- --------------------------------------------------------------------------------
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 November 1, 1997
----------------
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.)
521 Fifth Avenue, New York, NY 10175
---------------------------------------- ----------
(Address of principal executive offices) (zip code)
(212) 808-2060
----------------------------------------------------
(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
---- ----
As of December 15, 1997, 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 Securities Exchange Act of 1934 and is voluntarily filing this
Quarterly Report on Form 10-Q.
<PAGE>
FINLAY FINE JEWELRY CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED NOVEMBER 1, 1997
INDEX
PAGE(S)
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Statements of Operations for the thirteen weeks and
thirty-nine weeks ended November 2, 1996 and November 1, 1997.......1
Consolidated Balance Sheets as of February 1, 1997 and
November 1, 1997....................................................3
Consolidated Statements of Changes in Stockholder's Equity for the
year ended February 1, 1997 and thirty-nine weeks ended
November 1, 1997....................................................4
Consolidated Statements of Cash Flows for the thirteen weeks and
thirty-nine weeks ended November 2, 1996 and November 1, 1997.......5
Notes to Consolidated Financial Statements..........................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................17
SIGNATURES ..................................................................19
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
FINLAY FINE JEWELRY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-------------------------------
November 2, November 1,
1996 1997
------------- -------------
<S> <C> <C>
Sales...................................................... $ 136,140 $ 148,770
Cost of sales.............................................. 65,780 71,663
------------- -------------
Gross margin............................................ 70,360 77,107
Selling, general and administrative expenses............... 63,015 71,567
Depreciation and amortization.............................. 2,739 3,022
------------- -------------
Income (loss) from operations........................... 4,606 2,518
Interest expense, net...................................... 6,009 6,733
------------- -------------
Income (loss) before income taxes....................... (1,403) (4,215)
Provision (credit) for income taxes........................ (312) (1,666)
------------- -------------
Net income (loss)....................................... $ (1,091) $ (2,549)
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
FINLAY FINE JEWELRY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
-------------------------------
November 2, November 1,
1996 1997
-------------- -------------
<S> <C> <C>
Sales...................................................... $ 404,047 $ 431,422
Cost of sales.............................................. 195,663 209,497
------------ -------------
Gross margin............................................ 208,384 221,925
Selling, general and administrative expenses............... 188,688 202,668
Depreciation and amortization.............................. 8,123 8,714
------------ -------------
Income (loss) from operations........................... 11,573 10,543
Interest expense, net...................................... 17,042 18,149
------------ -------------
Income (loss) before income taxes....................... (5,469) (7,606)
Provision (credit) for income taxes........................ (1,434) (2,809)
------------ -------------
Net income (loss)....................................... $ (4,035) $ (4,797)
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
FINLAY FINE JEWELRY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
(Unaudited)
February 1, November 1,
1997 1997
------------ ------------
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents.......................................... $ 20,392 $ 5,853
Accounts receivable - department stores............................ 15,362 33,294
Other receivables.................................................. 4,338 10,874
Merchandise inventories............................................ 222,445 312,832
Prepaid expenses and other......................................... 1,438 2,916
------------ ------------
Total current assets............................................ 263,975 365,769
------------ ------------
Fixed assets
Equipment, fixtures and leasehold improvements..................... 73,223 92,719
Less - accumulated depreciation and amortization................... 21,423 27,232
------------ ------------
Fixed assets, net............................................... 51,800 65,487
------------ ------------
Deferred charges and other assets.................................... 5,770 7,726
Goodwill............................................................. 95,263 106,299
------------ ------------
Total assets.................................................... $ 416,808 $ 545,281
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Notes payable...................................................... $ - $ 170,196
Current portion of long-term debt.................................. 2 3
Accounts payable - trade........................................... 133,252 70,963
Accrued liabilities:
Accrued salaries and benefits.................................. 15,061 12,130
Accrued miscellaneous taxes.................................... 4,147 5,107
Accrued insurance.............................................. 762 791
Accrued interest............................................... 3,833 8,203
Accrued management transition and consulting................... 1,787 1,247
Other.......................................................... 14,665 14,860
Income taxes payable............................................... 13,970 4,006
Deferred income taxes.............................................. 804 330
Due to parent...................................................... - 35,846
------------ -----------
Total current liabilities...................................... 188,283 323,682
Long-term debt....................................................... 135,000 135,000
Other non-current liabilities........................................ 7,115 8,005
------------ -----------
Total liabilities.............................................. 330,398 466,687
------------ -----------
Stockholder's equity
Common Stock, par value $.01 per share; authorized 5,000 shares;
issued and outstanding 1,000 shares............................ - -
Additional paid-in capital......................................... 69,241 69,241
Distributions to investor group in excess of carryover basis....... (24,390) (24,390)
Retained earnings.................................................. 44,609 38,528
Foreign currency translation adjustment............................ (3,050) (4,785)
------------ -----------
86,410 78,594
------------ -----------
Total liabilities and stockholder's equity..................... $ 416,808 $ 545,281
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
FINLAY FINE JEWELRY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Distribution to Foreign
----------------- Additional investor group Currency Total
Number Paid-in in excess of Retained Translation Stockholder's
of shares Amount Capital carryover basis Earnings Adjustment Equiity
--------- ------ --------- --------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 3, 1996........ 1,000 - $ 69,241 $ (24,390) $ 28,283 $ (747) 72,387
Net income (loss).............. - - - - 17,962 - 17,962
Dividends on Common Stock...... - - - - (1,636) - (1,636)
Foreign currency translation
adjustment.................. - - - - - (2,303) (2,303)
--------- ------ --------- --------------- ----------- ----------- ------------
Balance, February 1, 1997........ 1,000 - 69,241 (24,390) 44,609 (3,050) 86,410
Net income (loss).............. - - - - (4,797) - (4,797)
Dividends on Common Stock...... - - - - (1,284) - (1,284)
Foreign currency translation
adjustment................. - - - - - (1,735) (1,735)
--------- ------ --------- --------------- ----------- ---------- ------------
Balance, November 1, 1997(Unaudited) 1,000 $ - $ 69,241 $ (24,390) $ 38,528 $ (4,785) $ 78,594
========= ====== ========= =============== =========== ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
FINLAY FINE JEWELRY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-----------------------------
November 2, November 1,
1996 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss)................................................... $ (1,091) $ (2,549)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization....................................... 2,998 3,281
Other, net.......................................................... 46 319
Changes in operating assets and liabilities, net of effects from
purchase of Diamond Park assets (Note 6):
Increase in accounts and other receivables...................... (395) (6,921)
Increase in merchandise inventories............................. (40,535) (44,811)
(Increase) decrease in prepaid expenses and other............... 1,298 (49)
Increase in accounts payable and accrued liabilities............ 21,221 25,566
Increase in due to parent....................................... - 35,846
------------ ------------
NET CASH (USED IN) PROVIDED FROM OPERATING ACTIVITIES......... (16,458) 10,682
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment, fixtures and leasehold improvements......... (5,254) (6,829)
Payment for purchase of Diamond Park assets......................... - (57,642)
Other, net.......................................................... (219) (550)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES......................... (5,473) (65,021)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving credit facility............................. 116,104 162,478
Principal payments on revolving credit facility..................... (94,070) (103,804)
Capitalized financing costs......................................... - (1,954)
Other, net.......................................................... 5 (1)
------------ ------------
NET CASH PROVIDED FROM FINANCING ACTIVITIES.................. 22,039 56,719
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH...................... (30) 237
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS........................ 78 2,617
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................ 1,257 3,236
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............................. $ 1,335 $ 5,853
============ ============
Supplemental disclosure of cash flow information:
Interest paid....................................................... $ 8,934 $ 2,462
Income taxes paid................................................... 2,385 1,129
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
FINLAY FINE JEWELRY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
----------------------------
November 2, November 1,
1996 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss).................................................... $ (4,035) $ (4,797)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization........................................ 8,896 9,487
Other, net........................................................... 977 980
Changes in operating assets and liabilities, net of effects
from purchase of Diamond Park assets (Note 6):
Increase in accounts and other receivables....................... (15,678) (24,932)
Increase in merchandise inventories.............................. (53,500) (46,957)
Increase in prepaid expenses and other........................... (350) (724)
Decrease in accounts payable and accrued liabilities............. (47,113) (76,112)
Increase in due to parent........................................ - 35,846
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES......................... (110,803) (107,209)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment, fixtures and leasehold improvements.......... (12,478) (15,306)
Payment for purchase of Diamond Park assets.......................... - (57,642)
Other, net........................................................... (439) (2,363)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES......................... (12,917) (75,311)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving credit facility.............................. 376,525 459,587
Principal payments on revolving credit facility...................... (276,546) (289,391)
Capitalized financing costs.......................................... - (1,954)
Payment of dividends................................................. (409) -
Other, net........................................................... (201) 1
------------ ------------
NET CASH PROVIDED FROM FINANCING ACTIVITIES................... 99,369 168,243
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH....................... (51) (262)
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS......................... (24,402) (14,539)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD......................... 25,737 20,392
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................... $ 1,335 $ 5,853
============ ============
Supplemental disclosure of cash flow information:
Interest paid........................................................ $ 19,407 $ 13,010
Income taxes paid.................................................... 8,674 9,113
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
FINLAY FINE JEWELRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF 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 generally accepted
accounting principles for interim financial information. References to "Finlay"
mean collectively, the Holding Company, Finlay Jewelry and all predecessor
businesses. 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 November 1, 1997, and the
results of operations and cash flows for the thirteen weeks and thirty-nine
weeks ended November 2, 1996 and November 1, 1997. 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, 1997 referred to below. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC").
