Gold Consignment Agreement requires Finlay Jewelry to comply with
certain covenants, including restrictions on the incurrence of certain
indebtedness, the creation of liens, engaging in transactions with affiliates
and limitations on the payment of dividends. In addition, the Gold Consignment
Agreement also contains various financial covenants, including minimum earnings
and fixed charge coverage ratio requirements and certain maximum debt
limitations.
SELF-INSURANCE RESERVES
Finlay Jewelry is self-insured for worker's compensation claims up to a
certain maximum liability amount. Although the amount accrued is actuarially
determined based on analysis of historical trends of losses, settlements,
litigation costs and other factors, the amount Finlay Jewelry will ultimately
disburse could differ materially from the accrued amount.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement No.
133 on Derivative Instruments and Hedging Activities". SFAS No. 149 amends and
clarifies the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This Statement is effective for contracts entered into or modified
after June 30, 2003 and for hedging relationships designated after June 30,
2003. The adoption of SFAS No. 149 did not have a material impact on the
financial position or results of operations of Finlay Jewelry.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity". This
Statement establishes standards for how a company classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. This Statement is effective for financial instruments entered into or
modified after May 31, 2003 and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The adoption of SFAS No. 150
did not have a material impact on Finlay Jewelry's results of operations,
financial position or cash flows.
17
RESULTS OF OPERATIONS
The following table sets forth operating results as a percentage of sales
for the periods indicated:
STATEMENTS OF OPERATIONS DATA
(UNAUDITED)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
---------------------------- -----------------------------
AUGUST 3, AUGUST 3,
AUGUST 2, 2002 AUGUST 2, 2002
2003 (AS RESTATED) 2003 (AS RESTATED)
----------- ----------- ----------- -----------
Sales...................................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales.............................................. 49.1 48.7 48.7 48.2
----------- ----------- ----------- -----------
Gross margin........................................... 50.9 51.3 51.3 51.8
Selling, general and administrative expenses............... 45.9 46.2 46.6 46.6
Depreciation and amortization.............................. 2.3 2.4 2.3 2.3
----------- ----------- ----------- -----------
Income from operations................................. 2.7 2.7 2.4 2.9
Interest expense, net...................................... 2.2 2.5 2.2 2.4
----------- ----------- ----------- -----------
Income before income taxes and
cumulative effect of accounting change................ 0.5 0.2 0.2 0.5
Provision for income taxes................................. 0.2 - 0.1 0.1
----------- ----------- ----------- -----------
Income before cumulative effect of
accounting change.................................... 0.3 0.2 0.1 0.4
Cumulative effect of accounting change, net of tax......... - - - (4.6)
----------- ----------- ----------- -----------
Net income (loss)...................................... 0.3% 0.2% 0.1% (4.2)%
=========== =========== =========== ===========
THIRTEEN WEEKS ENDED AUGUST 2, 2003 COMPARED WITH THIRTEEN WEEKS ENDED
AUGUST 3, 2002
SALES. Sales for the thirteen weeks ended August 2, 2003, increased $5.6
million, or 3.0%, over the comparable period in 2002. Comparable department
sales (departments open for the same months during comparable periods)
increased 2.6%. Management attributes this increase in sales primarily to
emphasizing its "Key Item" and "Best Value" merchandising programs, which
provide a targeted assortment of items at competitive prices.
During the thirteen weeks ended August 2, 2003, Finlay opened five
departments and closed six departments. The openings and closings were all
within existing store groups.
GROSS MARGIN. Gross margin for the period increased by $2.2 million in
2003 compared to 2002, and as a percentage of sales, gross margin decreased
by 0.4%. The decrease primarily reflected a higher LIFO provision coupled
with an increase in gold prices.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A increased $2.0
million, or 2.3% due primarily to payroll expense and lease fees associated
with the increase in Finlay Jewelry's sales. As a percentage of sales, SG&A
decreased 0.3% due to the favorable leveraging of payroll and other
expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization remained
the same at $4.4 million reflecting additional depreciation and
amortization as a result of capital expenditures and capitalized software
costs for the most recent twelve months offset by the effect of certain
assets becoming fully depreciated.
18
INTEREST EXPENSE, NET. Interest expense decreased by $0.3 million
primarily due to a decrease in average borrowings ($200.2 million for the period
in 2003 compared to $221.8 million for the comparable period in 2002). The
weighted average interest rate was approximately 7.1% for the 2003 period
compared to 6.9% for the comparable period in 2002.
PROVISION (BENEFIT) FOR INCOME TAXES. The income tax provision (benefit)
for the 2003 and 2002 periods reflects effective tax rates of 39% and 40.5%,
respectively, adjusted in 2002 for certain income tax provisions which were no
longer required.
NET INCOME. Net income of $0.6 million for the 2003 period represents an
increase of $0.2 million as compared to the net income in the prior period as a
result of the factors discussed above.
TWENTY-SIX WEEKS ENDED AUGUST 2, 2003 COMPARED WITH TWENTY-SIX WEEKS ENDED
AUGUST 3, 2002
SALES. Sales for the twenty-six weeks ended August 2, 2003 increased
$4.5 million, or 1.2%, over the comparable period in 2002. Comparable department
sales increased 1.0%. Management attributes this increase in sales primarily to
emphasizing its "Key Item" and "Best Value" merchandising programs, which
provide a targeted assortment of items at competitive prices, offset by the net
effect of new store openings and closings.
During the twenty-six weeks ended August 2, 2003, Finlay opened nine
departments and closed 17 departments. The openings and closings were all within
existing store groups.
GROSS MARGIN. Gross margin for the period increased by $0.4 million, in
2003 compared to 2002, and as a percentage of sales, gross margin decreased by
0.5%. The decrease primarily reflected a higher LIFO provision coupled with an
increase in gold prices and a continued promotional environment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A increased $2.4
million, or 1.4%, due primarily to payroll expense and lease fees associated
with the increase in Finlay Jewelry's sales. SG&A as a percentage of sales
remained the same at 46.6%.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased
by $0.1 million due to the effect of certain assets becoming fully depreciated,
offset by additional depreciation and amortization as a result of capital
expenditures.
INTEREST EXPENSE, NET. Interest expense decreased by $0.5 million
primarily due to a decrease in average borrowings $186.6 million for the period
in 2003 compared to $205.4 million for the comparable period in 2002. The
weighted average interest rate was approximately 7.5% for the 2003 period
compared to 7.2% for the comparable period in 2002.
PROVISION FOR INCOME TAXES. The income tax provision for the 2003 and
2002 periods reflects an effective tax rate of 39% and 40.5%, respectively,
adjusted in 2002 for certain income tax provisions which were no longer
required.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAXES. Finlay Jewelry
adopted EITF 02-16 as of the beginning of 2002 and recorded a cumulative effect
after-tax reduction to earnings of $17.2 million. The charge relates to the
deferral of a portion of Finlay Jewelry's previously collected vendor allowances
relating to both owned merchandise and merchandise received on consignment.
NET INCOME (LOSS). The net income of $0.4 million for the 2003 period
was $16.0 million higher than the net loss in the prior period as a result of
the factors discussed above.
19
LIQUIDITY AND CAPITAL RESOURCES
Finlay's primary capital requirements are for funding working capital for
new departments and for working capital growth of existing departments and, to a
lesser extent, capital expenditures for opening new departments, renovating
existing departments and information technology investments. For the twenty-six
weeks ended August 2, 2003 and August 3, 2002, capital expenditures totaled $5.0
million and $5.5 million, respectively. For 2002, capital expenditures totaled
$12.5 million and for 2003 are estimated to be approximately $12.0 million to
$13.0 million. Although capital expenditures are limited by the terms of the
Revolving Credit Agreement, to date this limitation has not precluded Finlay
Jewelry from satisfying its capital expenditure requirements.
Finlay's operations substantially preclude customer receivables as Finlay's
lease agreements require host stores to remit sales proceeds for each month
(without regard to whether such sales were cash, store credit or national credit
card) to Finlay approximately three weeks after the end of such month. However,
Finlay cannot ensure the collection of sales proceeds from its host stores.