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, 1997 ("Form 10-K") previously filed with the SEC.
Finlay's fiscal year ends on the Saturday closest to January 31. References
to 1994, 1995, 1996 and 1997 relate to the fiscal years ended or ending January
28, 1995, February 3, 1996, February 1, 1997 and January 31, 1998, respectively.
Each of the fiscal years includes fifty-two weeks except 1995, which includes
fifty- three weeks.
NOTE 2 - DESCRIPTION OF BUSINESS
Finlay is a retailer of fine jewelry products and primarily operates leased
fine jewelry departments in department stores throughout the United States and
France. Finlay also operates leased fine jewelry departments in the United
Kingdom and Germany. A significant portion of Finlay's revenues are generated in
the fourth quarter due to the seasonality of the retail industry. Approximately
70% of Finlay's sales in 1996 were from operations in two major department store
groups of which 48% represents Finlay's sales from one department store group.
NOTE 3 - MERCHANDISE INVENTORIES
Merchandise inventories consisted of the following:
<TABLE>
<CAPTION>
(Unaudited)
February 1, November 1,
1997 1997
------------ ------------
(in thousands)
Jewelry goods - rings, watches and other fine jewelry
<S> <C> <C>
(specific identification basis)........................... $ 231,298 $ 321,030
Less: Excess of specific identification cost over LIFO
inventory value........................................... 8,853 8,198
------------- ------------
$ 222,445 $ 312,832
============= ============
</TABLE>
7
<PAGE>
FINLAY FINE JEWELRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - MERCHANDISE INVENTORIES (continued)
The LIFO method had the effect of decreasing income (loss) before income
taxes for the thirteen weeks ended November 2, 1996 by $208,000 and increasing
income (loss) before income taxes for the thirteen weeks ended November 1, 1997
by $655,000. The effect of applying the LIFO method for the thirty-nine weeks
ended November 2, 1996 and November 1, 1997 was to decrease income (loss) before
income taxes by $599,000 and increase income (loss) before income taxes by
$655,000, respectively. Finlay determines its LIFO inventory value by utilizing
selected producer price indices published for jewelry and watches by the Bureau
of Labor Statistics. Due to the application of APB Opinion No. 16, inventory
valued at LIFO for income tax reporting purposes is approximately $22,000,000
lower than that for financial reporting purposes at February 1, 1997.
Approximately $194,276,000 and $237,702,000 at February 1, 1997 and
November 1, 1997, respectively, of merchandise received on consignment has been
excluded from Merchandise inventories and Accounts payable- trade in the
accompanying Consolidated Balance Sheets.
The cost to Finlay of gold merchandise sold on consignment, which typically
varies with the price of gold, is not fixed until the sale is reported to the
vendor following the sale of the merchandise. Finlay frequently enters into
futures contracts, based upon the anticipated sales of gold product, such as
options or forwards, to hedge against the risk arising from those payment
arrangements. Changes in the market value of futures contracts are accounted for
as an addition to or reduction from the inventory cost. At November 2, 1996 and
November 1, 1997, the gain/loss on open futures contracts was not material.
In August 1995, Finlay Jewelry consummated a gold consignment agreement
(the "Gold Consignment Agreement") with Rhode Island Hospital Trust National
Bank ("RIHT"), which expires on February 28, 1998. The Gold Consignment
Agreement enables Finlay Jewelry to receive merchandise by providing gold, or
otherwise making payment, to certain vendors who currently supply Finlay with
merchandise on consignment. While the merchandise involved remains consigned,
the consignor and title to the gold content of the merchandise changes from the
vendors to RIHT. As a result, such vendors have reduced their working capital
requirements and associated financing costs. Consequently, Finlay has negotiated
more favorable prices and terms with the participating vendors. Finlay Jewelry
can obtain, pursuant to the Gold Consignment Agreement, up to the lesser of (i)
85,000 fine troy ounces or (ii) $25,000,000 worth of gold, subject to a formula
as prescribed by the Gold Consignment Agreement. At November 1, 1997, amounts
outstanding under the Gold Consignment Agreement totaled 50,398 fine troy
ounces, valued at approximately $15.7 million. For financial statement purposes,
the consigned gold is not included in Merchandise inventories on Finlay
Jewelry's consolidated balance sheet and therefore no related liability has been
recorded.
NOTE 4 - LEASE AGREEMENTS
Finlay conducts substantially 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
8
<PAGE>
FINLAY FINE JEWELRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - LEASE AGREEMENTS (continued)
host store in the event such transfers occur. The values of such fixed assets
are recorded at the inception of the lease arrangement and are reflected in the
accompanying Consolidated Balance Sheets.
In many 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. Lease expense, included
in Selling, general and administrative expenses, is as follows (unaudited):
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
---------------------------- ----------------------------
November 2, November 1, November 2, November 1,
1996 1997 1996 1997
------------ ------------ ------------ ------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Minimum fees................ $ 1,290 $ 1,935 $ 3,727 $ 5,745
Contingent fees............. 20,476 22,201 60,918 63,906
------------ ------------ ------------ ------------
Total.................. $ 21,766 $ 24,136 $ 64,645 $ 69,651
============ ============ ============ ============
</TABLE>
NOTE 5 - LONG TERM INCENTIVE PLANS
On March 5, 1997, a senior officer of Finlay received options under the
Holding Company's Long Term Incentive Plan (the "Incentive Plan") to purchase an
aggregate of 139,719 shares of Common Stock at an exercise price of $14.00 per
share. Such options vest and become exercisable on January 2, 2001.
On March 6, 1997, the Board of Directors of the Holding Company adopted the
1997 Long Term Incentive Plan ("1997 Plan"), which was approved by the Holding
Company's stockholders in June 1997. The 1997 Plan, which is similar to the
Incentive Plan, is intended as a successor to the Incentive Plan and provides
for the grant of the same types of awards as are currently available under the
Incentive Plan. An aggregate of 350,000 shares of the Holding Company's Common
Stock have been reserved for issuance pursuant to the 1997 Plan, of which a
total of 312,815 shares are subject to options granted to certain senior
management, key employees and a director. The exercise price of such options
range from $13.875 per share to $14.875 per share.
NOTE 6 - OTHER TRANSACTIONS
On September 11, 1997, Finlay amended its $135,000,000 Revolving Credit
Facility by (i) increasing the line of credit to $175,000,000, (ii) including
eligible international assets in the borrowing base formula, (iii) reducing
interest rates, (iv) permitting higher balances during the annual balance
reduction period and (v) extending the maturity date from May 1998 to March 2003
(the "Revolving Credit Facility").
On October 6, 1997, Finlay completed the previously announced acquisition
of certain assets of the Diamond Park Fine Jewelers division of Zale Corporation
("Diamond Park"), a leading operator of departments, for approximately $63
million, which includes approximately $6 million for the purchase of additional
inventory to be acquired in February 1998 and for the reimbursement of certain
expenses to be incurred by the Zale Corporation. By acquiring Diamond Park,
Finlay added 139 departments that had total sales of approximately
9
<PAGE>
FINLAY FINE JEWELRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - OTHER TRANSACTIONS (continued)
$93 million for the twelve months ended February 1, 1997 and also added new host
store relationships with Mercantile Stores, Marshall Field's and Parisian. Upon
completion of the acquisition of Diamond Park (the "Diamond Park Acquisition"),
the line of credit was further increased to $225,000,000 and permitted balances
during the annual balance reduction period were further increased. Finlay
financed the Diamond Park Acquisition with borrowings under the Revolving Credit
Facility.
On October 21, 1997, the Holding Company completed a public offering (the
"Offering") of 3,450,000 shares of its Common Stock, at a price of $19.00 per
share, of which 2,196,971 shares were issued and sold by the Holding Company. An
additional 1,253,029 shares were sold by existing stockholders. The
underwriters' over-allotment was exercised in full. Net proceeds to the Holding
Company from the Offering, after deducting the underwriting discount of
$2,300,000 and expenses of approximately $1,300,000 incurred in connection with
the Offering, were $38,100,000. The Holding Company purchased inventory using
the net proceeds and subsequently sold this inventory to Finlay Jewelry. This
transaction was accounted for as an intercompany payable to the Holding Company
and is included in Due to parent on the accompanying Consolidated Balance Sheet.
Upon the receipt of payment for such inventory, the Holding Company expects to
use the funds for working capital, repayment of indebtedness or other general
corporate purposes.
10
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
The following table sets forth operating results as a percentage of sales
for the periods indicated:
Statement of Operations Data
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
--------------------------- ---------------------------
November 2, November 1, November 2, November 1,
1996 1997 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales............................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................... 48.3 48.2 48.4 48.6
------------ ------------ ----------- ------------
Gross margin................................. 51.7 51.8 51.6 51.4
Selling, general and administrative expenses..... 46.3 48.1 46.7 47.0
Depreciation and amortization.................... 2.0 2.0 2.0 2.0
------------ ------------ ----------- ------------
Income (loss) from operations................ 3.4 1.7 2.9 2.4
Interest expense, net............................ 4.4 4.5 4.2 4.2
------------ ------------ ----------- ------------
Income (loss) before income taxes............ (1.0) (2.8) (1.3) (1.8)
Provision (credit) for income taxes.............. (0.2) (1.1) (0.4) (0.7)
------------ ------------ ----------- ------------
Net income (loss)............................ (0.8)% (1.7)% (0.9)% (1.1)%
============ ============ =========== ============
</TABLE>
Thirteen Weeks Ended November 1, 1997 Compared with Thirteen Weeks Ended
November 2, 1996
Sales. Sales for the thirteen weeks ended November 1, 1997 increased $12.6
million, or 9.3%, over the comparable period in 1996. Comparable department
sales (departments open for the same months during comparable periods) increased
5.2%. Management attributes this increase in comparable department sales to the
following initiatives: (i) introducing its "Key Item" and "Best Value"
merchandising programs, which provide a targeted assortment of items at
competitive prices; (ii) increasing focus on holiday and event-driven promotions
as well as host store marketing programs; (iii) positioning its departments as a
"destination location" for fine jewelry; and (iv) implementing project PRISM
(Promptly Reduce Inefficiencies and Sales Multiply), a management initiative
designed to allow Finlay's sales associates more time for customer sales and
service. Sales from the operation of net new departments (departments not
included in comparable department sales) contributed $5.6 million, which
included $6.3 million from the Diamond Park departments offset by the net effect
and timing of department openings and closings. During the thirteen weeks ended
November 1, 1997, Finlay opened 153 departments and closed three departments.
The openings included 139 Diamond Park departments which were acquired on
October 6, 1997. The remaining 14 openings and all of the closings were within
existing store groups.
Gross margin. Gross margin for the period increased by $6.7 million and, as
a percentage of sales, gross margin increased by 0.1%. Excluding the effect of
LIFO, gross margin as a percentage of sales decreased by 0.4%. The decrease is a
result of management's efforts to increase market penetration and market share
through its "Key Item" and "Best Value" programs, which produce higher sales
volume and a slightly lower gross margin, on average, than other merchandise.
11
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses ("SG&A") increased $8.6 million, or 13.6%, due primarily
to (i) payroll expense and lease fees associated with the increase in sales;
(ii) certain duplicative payroll and other expenses incurred in conjunction with
the commencement of the initial test phase of Finlay's distribution and
warehouse facility, which is expected to become fully operational in February
1998; and (iii) a service fee relating to the purchase of inventory from the
Holding Company. As a percentage of sales, SG&A increased by 1.8%.
Depreciation and amortization. Depreciation and amortization increased by
$0.3 million, reflecting an increase in capital expenditures for the most recent
twelve months, offset by the effect of certain assets becoming fully
depreciated. This increase in fixed assets was due to the addition of new
departments and the renovation of existing departments.
Interest expense, net. Interest expense increased by $0.7 million
reflecting an increase in average borrowings ($272.8 million for the period in
1997 compared to $232.7 million for the comparable period in 1996) primarily as
a result of the timing of inventory receipts during the 1997 period and the
Diamond Park Acquisition. The increase in average borrowings was partially
offset by a lower weighted average interest rate (9.2% for the 1997 period
compared to 9.5% for the comparable period in 1996).
Provision (credit) for income taxes. The income tax provision for the 1997
and 1996 periods reflects an effective tax rate of 41.5%.
Net income (loss). The net loss of $2.5 million for the 1997 period was
$1.5 million higher than the net loss of $1.1 million for the comparable period
in 1996 as a result of the factors discussed above.
Thirty-Nine Weeks Ended November 1, 1997 Compared with Thirty-Nine Weeks
Ended November 2, 1996
Sales. Sales for the thirty-nine weeks ended November 1, 1997 increased
$27.4 million, or 6.8%, over the comparable period in 1996. Comparable
department sales increased 5.5%. Management attributes this increase in
comparable department sales primarily to the "Key Item" and "Best Value"
merchandising programs and to the marketing initiatives discussed above. Sales
from the operation of net new departments contributed $5.2 million, which
included $6.3 million from the Diamond Park departments offset by the net effect
and timing of department openings and closings. During the thirty-nine weeks
ended November 1, 1997, Finlay opened 178 departments and closed nine
departments. The openings included 139 Diamond Park Departments which were
acquired on October 6, 1997. The remaining 39 openings and all of the closings
were within existing store groups.
Gross margin. Gross margin for the period increased by $13.5 million but,
as a percentage of sales, gross margin decreased by 0.2%. Excluding the effect
of LIFO, gross margin as a percentage of sales decreased 0.4%. The decrease is a
result of management's efforts to increase market penetration and market share
through its "Key Item" and "Best Value" programs, which produce higher sales
volume and a slightly lower gross margin, on average, than other merchandise.
Selling, general and administrative expenses. SG&A increased $14.0 million,
or 7.4%, due primarily to (i) payroll expense and lease fees associated with the
increase in sales; (ii) certain duplicative payroll and other expenses incurred
in conjunction with Finlay's distribution and warehouse facility discussed
above; and (iii) a service fee relating to the purchase of inventory from the
Holding Company. As a percentage of sales, SG&A increased by 0.3%.
12
<PAGE>
Depreciation and amortization. Depreciation and amortization increased by
$0.6 million, reflecting an increase in capital expenditures for the most recent
twelve months, offset by the effect of certain assets becoming fully
depreciated. This increase in fixed assets was due to the addition of new
departments and the renovation of existing departments.
Interest expense, net. Interest expense increased by $1.1 million
reflecting an increase in average borrowings ($245.2 million for the period in
1997 compared to $214.6 million for the comparable period in 1996) primarily as
a result of the timing of inventory receipts during the 1997 period and the
Diamond Park Acquisition. The increase in average borrowings was partially
offset by a lower weighted average interest rate (9.4% for the 1997 period
compared to 9.7% for the comparable period in 1996).
Provision (credit) for income taxes. The income tax provision for the 1997
and 1996 periods reflects an effective tax rate of 41.5%.
Net income (loss). The net loss of $4.8 million for the 1997 period was
$0.8 million higher than the net loss of $4.0 million for the comparable period
in 1996 as a result of the factors discussed above.