Additionally, on average, approximately 50% of Finlay's merchandise has been
carried on consignment. Finlay Jewelry's working capital balance was $172.6
million at August 2, 2003, a decrease of $1.3 million from February 1, 2003. The
decrease resulted primarily from the impact of the interim net income (exclusive
of depreciation and amortization), capital expenditures and the declaration of
dividends to the Holding Company.
The seasonality of Finlay's business causes working capital requirements,
and therefore borrowings under the Revolving Credit Agreement, to reach their
highest level in the months of October, November and December in anticipation of
the year-end holiday season. Accordingly, Finlay experiences seasonal cash needs
as inventory levels peak. Additionally, substantially all of Finlay's lease
agreements provide for accelerated payments during the months of November and
December, which require the host store groups to remit to Finlay 75% of the
estimated months' sales prior to or shortly following the end of that month.
These proceeds result in a significant increase in Finlay's cash, which is used
to reduce Finlay's borrowings under the Revolving Credit Agreement. Inventory
levels decreased by $10.6 million, or 3.9%, as compared to August 3, 2002, as a
result of the continued monitoring of inventory levels. During 2003, the reduced
inventory levels favorably impacted Finlay's outstanding borrowings under the
Revolving Credit Agreement.
In January 2003, Finlay entered into the Revolving Credit Agreement, which
expires in January 2008. The Revolving Credit Agreement provides Finlay Jewelry
with a line of credit of up to $225.0 million to finance working capital needs.
Amounts outstanding under the Revolving Credit Agreement bear interest at a rate
equal to, at Finlay's option, (i) the prime rate plus a margin ranging from zero
to 1.0% or (ii) adjusted Eurodollar rate plus a margin ranging from 1.0% to
2.0%, in each case depending on the financial performance of Finlay. The
weighted average interest rate was 3.7% and 3.9% for the six months ended August
2, 2003 and August 3, 2002, respectively.
In each year, Finlay is required to reduce the outstanding revolving credit
balance and letter of credit balance under the Revolving Credit Agreement to
$50.0 million or less and $20.0 million or less, respectively, for a 30
consecutive day period (the "Balance Reduction Requirement"). Borrowings under
the Revolving Credit Agreement at August 2, 2003 were $33.8 million, compared to
a zero balance at February 1, 2003 and $56.6 million at August 3, 2002. The
average amounts outstanding under the Revolving Credit Agreement were $36.6
million and $55.4 million for the twenty-six weeks ended August 2, 2003 and
August 3, 2002, respectively. The maximum amount outstanding for the twenty-six
weeks ended August 2, 2003 was $64.7 million, at which point the unused excess
availability was $151.3 million. At August 2, 2003, Finlay was in compliance
with all of its covenants under the Revolving Credit Agreement.
20
Finlay's long-term needs for external financing will depend on its rate of
growth, the level of internally generated funds and the ability to continue
obtaining substantial amounts of merchandise on advantageous terms, including
consignment arrangements with its vendors. For 2002, Finlay had an average
balance of consignment merchandise of $360.5 million as compared to an average
balance of $377.4 million in 2001. As of August 2, 2003, $352.1 million of
consignment merchandise from approximately 300 vendors was on hand as compared
to $348.2 million at August 3, 2002.
A significant amount of Finlay's operating cash flow has been used or will
be required to pay interest, directly or indirectly, with respect to the Senior
Debentures, the Senior Notes and amounts due under the Revolving Credit
Agreement, including the payments required pursuant to the Balance Reduction
Requirement. As of August 2, 2003, Finlay Jewelry's outstanding borrowings were
$183.8 million, which included a $150.0 million balance under the Senior Notes
and a $33.8 million balance under the Revolving Credit Agreement. At August 2,
2003, Finlay was in compliance with all of its covenants under the Senior Note
Indenture.