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 and renovating
existing departments. For the thirty-nine weeks ended November 2, 1996 and
November 1, 1997, capital expenditures totaled $12.5 million and $15.3 million,
respectively. For 1996, capital expenditures totaled $17.5 million, which
included initial construction costs relating to Finlay's distribution and
warehouse facility. Capital expenditures for 1997, in total, are estimated to be
approximately $19.0 million. Although capital expenditures are limited by the
terms of the Revolving Credit Facility, to date this limitation has not
precluded Finlay Jewelry from satisfying its capital expenditure requirements.
Finlay's operations substantially preclude consumer receivables and in
recent years, on average, approximately 50% of Finlay's domestic merchandise has
been carried on consignment. Accordingly, management believes that relatively
modest levels of working capital are required in comparison to many other
retailers. Finlay Jewelry 's working capital balance was $42.1 million at
November 1, 1997, a decrease of $33.6 million from February 1, 1997, which
resulted from an increase in non-current assets relating to the Diamond Park
Acquisition, capital expenditures and the impact of the interim net loss
exclusive of depreciation and amortization. Based on the seasonal nature of
Finlay's business, working capital requirements and therefore borrowings under
the Revolving Credit Facility can be expected to increase on an interim basis
during the first three quarters of any given fiscal year. See "- Seasonality."
The seasonality of Finlay's business causes working capital requirements to
reach their highest level in the months of October and November in anticipation
of the year-end holiday season. Accordingly, Finlay experiences seasonal cash
needs as inventory levels peak. The Revolving Credit Facility provides Finlay
with a line of credit of up to $225.0 million to finance seasonal cash and other
working capital needs. The Revolving Credit Facility will initially bear
interest at a rate equal to, at Finlay's option, (i) the Index Rate (as defined
in the Revolving Credit Facility) plus 0.5% or (ii) adjusted LIBOR plus 1.5%.
Commencing in 1998, the Revolving Credit Facility will bear interest at a rate
equal to, at Finlay's option, (i) the Index Rate plus a margin ranging from zero
to 1.00% or (ii) adjusted LIBOR plus a margin ranging from 1.00% to 2.00%, in
each case depending on the financial performance of Finlay. Pursuant to the
indenture (the "Debenture Indenture") relating to the
13
<PAGE>
Holding Company's 12% Senior Discount Debentures due 2005 (the "Debentures"),
the Holding Company has pledged all of the issued and outstanding shares of
capital stock of Finlay Jewelry for the benefit of the Debenture holders.
Pursuant to the agreement relating to the Revolving Credit Facility (the
"Revolving Credit Agreement"), Finlay Jewelry has pledged or caused to be
pledged all of the issued and outstanding capital stock (or other equity
securities) of each of its direct and indirect subsidiaries (including Sonab
Holdings, Inc., Sonab International, Inc. and Sonab) for the benefit of the
lenders under the Revolving Credit Facility.
Pursuant to the Revolving Credit Agreement, Finlay is required to reduce
the balance of the Revolving Credit Facility in each year to $50.0 million or
less for a 30 consecutive day period (the "Balance Reduction Requirement").
However, the Debenture Indenture and the indenture (the "Note Indenture")
relating to Finlay Jewelry's 105/8% Senior Notes due 2003 (the "Notes") require
Finlay to reduce the balance of the Revolving Credit Facility in each year to
$10.0 million or less for a specified 25 consecutive day period. Borrowings
under the Revolving Credit Facility at November 1, 1997 were $170.2 million,
compared to a zero balance at February 1, 1997 in accordance with the
then-applicable Balance Reduction Requirement and $100.0 million at November 2,
1996. The average amounts outstanding were $79.6 million and $110.2 million for
the thirty-nine weeks ended November 2, 1996 and November 1, 1997, respectively.
The maximum amount outstanding for the thirty-nine weeks ended November 1, 1997
was $189.2 million.
Finlay financed the Diamond Park Acquisition with borrowings under the
Revolving Credit Facility. In addition, the Holding Company expects to use the
funds derived from the Offering for working capital, repayment of indebtedness
or other general corporate purposes. The Debenture Indenture and Note Indenture
restrict the Holding Company's ability to use the net proceeds from the Offering
to repay indebtedness under the Revolving Credit Facility.
Finlay Jewelry believes that, with the increased borrowing capacity under
the Revolving Credit Facility, it has sufficient liquidity to meet its
anticipated working capital requirements for both its domestic and foreign
operations. Finlay does not expect that significant additional working capital
will be required in the near-term with respect to the operation of the Diamond
Park departments because Finlay purchased the inventory of those Diamond Park
departments which it acquired. On a going-forward basis, Finlay expects that
inventory purchases for the Diamond Park departments will be financed in part by
trade payables combined with an increased utilization of consignment inventory
compared to the amount of consignment merchandise on hand at the time of the
Diamond Park Acquisition. As such, management believes that future working
capital requirements for the Diamond Park departments may be reduced as compared
to the amount of working capital required at the time of the Diamond Park
Acquisition. Finlay expects to incur certain expenditures of approximately $1.0
million associated with the integration of Diamond Park's operations.
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 1996, Finlay had an average
balance of consignment merchandise of $201.8 million from over 200 vendors as
compared to an average balance of $208.5 million in 1995. As of November 1,
1997, $237.7 million of consignment merchandise was on hand as compared to
$194.3 million at February 1, 1997 and $214.8 million at November 2, 1996.
A substantial amount of Finlay's operating cash flow is or will be required
to pay, directly or indirectly, interest with respect to the Notes and the
Debentures and amounts due under the Revolving Credit Facility, including the
payments required pursuant to the Balance Reduction Requirement. As of November
1, 1997, Finlay Jewelry's outstanding borrowings were $305.2 million, which
included a $135.0 million balance under the Notes and a $170.2 million balance
under the Revolving Credit Facility. On May 1, 1998, the Holding Company
14
<PAGE>
will have a one-time option, in accordance with the Debenture Indenture, to
prepay all or a portion of the $39.0 million of accreted interest on the
Debentures as of such date. It is the Holding Company's intent to prepay,
subject to satisfaction of certain covenants and conditions, all or a portion of
such accreted interest to reduce outstanding indebtedness and to take advantage
of the resulting tax benefits relating to the deductibility of such prepayment
in 1998. The Holding Company intends to fund this prepayment using borrowings
under the Revolving Credit Facility or other available funds including the funds
derived from the Offering. The Debentures do not pay cash interest until
November 1, 1998.
In August 1995, Finlay Jewelry consummated the Gold Consignment Agreement,
which expires on February 28, 1998. The Gold Consignment Agreement enables
Finlay Jewelry to receive merchandise by providing gold, or otherwise making
payment, to certain vendors. Finlay Jewelry can obtain, pursuant to the Gold
Consignment Agreement, up to the lesser of (i) 85,000 fine troy ounces or (ii)
$25,000,000 worth of gold, subject to a formula as prescribed by the Gold
Consignment Agreement. At November 1, 1997, amounts outstanding under the Gold
Consignment Agreement totaled 50,398 fine troy ounces, valued at approximately
$15.7 million. The average amount outstanding under the Gold Consignment
Agreement was $11.9 million in 1996.
Finlay Jewelry has implemented financial and distribution software that is
Year 2000 compliant. Finlay Jewelry has begun to assess the impact of the Year
2000 issue on its remaining operations, including the development of cost
estimates for and the extent of programming changes required to address this
issue. Although final cost estimates have yet to be determined, it is
anticipated that these Year 2000 costs will result in an increase to Finlay
Jewelry's expenses during 1998 and 1999 and are not expected to have a material
impact on its ongoing results of operations.
Finlay believes that, based upon current operations, anticipated growth,
and availability under the Revolving Credit Facility, 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. The Revolving Credit Facility, the Note Indenture
and the Gold Consignment Agreement restrict distributions from Finlay Jewelry to
the Holding Company to 0.25% of Finlay Jewelry's net sales for the preceding
fiscal year. The amounts required to satisfy the aggregate of Finlay Jewelry's
interest expense and required amortization payments totaled $19.7 million and
$13.0 million for the thirty-nine weeks ended November 2, 1996 and November 1,
1997, respectively. As a result of the closing date for the quarter under the
retail calendar, the 1997 period includes one semiannual interest payment with
respect to the Notes of $7.2 million, whereas the comparable period in 1996
included two payments of $7.2 million each.
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"),
restricts utilization of net operating loss carryforwards ("NOLs") after an
ownership change exceeding 50%. As a result of certain recapitalization
transactions in 1993, a change in ownership of the Holding Company exceeding 50%
occurred within the meaning of Section 382 of the Code. Similar restrictions
apply to other carryforwards. Consequently, there is a material limitation on
Finlay Jewelry's annual utilization of its NOLs and other carryforwards which
requires a deferral or loss of the utilization of such NOLs or other
carryforwards. Finlay Jewelry had, at October 31, 1996 (Finlay Jewelry's tax
year end), a NOL for tax purposes of approximately $14.0 million which is
subject to an annual limit of approximately $2.0 million per year. For financial
reporting purposes, no NOL existed as of February 1, 1997. An additional change
in ownership within the meaning of Section 382 of the Code has occurred as a
result of the Offering. However, there are no additional restrictions upon
Finlay Jewelry's ability to utilize its NOLs or other carryforwards as a result
of such ownership change.
15
<PAGE>
From time to time, Finlay enters into futures contracts, such as options or
forwards, based upon the anticipated sales of gold product in order to hedge
against the risk arising from its payment arrangements. Changes in the market
value of futures contracts are accounted for as an addition to or reduction from
the inventory cost. For the year ended February 1, 1997 and the thirty-nine
weeks ended November 1, 1997, the gain or loss on open futures contracts was not
material. Finlay Jewelry did not have any open positions in futures contracts
for gold at February 1, 1997. In May 1997, Finlay Jewelry entered into a hedging
arrangement whereby its exposure to the fluctuation in the price of gold is
limited for the balance of 1997. 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 condition.
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 42% of Finlay's sales and 86% of its income from operations
(excluding nonrecurring charges) for 1994, 1995 and 1996. Finlay has typically
experienced 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 Facility. 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.
Forward - Looking Statements
This Quarterly Report on 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 uncertainties. The forward-looking
statements contained herein are subject to certain risks and uncertainties that
could cause actual results to differ materially from those reflected in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, trends in the general economy, competition in the retail
jewelry business, the seasonality of the retail business, Finlay Jewelry's
ability to increase comparable department sales and to open new departments,
Finlay Jewelry's dependence on certain host store relationships due to the
concentration of sales generated by such host stores, 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, Finlay Jewelry's dependence
on key officers, Finlay Jewelry's ability to integrate the Diamond Park assets
(and any 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.
Readers are cautioned not to place undue reliance 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. 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 SEC pursuant to the Exchange Act.
16
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
2 Not applicable.
4 Not applicable.
10.1 Amendment No. 3 dated as of January 31, 1997 to the Amended and Restated
Credit Agreement dated as of March 28, 1995 among General Electric Capital
Corporation ("G. E. Capital"), individually and in its capacity as agent,
certain other lenders and financial institutions, the Holding Company and
Finlay Jewelry (incorporated by reference to Exhibit 10.1 to Finlay
Jewelry's Quarterly Report on Form 10-Q for the period ended August 2,
1997, as filed with the Commission on September 16, 1997).
10.2 Amended and Restated Credit Agreement dated as of September 11, 1997 among
G. E. Capital, individually and in its capacity as agent, certain other
lenders and financial institutions, the Holding Company and Finlay Jewelry
("Amended Revolving Credit Agreement") (incorporated by reference to
Exhibit 10.2 to Finlay Jewelry's Quarterly Report on Form 10-Q for the
period ended August 2, 1997, as filed with the Commission on September 16,
1997).
10.3 Amendment No. 1 dated as of September 11, 1997 to the Amended Revolving
Credit Agreement (incorporated by reference to Exhibit 10.3 to Finlay
Jewelry's Quarterly Report on Form 10-Q for the period ended August 2,
1997, as filed with the Commission on September 16, 1997).
10.4 Amendment No. 2 dated October 6, 1997 to the Amended Revolving Credit
Agreement (incorporated by reference to Exhibit 10.2 to Finlay Jewelry's
Current Report on Form 8-K, as filed with the Commission on October 17,
1997).
10.5 Amendment No. 2 and Limited Consent dated as of September 10, 1997 to the
Gold Consignment Agreement dated as of June 15, 1995 , as amended, by and
between Finlay Jewelry and Rhode Island Hospital Trust National Bank
(incorporated by reference to Exhibit 10.4 to Finlay Jewelry's Quarterly
Report on Form 10-Q for the period ended August 2, 1997, as filed with the
Commission on September 16, 1997).
10.6 Amendment No. 3 and Limited Consent dated as of September 11, 1997 to the
Gold Consignment Agreement dated as of June 15, 1995, as amended, by and
between Finlay Jewelry and Rhode Island Hospital Trust National Bank
(incorporated by reference to Exhibit 10.5 to Finlay Jewelry's Quarterly
Report on Form 10-Q for the period ended August 2,1997, as filed with the
Commission on September 16, 1997).
10.7 Amendment No. 4 and Limited Consent dated as of October 6, 1997 to the Gold
Consignment Agreement dated as of June 15, 1995, as amended, by and between
Finlay Jewelry and Rhode Island Hospital Trust National Bank (incorporated
by reference to Exhibit 10.3 to Finlay Jewelry's Current Report on Form
8-K, as filed with the Commission on October 17, 1997).
17
<PAGE>
10.8 Asset Purchase Agreement dated September 3, 1997 by and among the Holding
Company, Finlay Jewelry, Zale Corporation and Zale Delaware, Inc
(incorporated by reference to Exhibit 10.6 to Finlay Jewelry's Quarterly
Report on Form 10-Q for the period ended August 2, 1997, as filed with the
Commission on September 16, 1997).
10.9 Amendment to Employment Agreement between David B. Cornstein and Finlay
Jewelry.
10.10 Omnibus Amendment to Registration Rights and Stockholder's Agreements.
10.11 Amendment No. 3 to the Holding Company's Restated Retirement Income
Plan 401(k)).
11 Not applicable.
15 Not applicable.
18 Not applicable.
19 Not applicable.
22 Not applicable.
23 Not applicable.
24 Not applicable.
27 Financial Data Schedule.
99 Not applicable.
B. Reports on Form 8-K
On September 9, 1997, Finlay Jewelry filed with the Securities and Exchange
Commission (the "Commission") a Current Report on Form 8-K regarding the Holding
Company's announcement that Finlay had entered into an agreement to acquire
certain assets of the Diamond Park Fine Jewelers division of Zale Corporation.
On October 17, 1997, Finlay Jewelry filed with the Commission a Current
Report on Form 8-K regarding (i) the consummation on October 6, 1997 of the
acquisition described in the preceding paragraph and (ii) the Holding Company's
and Finlay Jewelry's having refinanced their revolving credit facility with
General Electric Capital Corporation and certain other lenders to increase the
amount available thereunder to $225 million.
18
<PAGE>
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.
FINLAY FINE JEWELRY CORPORATION
Date: December 15, 1997 By:/s/ Barry D. Scheckner
-------------------------------------
Barry D. Scheckner, Senior Vice
President and Chief Financial
Officer
(As both a duly authorized officer of
Registrant and as principal financial
officer of Registrant)
19
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
AMENDMENT NO. 2, dated as of July 1, 1997, to the employment agreement
dated May 26, 1993 (as heretofore and hereafter amended, modified or
supplemented from time to time in accordance with its terms, the "Employment
Agreement"), by and between Finlay Fine Jewelry Corporation, a Delaware
corporation (the "Corporation"), and David B. Cornstein (the "Executive").
W I T N E S S E T H :
WHEREAS, the parties hereto mutually desire to amend certain provisions of
the Employment Agreement;
NOW, THEREFORE, for good and valuable consideration, the parties hereto
agree, as follows:
1. (a) The preamble to the Employment Agreement shall be amended by
deleting the clause ", President and Chief Executive Officer" from the third
"WHEREAS" clause therein.
(b) Section 2(a) of the Employment Agreement shall be amended by deleting
the clause ", President and Chief Executive Officer" from the second sentence
thereof.
(c) Section 2(b) of the Employment Agreement shall be amended by deleting
the clause ", President and Chief Executive Officer" in the first sentence
thereof.
(d) Each of Section 8(c)(i) and (ii) shall be amended by deleting the
clause ", President and Chief Executive Officer" therefrom.