Finlay may, at the discretion of management, purchase Senior Debentures
and/or Senior Notes from time to time in the open market. Additionally,
beginning on May 1, 2003, the Senior Debentures and Senior Notes became
redeemable, in whole or in part, at the option of Finlay, at specified
redemption prices plus accrued and unpaid interest, if any, to the date of the
redemption. The extent and timing of any bond repurchases will depend upon
general business and market conditions, bond prices, availability under the
Revolving Credit Facility, compliance with certain restrictive covenants and
Finlay's cash position and requirements going forward.
Effective September 30, 2002, Finlay Jewelry amended the Gold Consignment
Agreement to extend the term to July 31, 2005 and to permit Finlay to consign up
to the lesser of (i) 165,000 fine troy ounces or (ii) $50.0 million worth of
gold, subject to a formula as prescribed by the Gold Consignment Agreement. At
August 2, 2003, amounts outstanding under the Gold Consignment Agreement totaled
135,190 fine troy ounces, valued at approximately $48.0 million. The average
amount outstanding under the Gold Consignment Agreement was $39.1 million in
2002. In the event this agreement is terminated, Finlay Jewelry will be required
to return or purchase the outstanding gold at the prevailing gold rate in effect
on that date. For financial statement purposes, the consigned gold is not
included in merchandise inventories on Finlay Jewelry's Consolidated Balance
Sheets and, therefore, no related liability has been recorded. At August 2,
2003, Finlay Jewelry was in compliance with all of its covenants under the Gold
Consignment Agreement.
The following tables summarize Finlay Jewelry's contractual and commercial
obligations, which may have an impact on future liquidity and the availability
of capital resources, as of August 2, 2003 (dollars in thousands):
PAYMENTS DUE BY PERIOD
---------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS TOTAL LESS THAN 1 YEAR 1 - 3 YEARS 4 - 5 YEARS AFTER 5 YEARS
- ------------------------------- ------------- ------------------ ------------- ------------- --------------
Senior Notes (due 2008) (1)... $ 150,000 $ - $ - $ - $ 150,000
Operating leases (2).......... 11,011 1,974 3,925 3,834 1,278
------------- --------------- ------------- ------------ --------------
Total......................... $ 161,011 $ 1,974 $ 3,925 $ 3,834 $ 151,278
============= =============== ============= ============ ==============
(1) The Holding Company has $75.0 million of Senior Debentures due 2008
outstanding. Refer to Note 4 of Notes to the Consolidated Financial
Statements.
(2) Represents future minimum payments under noncancellable operating leases as
of February 1, 2003.
21
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
OTHER COMMERCIAL ------------------------------------------------------------------------------
COMMITMENTS TOTAL LESS THAN 1 YEAR 1 - 3 YEARS 4 - 5 YEARS AFTER 5 YEARS
- ------------------------------- --------- ------------------ ------------- ------------- ------------------
Revolving Credit
Agreement (due 2008) (1).. $ 33,772 $ - $ - $ 33,772 $ -
Gold Consignment
Agreement (due 2005)....... 47,959 - 47,959 - -
Letters of credit............. 8,950 8,700 - - 250
--------- ------------------ ------------- ------------- ------------------
Total......................... $ 90,681 $ 8,700 $ 47,959 $ 33,772 $ 250
========= ================== ============= ============= ==================
(1) The outstanding balance on the Revolving Credit Agreement at September 2,
2003 was $49.2 million.
Finlay believes that, based upon current operations, anticipated growth,
and continued availability under the Revolving Credit Agreement, Finlay Jewelry
will, for the foreseeable future, be able to meet its debt service and
anticipated working capital obligations, and to make distributions to the
Holding Company sufficient to permit the Holding Company to meet its debt
service obligations and to pay certain other expenses as they come due. No
assurances, however, can be given that Finlay Jewelry's current level of
operating results will continue or improve or that Finlay Jewelry's income from
operations will continue to be sufficient to permit Finlay Jewelry and the
Holding Company to meet their debt service and other obligations. Currently,
Finlay Jewelry's principal financing arrangements restrict annual distributions
from Finlay Jewelry to the Holding Company to 0.25% of Finlay Jewelry's net
sales for the preceding fiscal year and also allow distributions to the Holding
Company to enable it to make interest payments on the Senior Debentures. Other
dividends and distributions, including those required to fund stock or bond
repurchases, are subject to Finlay's satisfaction of certain restrictive
covenants. The amounts required to satisfy the aggregate of Finlay Jewelry's
interest expense totaled $8.0 million and $8.2 million for the twenty-six week
periods ended August 2, 2003 and August 3, 2002, respectively.