(e) A new Section 8(c)A shall be added to the Employment Agreement
immediately after the text of Section 8(c) thereof, which shall read in its
entirety as follows:
"8(c)A. The Executive may elect to terminate his employment
hereunder and such termination shall be deemed to be a termination of
his employment without "cause" in the event Executive commences
service, whether on a full-time or part- time basis, as an officer,
director, commissioner, employee or assumes any other position with a
federal, state, municipal or other governmental, quasi- governmental
or regulatory agency, commission or other authority, or assumes any
other public or political office."
<PAGE>
(f) The provisions of Section 9(b) of the Employment Agreement shall be
amended so that the clause "or Section 8(c)A above" is inserted in the first
sentence thereof immediately after the clause "Section 8(c) above".
(g) The provisions of this Paragraph 1 shall be effective as of January 30,
1996.
2. (a) Section 2(a) of the Employment Agreement shall be amended by
deleting the date "January 31, 1998" in the first sentence thereof and
substituting therefor the date "January 31, 1999" and Section 8(a) of the
Employment Agreement shall be amended by deleting the date "January 31, 1998" in
clause (iv) thereof and substituting therefor the date "January 31, 1999."
(b) Except as expressly set forth herein, the Executive shall have no other
title with the Corporation or any affiliate thereof.
(c) The provisions of this Paragraph 2 shall be effective as of July 1,
1997.
3. Upon expiration of the term of the Employment Agreement on January 31,
1999, the Executive shall be appointed Chairman Emeritus of Enterprises and
shall be retained in such capacity for a period of two years thereafter.
4. Except as amended hereby, the Employment Agreement shall remain in full
force and effect, without change or modification.
5. This instrument may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed
this Amendment as of the day and year first above written.
FINLAY FINE JEWELRY CORPORATION
By /s/Arthur E. Reiner
----------------------------
Arthur E. Reiner
Chariman and Chief Executive
Officer
/s/David B. Cornstein
----------------------------
David B. Cornstein
The undersigned agrees to
and accepts the foregoing
amendment:
FINLAY ENTERPRISES, INC.
By: /s/Arthur E. Reiner
---------------------------------
Arthur E. Reiner
President, Chief Executive Officer
and Vice Chairman
-3-
OMNIBUS AMENDMENT TO REGISTRATION RIGHTS
AND STOCKHOLDERS' AGREEMENTS
This Omnibus Amendment to Registration Rights and Stockholders' Agreements
(the "Omnibus Amendment") is made and entered into as of October 15, 1997, by
and among Finlay Enterprises, Inc., a Delaware corporation (the "Company") and
each of the parties who have accepted and agreed to this First Amendment by
signing a signature page of this Omnibus Amendment (the "Amending
Stockholders").
This Omnibus Amendment is an amendment to the Registration Rights Agreement
by and among the Company, the Amending Stockholders and the other parties
thereto dated as of May 26, 1993 (the "Original Registration Rights Agreement")
and the Amended and Restated Stockholders' Agreement by and among the Company,
the Amending Stockholders and the other parties thereto dated as of March 6,
1995 (the "Restated Stockholders' Agreement"). For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and the Amending Stockholders hereby agree as follows:
1. Amendment to Original Registration Rights Agreement. Upon the sale or
other disposition by Equity-Linked Investors, L.P. of all of its shares of
Common Stock, par value $.01 per share, of the Company, Section 5 of the
Original Registration Rights Agreement shall automatically be amended as
follows:
"(e) Notwithstanding any other provision of this Agreement, for purposes of
any Demand Registration under Sections 2, 3 or 4 above and any Piggyback
Registration under this Section 5, until the Catch-Up Point the Lee Holders may
at their option sell Registrable Securities held by the Lee Holders in place of
Registrable Securities held by the ELI Holders, (but only to the extent required
to reach the Catch-Up Point), regardless of whether the ELI Holders desire to
sell any Registrable Securities in connection with such Registration. The
Catch-Up Point shall occur at such time as the Lee Holders have sold a
percentage of the Registrable Securities of the Lee Holders (based on the
aggregate number of Registrable Securities held by the Lee Holders immediately
prior to the effectiveness of the Registration Statement, as defined below)
equal to the percentage of the Registrable Securities sold by the ELI Holders
pursuant to the Company's Registration Statement on Form S-1 dated September 23,
1997, Registration No. 333 - 34949 (the "Registration Statement")."
2. Amendment to Restated Stockholders' Agreement. Pursuant to Section
2.3(c) of the Restated Stockholders' Agreement, upon the sale or other
disposition by the Applicable ELI Holders of more than fifty percent (50%) of
the Shares held by them on March 6, 1995, Section 2.3 of the Restated
Stockholder's Agreement shall automatically be amended and restated in its
entirety as follows:
<PAGE>
"2.3 Corporate Governance. Until the tenth anniversary of the date hereof,
the Company and Stockholders shall take all action, including but not limited to
(i) the Stockholders instructing their director designees provided herein to
take such actions and (ii) the Stockholders voting, or executing written
consents with respect to, their Shares, so that:
(a) Election of Directors. Subject to Sections 2.3(c) and 2.3(d) below, the
Company's and the Operating Company's Boards of Directors shall be fixed at
eight (8) members, of which one member shall be designated by Arthur F. Reiner
(which member shall be Mr. Reiner himself) (the "Reiner Nominee"), two members
(one of which members shall be either Mr. Cornstein himself, or if Mr. Cornstein
is no longer an employee of the Company, a management employee of the Company)
shall be designated by David B. Cornstein (the "Cornstein Nominees"), one member
shall be designated by the Applicable ELI Holders (the "ELI Nominees"), and two
members shall be designated by the Applicable Lee Holders (the "Lee Nominees").
The directors shall be divided into classes. The initial term of the Desai
Nominee and one Lee Nominee shall expire in 1999; the initial term of the Reiner
Nominee and the Cornstein Nominees shall expire in 2000; and the initial term of
the other Lee Nominee shall expire in 2001. At the option of the Applicable Lee
Holders and the Applicable ELI Holders, respectively, the Lee Nominee(s) or the
ELI Nominee, respectively, shall be reduced by one or by two, and such Lee
Nominee(s) or ELI Nominee, as the case may be, shall be removed from the Board
of Directors and, during such time as the Applicable Lee Holders and the
Applicable ELI Holders, respectively, would otherwise have had the right to
designate a Director hereunder, a representative of the Applicable Lee Holders
or the Applicable ELI Holders, as the case may be, shall continue to have the
right to attend meetings of the Board of Directors of the Company and the
Operating Company as an observer without a vote or other rights as a director
(except the right to receive sufficient notice to enable such attendance and the
right to receive all other communications, information and materials furnished,
from time to time, to Directors of the Company and the Operating Company and the
right to receive reimbursement for travel expenses to the same extent as
Directors of the Company and the Operating Company). In addition to any other
rights under this Agreement, (x) any transferee of any of the Lee Holders, the
ELI Holders and David B. Cornstein, who is an Institutional Investor and who
holds pursuant to one or more Transfers Shares constituting at least ten percent
<PAGE>
(10%) of the Shares then outstanding and (y) a representative of the Cornstein
Beneficiaries, so long as they hold, collectively, at least five percent (5%) of
the issued and outstanding shares of Common Stock of the Company (and have not
designated a director pursuant to this Section 2.3(a)), shall have the right to
attend meetings of the Boards of Directors of the Company and its Subsidiaries,
and, in the case of the Cornstein Beneficiaries, the Executive Committee, as an
observer without a vote or other rights as a director (except the right to
receive sufficient notice to enable such attendance and the right to receive all
other communications, information and materials furnished, from time to time, to
Directors of the Company and its Subsidiaries, and the Executive Committee, as
the case may be, and the right to receive reimbursement for travel expenses to
the same extent as Directors of the Company and its Subsidiaries).
(b) Designation of Director Nominees. One of the Lee Nominees shall be
designated by the vote or consent of a majority of the then outstanding Shares
owned by Lee Equity Partners and its transferees who are Applicable Lee Holders
and one of the Lee Nominees shall be designated by the vote or consent of a
majority of the then outstanding Shares owned by the Applicable Lee Holders
other than Lee Equity Partners. The Cornstein Nominees shall be designated by
the vote or consent of a majority of the then outstanding Shares owned by David
B. Cornstein and his Permitted Transferees. The ELI Nominee shall be designated
by the vote or consent of a majority of the then outstanding Shares owned by the
Applicable ELI Holders. Any group of Stockholders entitled to designate
directors hereunder shall also be entitled to require that the director
designated by that group pursuant to this Section 2.3 be removed or replaced by
another designee of such group.
(c) Termination of Right to Elect Directors. The number of directors which
Arthur E. Reiner, David B. Cornstein, the Applicable ELI Holders, and the
Applicable Lee Holders shall have the right to designate to the Board of
Directors of the Company and its Subsidiaries shall be reduced as follows: Mr.
Reiner's right to designate a director shall terminate on the date that Mr.
Reiner is no longer an employee of the Company. Mr. Cornstein's right to
designate one director shall terminate when Mr. Cornstein and his Permitted
Transferees own less than fifty percent (50%) of the Shares held by him on the
date hereof, and his right to designate the other director shall terminate when
he owns less than five percent (5%) of the Common Stock of the Company then
outstanding. The Applicable Lee Holders' right to designate one director shall
terminate when the Applicable Lee Holders collectively own less than fifty
percent (50%) of the Shares held by them on the date hereof, and their right to
designate the other director (which shall be the director designated by Lee
Equity Partners in accordance with Section 2.3(b)) shall terminate when the
Applicable Lee Holders collectively own less than five percent (5%) of the
Common Stock of the Company then outstanding. The Applicable ELI Holders' right
to designate a director shall terminate when the Applicable ELI Holders
collectively own less than five percent (5%) of the Common Stock of the Company
then outstanding.
<PAGE>
(d) Executive Committee. The Board of Directors of the Company and the
Operating Company shall have an Executive Committee empowered, to the fullest
extent possible by law, to take all actions which can be taken by the full Board
of Directors of the Company and the Operating Company. Each such Executive
Committee shall consist of five (5) directors, one of which will be designated
by Thomas H. Lee (so long as the Applicable Lee Holders have a right to
designate a director pursuant to Section 2.3(a) above), one of which will be
designated by the Applicable ELI holders, (so long as the Applicable ELI Holders
have a right to designate one director pursuant to Section 2.3(a) above), two of
which (including one management employee of the Company) will be designated by
David B. Cornstein, so long as David B. Cornstein has the right to designate two
directors pursuant to Section 2.3(a) above, and thereafter only one of which
will be designated by David B. Cornstein (so long as David B. Cornstein has the
right to designate one director pursuant to Section 2.3(a) above), and one of
which will be an independent director designated by the Board of Directors of
the Company. If any Stockholder or group of Stockholders loses its right to
designate a member of the Executive Committee in accordance with the foregoing
provisions of this Section 2.3(d), such member shall be designated by the Board
of Directors of the Company. Notwithstanding any other provision of this
Agreement, if all of the members of the Executive Committee vote to remove a
director, each stockholder agrees to vote his or its Shares (whether at a
meeting or by written consent) to effectuate such removal.
(e) Restrictions on Other Agreements. No Stockholder shall grant any proxy
or enter into or agree to be bound by any voting trust with respect to the
Shares, nor shall any Stockholder enter into any stockholders agreements or
arrangements of any kind with any person with respect to the Shares on terms
which conflict with the provisions of this Agreement (whether or not such
agreements and arrangements are with other Stockholders or holders of Shares
that are not parties to this Agreement), including but not limited to,
agreements or arrangements with respect to the acquisition, disposition or
voting of Shares inconsistent herewith.
(f) Stockholder Action. Each Stockholder agrees that, in such Stockholder's
capacity as a stockholder of the Company, such Stockholder will vote, or grant
proxies relating to such shares to vote, all of such Stockholder's shares of
Common Stock in favor of any transaction pursuant to Section 2.2 hereof (other
than a transaction with an Affiliate) if, and to the extent that, approval of
the Company's stockholders is required in order to effect such transaction."
<PAGE>
(g) Upon the sale or other disposition by Equity-Linked Investors, L.P.
("ELI- 1") of all of its Shares, it shall no longer be deemed a Stockholder
under the Restated Stockholder's Agreement and the terms and provisions of the
Restated Stockholder's Agreement shall automatically terminate with respect to,
and no longer be binding on or enforceable against, ELI-1.
3. Ratification. Except as explicitly amended hereby, the terms of the
Original Registration Rights Agreement and Restated Stockholders' Agreement are
hereby ratified and confirmed.
4. Counterparts. This Omnibus Agreement may be executed in two or more
counterparts each of which shall be deemed an original but all of which together
shall constitute one and the same instrument, and all signatures need not appear
on any one counterpart.
5. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED UNDER AND GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK (REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE
GOVERN UNDER APPLICABLE NEW YORK PRINCIPLES OF CONFLICTS OF LAWS).
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Omnibus Amendment under
seal as of the date written above.
FINLAY ENTERPRISES, INC. EQUITY-LINKED INVESTORS-II
By:/s/Barry D. Scheckner By: Rohit M. Desai Associates-II
----------------------------- General Partner
Name: Barry D. Scheckner
Title: Senior Vice President
and Chief Financial Officer By: Damon H. Ball
THE LEE REPRESENTATIVE
/s/Warren C. Smith, Jr.
Warren C. Smith, Jr., individually and as Lee /s/David B. Cornstein
Representative for Thomas H. Lee Equity Partners, --------------------------
L.P., 1989 Thomas H. Lee Nominee Trust, John W. David B. Cornstein
Childs, David V. Harkins, Thomas R. Shepherd, C.
Hunter Boll, Glenn H. Hutchins, Scott A. Schoen, /s/Arthur E. Reiner
Joseph J. Incandela, Steven G. Segal, Wendy L. --------------------------
Schoen, Sheldon Schoen, SGS Family Limited Arthur E. Reiner
Partnership, Anthony J. DiNovi, Thomas M.
Hagerty, Glenn A. Hopkins, Charles W. Robins, /s/Norman S. Matthews
James Westra, Todd M. Abbrecht, Adam L. Suttin, --------------------------
Kent R. Weldon, Andrew D. Flaster, Wendy L. Norman S. Matthews
Masler, Kristina A. Weinberg and Terrence M.
Mullin /s/James Martin Kaplan
--------------------------
James Martin Kaplan
/s/Harold S. Geneen
--------------------------
Harold S. Geneen
EQUITY-LINKED INVESTORS, L.P.
By: Rohit M. Desai Associates,
General Partner
By: Damon H. Ball
AMENDMENT NO. 3
TO THE
FINLAY RETIREMENT INCOME PLAN
(As Restated March 23, 1995)
The Finlay Retirement Income Plan as heretofore amended (the "Plan") is
hereby further amended in the following respects:
1. Section 7.2.1.1 is amended by adding the following sentence at the end
thereof:
"Effective January 1, 1998, a Participant shall be entitled to a
hardship withdrawal under this Section 7.2.1.1 if (a) he meets all
requirements therefor other than the receipt of all amounts available to
him as a loan, (b) the need is for funds to purchase a principal residence
of the Participant, (c) the obtaining of loans other than the mortgage loan
in connection with such purchase would disqualify the Participant from
obtaining the necessary amount of mortgage loan, and (d) the Participant
demonstrates to the satisfaction of the Committee that the amount to be
withdrawn for the purpose of such purchase cannot be obtained from other
resources that are reasonably available to the Participant (including
assets of the Participant's spouse and minor children that are reasonably
available to the Participant)."
2. A new Article XVII is added to read as follows:
ARTICLE XVII
PARTICIPANT LOANS
17.1 Loans to Parties in Interest. This Article XVII is effective
January 1, 1998 or as soon thereafter as the Committee determines that
administration of loans hereunder is practicable. Upon the application
of a Participant who is a "party in interest" with respect to the
Plan (within the meaning of section 3(14) of ERISA), the Committee or
its delegate (in either case, the "Loan Administrator") shall instruct
the Trustee to make a loan to such Participant from the Participant's
Accounts, provided that such loan meets the requirements of
Section 17.2. No more than one loan may be outstanding at the same
time. The loan request shall be made on the Appropriate Form and
submitted to the Loan Administrator, together with such application
fee as the Administrator may authorize (if any). The Loan
Administrator shall notify the Participant in writing within a
reasonable time
<PAGE>
of the approval or denial of such loan request, and such
notification by the Loan Administrator shall be final. The status and
rights under the Plan of a Participant who obtains a loan under this
Article XVII shall not be affected, except to the extent that the
Participant has assigned an interest in the Participant's Accounts
pursuant to the applicable provisions of Section 17.2. All loans
shall be granted according to rules adopted by the Loan Administrator
and applicable to all Participants who are parties in interest on a
uniform basis that does not discriminate in favor of highly
compensated employees (within the meaning of section 414(q) of the
Code). The Committee may at any time suspend authorization for future
loans to Participants, but no such suspension shall affect any loan
then outstanding under this Article XVII.