Finlay has an employment agreement with one senior executive which provides
for a minimum salary level as well as incentive compensation based on meeting
specific financial goals. The agreement has a remaining term of approximately
two years and has a remaining aggregate minimum value of $1,488,000 as of August
2, 2003.
In December 2000, the Holding Company announced that its Board of Directors
had approved a stock repurchase program to acquire up to $20 million of
outstanding Common Stock. The stock repurchase program has been extended from
time to time and, on June 19, 2003, the Holding Company's Board of Directors
approved the repurchase of an additional $20 million of outstanding Common
Stock. The Holding Company may, at the discretion of management, purchase its
Common Stock, from time to time through September 29, 2004. The extent and
timing of repurchases will depend upon general business and market conditions,
stock prices, availability under the Revolving Credit Facility, compliance with
certain restrictive covenants and Finlay's cash position and requirements going
forward. To date, the Holding Company has repurchased 1,558,630 shares for $16.6
million.
From time to time, Finlay enters into forward contracts based upon the
anticipated sales of gold product in order to hedge against the risk arising
from its payment arrangements. At August 2, 2003 and February 1, 2003, Finlay
Jewelry had various open positions in forward contracts for gold totaling 53,000
and 4,000 fine troy ounces of gold, to purchase gold for $18.0 million and $1.4
million, respectively. There can be no assurance that these hedging techniques
will be successful or that hedging transactions will not adversely affect Finlay
Jewelry's results of operations or financial position.
22
In January 2000, Sonab, Finlay Jewelry's European leased jewelry department
subsidiary, sold the majority of its assets for approximately $9.9 million.
After the sale, the buyer operated more than 80 locations previously included in
Sonab's 130-location base in France. The remaining departments were closed. All
of Sonab's employees, excluding those that were hired by the buyer, were
involuntary terminated, including sales associates, supervisors and corporate
personnel. Finlay Jewelry recorded a pre-tax charge in the fourth quarter of
1999 of $28.6 million. The charge included the write down of inventory and fixed
assets, employee payroll and severance costs, realization of foreign exchange
losses and other close-down costs. As of August 2, 2003, Finlay Jewelry's exit
plan has been completed with the exception of certain employee litigation and
other legal matters. To date, Finlay Jewelry has charged a total of $26.4
million against its estimate of $27.2 million. Finlay Jewelry does not believe
future operating results or liquidity will be materially impacted by any
remaining payments.
On August 26, 2003, the Holding Company announced that Federated will not
renew Finlay's lease in the Burdine's department store division due to the
planned consolidation of the Burdine's and Macy's fine jewelry departments in
2004. The termination of the lease, which expires January 31, 2004, will result
in the closure of 46 Finlay departments in the Burdine's division. In fiscal
2002, Finlay generated approximately $50 million of revenue from the Burdine's
departments. Finlay intends to record charges amounting to approximately $1.5
million for closing costs associated with losses on fixed asset disposal and
severance, excluding any potential charge for impairment of goodwill resulting
from the department closings.
On July 30, 2003, May announced its intention to divest 32 Lord & Taylor
stores, as well as two other stores in its Famous-Barr division. Finlay
currently operates the jewelry departments in each of these locations and
achieved sales in fiscal 2002 of approximately $17 million from these
departments. At this time, May has not announced a specific timeline for when
these stores will close. However, Finlay intends to record charges amounting to
approximately $1.5 million for closing costs associated with losses on fixed
asset disposal and severance from the date of the announcement through the dates
of the store closings, excluding any potential charge for impairment of goodwill
resulting from the department closings.