17.2 Loan Requirements. A loan shall not be made pursuant to
Section 17.1 unless such loan meets all of the following requirements:
17.2.1 Amount. Such loan must be in an amount no less than one
thousand dollars ($1,000) and shall not exceed the lowest of:
(a) fifty thousand dollars ($50,000) reduced by the highest
outstanding principal balance during the preceding twelve (12) months
of all loans to the Participant from this and any other qualified
employer plan (as described in section 72(p)(4) of the Code) which is
maintained by an Employer or Affiliate ("controlled group loans"); or
(b) one-half of the vested balance of the Participant's Accounts,
reduced by the current outstanding principal balance of all
"controlled group loans" (as described in paragraph (a) above); or
(c) such other amount as may be determined by the Loan
Administrator in order to comply with any restrictions under an
Investment Fund that limit the liquidation of investments to fund
Participant loans or otherwise.
If there is a "controlled group loan" (other than a loan made
under this Plan) currently outstanding, one-half of the value of the
Participant's vested interest under the plan from which such loan was
made shall be included in the amount determined under paragraph (b),
above.
17.2.2 Adequate Security. All loans must be adequately secured.
For this purpose, no more than one-half of the total value of the
Participant's vested Accounts under the Plan may be assigned as
collateral security. If the Loan Administrator subsequently determines
that the loan is no longer adequately secured, additional security may
be required.
2
<PAGE>
17.2.3 Interest. All loans must bear interest, payable with each
scheduled loan payment (and in no event less frequently than
quarterly), at the prime rate of such bank as the Loan Administrator
shall specify plus 2%. The Loan Administrator shall at regular
intervals (but no less frequently than quarterly) determine the
applicable rate on the basis of a review of pertinent information.
17.2.4 Repayment Term. Such loan must provide for substantially
level amortization (within the meaning of section 72(p)(2)(C) of the
Code) with payments made at least quarterly for a fixed term of one,
two, three or four years. A Participant shall have the right on any
scheduled payment date to prepay the full outstanding balance of such
loan and accrued interest without penalty. Partial prepayment shall
not be permitted. Unless the Loan Administrator determines that it is
impractical to do so, such loan shall be repaid by substantially level
payroll deductions from pay in each pay period in which the loan is
outstanding.
17.2.5 Promissory Note. Such loan must be evidenced by a
promissory note and loan agreement containing such terms and
provisions as the Loan Administrator shall determine, executed by
the Participant and, if the Loan Administrator shall so determine,
also executed by the Participant's spouse.
17.3 Funding of Participant Loans.
17.3.1 Source of Funds. A Participant's loan shall be funded
solely by reduction of the Participant's Account balances as of the
effective date of the loan in the following order of priority: First,
from the Profit-Sharing and Matching Contributions Account to the
extent vested at the date of the loan, next from the Participant's
Closed Savings Account (including any Rollover Account) and last, from
the Participant's Elective Contributions Account. The promissory note
executed pursuant to Section 17.2.5 by a Participant who receives a
loan shall be held by the Trustee as an asset of the Trust Fund and
allocated solely to the Account or Accounts of the Participant from
which the loan was made. For all purposes hereunder, the value of such
promissory note shall be considered to be the outstanding unpaid
principal amount of the note plus accrued interest.
17.3.2 Allocation Among Investment Funds; Valuation. A
Participant shall specify the Investment Fund or Funds from which his
loan will be funded. The value of that portion of a Participant's
Accounts to be borrowed shall be determined as of the first Valuation
Date for which it is possible to do so under the administrative
procedures established by the Committee, and the loan proceeds will be
distributed in a single payment as soon as practicable thereafter.
3
<PAGE>
17.4 Loan Payments. Payments of principal and interest on a
Participant's loan shall be allocated among Investment Funds in
accordance with rules adopted by the Loan Administrator.
17.5 Loan Expenses. The Loan Administrator may determine to
charge any fees, taxes or other expenses incurred in connection with a
loan to the Accounts of the Participant obtaining such loan or to the
Participant directly. Such charges shall be imposed on a uniform and
nondiscriminatory basis.
17.6 Disposition of Loan Upon Certain Events. In the event that
distribution of a Participant's Account is required to be made under
the terms of the Plan before the Participant repays an outstanding
loan, the Trustee shall offset the outstanding balance of any loan
from such Account against the value of the Participant's Account
before making a distribution.
17.7 Compliance with Applicable Law. The Loan Administrator shall
take such actions as are deemed appropriate in order to assure full
compliance with all applicable laws and regulations relating to
Participant loans and the granting and repayment thereof.
17.8 Default. The outstanding principal amount and accrued
interest of a loan made pursuant to Section 17.1 shall become
immediately due and payable if the Participant fails to make a
scheduled loan payment by the required date, or on the date on which
distribution of the Participant's Accounts is made or otherwise
commences following the Participant's Termination of Employment. In
such event, the Loan Administrator may execute upon the Plan's
security interest in the Participant's Accounts to satisfy the debt;
provided, however, that execution shall not occur until such time as
the Participant's Account could be distributed to the Participant
consistent with the requirements for qualification of the Plan under
section 401(a) of the Code. The Loan Administrator may take any other
action deemed appropriate to obtain payment of the outstanding amount
of principal and accrued interest, which may include accepting
payments of principal and interest that were not made on schedule and
permitting the loan to remain outstanding under its original payment
schedule. Any costs incurred by the Loan Administrator in collecting,
or attempting to collect, amounts in default shall be charged against
the Participant's Accounts. If the Loan Administrator is unable to
obtain payment of the outstanding principal and accrued interest (or,
in the Loan Administrator's discretion, payment of only the overdue
amount of such principal), the Loan Administrator shall take such
further action as is deemed appropriate to prevent loss to the Plan as
4
<PAGE>
a result of the default. Any discretion by the Loan Administrator in
this regard shall be exercised in a uniform manner that does not
discriminate in favor of highly compensated employees (within the
meaning of Section 414(q) of the Code).
3. Sections 8.1 and 8.13.3 are amended to substitute "$5,000" for "$3,500"
therein, effective January 1, 1998 (with respect to Participants who terminate
employment thereafter and, to the extent permitted by law, all Participants who
have then previously terminated employment but have not yet received
distribution).
4. Section 12.1 is amended by revising the first sentence thereof to read
as follows:
Effective January 1, 1990, except as herein limited, the Company
shall have the right to amend the Plan by resolution of the Board of
Directors or the Committee (acting in its capacity as management and
delegee of the Board of Directors, and not in the capacity of Plan
fiduciaries) to any extent that it may deem advisable, and all
Employers and Participants shall be bound thereby.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officer the 3rd day of December, 1997.
FINLAY ENTERPRISES, INC.
By:/s/David B. Cornstein
----------------------------
Chairman
ATTEST:
/s/Bonni G. Davis
- -----------------------
Secretary
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINLAY FINE
JEWELRY CORPORATION FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> NOV-01-1997
<CASH> 5,853
<SECURITIES> 0
<RECEIVABLES> 33,294
<ALLOWANCES> 0
<INVENTORY> 312,832
<CURRENT-ASSETS> 365,769
<PP&E> 92,719
<DEPRECIATION> 27,232
<TOTAL-ASSETS> 545,281
<CURRENT-LIABILITIES> 323,682
<BONDS> 135,000
0
0
<COMMON> 0
<OTHER-SE> 78,594
<TOTAL-LIABILITY-AND-EQUITY> 545,281
<SALES> 431,422
<TOTAL-REVENUES> 431,422
<CGS> 209,497
<TOTAL-COSTS> 209,497
<OTHER-EXPENSES> 211,382
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,149
<INCOME-PRETAX> (7,606)
<INCOME-TAX> (2,809)
<INCOME-CONTINUING> (4,797)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,797)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