SEASONALITY
Finlay's business is highly seasonal, with a significant portion of its
sales and income from operations generated during the fourth quarter of each
year, which includes the year-end holiday season. The fourth quarter accounted
for an average of 41% of Finlay's sales and 79% of its income from operations
for 2002, 2001 and 2000. Finlay has typically experienced net losses in the
first three quarters of its fiscal year. During these periods, working capital
requirements have been funded by borrowings under the Revolving Credit
Agreement. Accordingly, the results for any of the first three quarters of any
given fiscal year, taken individually or in the aggregate, are not indicative of
annual results.
INFLATION
The effect of inflation on Finlay's results of operations has not been
material in the periods discussed.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 (the "Exchange Act"). All statements other than statements
of historical information provided herein are forward-looking statements and may
contain information about financial results, economic conditions, trends and
known
23
uncertainties. The forward-looking statements contained herein are subject
to certain risks and uncertainties that could cause actual results, performances
or achievements to differ materially from those reflected in, or implied by, the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed under "Management's Discussion and
Analysis of Financial Condition and Results of Operations", as well as trends in
the general economy in the United States, low or negative growth in the economy
or in the financial markets which reduce discretionary spending on goods
perceived to be luxury items, attacks or threats of attacks by terrorists or war
which may negatively impact the economy and/or the financial markets and reduce
discretionary spending on such goods, competition in the retail jewelry
business, the seasonality of the retail jewelry business, Finlay Jewelry's
ability to increase comparable department sales and to open new departments,
Finlay Jewelry's dependence on or loss of certain host store relationships,
particularly with respect to May and Federated, due to the concentration of
sales generated by such host stores, the impact of any host store bankruptcy,
the impact of declining mall traffic levels, the availability to Finlay Jewelry
of alternate sources of merchandise supply in the case of an abrupt loss of any
significant supplier, Finlay Jewelry's ability to continue to obtain substantial
amounts of merchandise on consignment, the impact of fluctuations in gold and
diamond prices, Finlay Jewelry's continuation of its Gold Consignment Agreement,
Finlay Jewelry's compliance with applicable contractual covenants, the impact of
future claims and legal actions arising in the ordinary course of business, the
impact of recent accounting developments, Finlay Jewelry's dependence on key
officers, Finlay Jewelry's ability to integrate future acquisitions into its
existing business, Finlay Jewelry's high degree of leverage and the availability
to Finlay Jewelry of financing and credit on favorable terms and changes in
regulatory requirements which are applicable to Finlay Jewelry's business. Other
such factors include the ability of the Holding Company to complete the
repurchases contemplated under its stock repurchase program, the adequacy of
Finlay's working capital to complete the repurchases, the availability and
liquidity of the Holding Company's Common Stock, and overall market conditions
for the Holding Company's Common Stock.
Readers are cautioned not to rely on these forward-looking statements,
which reflect management's analysis, judgment, belief or expectation only as of
the date hereof. Finlay Jewelry undertakes no obligation to publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date hereof or to reflect the occurrence of unanticipated events. In
addition to the disclosure contained herein, readers should carefully review any
disclosure of risks and uncertainties contained in other documents Finlay
Jewelry files or has filed from time to time with the Commission pursuant to the
Exchange Act.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Finlay Jewelry is exposed to market risk through the interest rate on its
borrowings under the Revolving Credit Agreement, which has a variable interest
rate. Based on the average amounts outstanding under the Revolving Credit
Agreement for 2002, a 100 basis point change in interest rates would have
resulted in an increase in interest expense of approximately $600,000 in 2002.
In seeking to minimize the risks from interest rate fluctuations, Finlay Jewelry
manages exposures through its regular operating and financing activities. In
addition, the majority of Finlay Jewelry's borrowings are under fixed rate
arrangements, as described in Note 4 of Notes to Consolidated Financial
Statements.
The jewelry industry in general is affected by fluctuations in the prices
of precious metals and precious and semi-precious stones. The availability and
prices of gold, diamonds and other precious metals and precious and
semi-precious stones may be influenced by cartels, political instability in
exporting countries and inflation. Shortages of these materials or sharp changes
in their prices could have a material adverse effect on Finlay Jewelry's results
of operations or financial condition. Finlay Jewelry enters into forward
contracts for the purchase of gold to hedge the risk of gold price fluctuations
for future sales of gold consignment merchandise. Finlay Jewelry does not enter
into forward contracts or
24
other financial instruments for speculation or trading purposes. The fair value
of gold under the forward contracts was $18.9 million at August 2, 2003.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
As of the end of Finlay Jewelry's most recently completed fiscal quarter
covered by this report, Finlay Jewelry carried out an evaluation with the
participation of Finlay Jewelry's management, including the Chief Executive
Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of
Finlay Jewelry's disclosure controls and procedures pursuant to Securities
Exchange Act Rule 13a-15. Based upon that evaluation, Finlay Jewelry's CEO and
CFO concluded that Finlay Jewelry's disclosure controls and procedures are
effective in ensuring that material financial and non-financial information
required to be disclosed by Finlay Jewelry in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Commission's rules and forms.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There have been no changes in Finlay Jewelry's internal controls over
financial reporting that occurred during Finlay Jewelry's last fiscal quarter to
which this report relates that have materially affected, or are reasonably
likely to materially affect Finlay Jewelry's internal controls over financial
reporting.
25
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
2 Not applicable.
3 Not applicable.
4 Not applicable.
10.1 The Holding Company's Executive Deferred Compensation and Stock
Purchase Plan (incorporated by reference to Exhibit B to the
Holding Company's Proxy Statement dated May 21, 2003).
10.2 Amendment No. 1, dated June 19, 2003, to the Holding Company's
Executive Deferred Compensation and Stock Purchase Plan.
10.3 The Holding Company's Director Deferred Compensation and Stock
Purchase Plan (incorporated by reference to Exhibit C to the
Holding Company's Proxy Statement dated May 21, 2003).
10.4 Amendment No. 1, dated July 6, 2003, to the Second Amended and
Restated Credit Agreement, dated as of January 22, 2003 among
Finlay Jewelry, the Holding Company, General Electric Capital
Corporation, individually and in its capacity as administrative
agent, Fleet Precious Metals, Inc., individually and as
documentation agent, and certain other banks and financial
institutions.
11 Not applicable.
15 Not applicable.
18 Not applicable.
19 Not applicable.
22 Not applicable.
23 Not applicable.
24 Not applicable.
31.1 Certification of principal executive officer pursuant to the
Sarbanes-Oxley Act of 2002, Section 302.
31.2 Certification of principal financial officer pursuant to the
Sarbanes-Oxley Act of 2002, Section 302.
26
32.1 Certification of principal executive officer pursuant to the
Sarbanes-Oxley Act of 2002, Section 906.
32.2 Certification of principal financial officer pursuant to the
Sarbanes-Oxley Act of 2002, Section 906.
B. REPORTS ON FORM 8-K
On August 7, 2003, Finlay Jewelry filed a Current Report on Form 8-K
furnishing information under Item 12 relating to the Holding Company's press
release announcing the Holding Company's sales for the second quarter and the
six months ended August 2, 2003.
On August 21, 2003, Finlay Jewelry filed a Current Report on Form 8-K
furnishing information under Item 12 relating to the Holding Company's press
release reporting the Holding Company's financial results for the second quarter
and the six months ended August 2, 2003.
On August 28, 2003, Finlay Jewelry filed a Current Report on Form 8-K
providing information under Item 5 to announce that Federated will not renew
Finlay's lease in the Burdine's department store division due to the planned
consolidation of the Burdine's and Macy's fine jewelry departments in 2004.
27
SIGNATURES
Pursuant to the requirement 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.
Date: September 10, 2003 FINLAY FINE JEWELRY CORPORATION
By: /s/ Bruce E. Zurlnick
-------------------------------------
Bruce E. Zurlnick
Senior Vice President, Treasurer
and Chief Financial Officer
(As both a duly authorized officer of
Registrant and as principal financial
officer of Registrant)
28