SEC Company Response from FINLAY FINE JEWELRY CORP (CIK 0000898684) — Aug 23, 2005
FINLAY FINE JEWELRY CORP (CIK 0000898684)
Date: Aug. 23, 2005 · CIK: 0000898684 · Accession: 0000950136-05-005258
AI Filing Summary & Sentiment
Letter
August 23, 2005 U.S. Securities and Exchange Commission Mr. Michael Moran Branch Chief Division of Corporation Finance Mail Stop 03-08 Washington, D.C. 20549-0308
Re: Finlay Enterprises, Inc. ("FEI") Finlay Fine Jewelry Corporation ("FFJC" and collectively with FEI, the "Company" or "Finlay") Forms 10-K for the Fiscal Year Ended January 29, 2005, Filed April 14, 2005 ("2004 Forms 10-K") Forms 10-Q for the Fiscal Quarter ended April 30, 2005, Filed June 10, 2005 ("2005 First Quarter Forms 10-Q") File No. 0-25716
Dear Mr. Moran:
The Company hereby submits its responses to comments raised in your letter, dated July 21, 2005. The Company has addressed each of the comments below and, as appropriate, will incorporate these responses in its Forms 10-Q for the quarter ended July 30, 2005 and in its Forms 10-K for the fiscal year ending January 28, 2006.
For your convenience, we have included your comments below.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA, PAGE 15 -----------------------------------------------------
COMMENT
1. We note that you present non-GAAP financial measures on a per share basis. In future filings, please revise your disclosures to omit non-GAAP measures on a per share basis. See ASR 142 as well as Question 11 from the Frequently Asked Questions Regarding the Use of Non-GAAP Financial Measures, which can be found on the SEC website.
RESPONSE
We will revise our future filings for FEI to omit non-GAAP financial measures on a per share basis. This comment is not applicable for the FFJC 10-K as there are no per share disclosures.
COMMENT
2. We note that the term pro forma is generally associated with Article 11 of Regulation S-X. Please change the term pro forma to another term, such as "adjusted EBIDTA", and "adjusted income from continuing operations".
RESPONSE
We will revise our future filings for FEI to exclude pro forma financial information in Item 6 - Selected Consolidated Financial Data. In the future, if we deem it meaningful to the users of our financial statements to present similar data, we will use the term "adjusted" as opposed to pro forma.
This comment is not applicable for the FFJC 10-K as there are no pro forma disclosures included within Item 6 - Selected Consolidated Financial Data.
COMMENT
3. With regard to footnote (3), make sure your disclosure in future filings quantifies the impact on gross margin of the change in accounting principle.
RESPONSE
We advise the Staff that it is not possible to determine the effect of this change on previously reported fiscal periods prior to the year ended January 29, 2005. This is addressed in SFAS No. 3, Paragraph 12, which addresses changes to a LIFO method, including changing from one method of LIFO to another. We further advise the Staff that we disclosed the impact of the change on net income, net income per share and our LIFO provision for the year ended January 29, 2005 in Note 3 to FEI's consolidated financial statements, along with a discussion on why the prior year impact was not disclosed. In future Form 10-K filings, we will enhance our disclosure to quantify the impact on gross margin of the change in accounting principle related to LIFO for the next three fiscal years. We will disclose, as noted below, this impact until all fiscal years included in the financial statements are accounted for on the same basis of LIFO.
The following table will be added to our Forms 10-K for the year ended January 28, 2006 (in thousands):
FISCAL YEAR ENDED JANUARY 29, ------------------
LIFO charge using producer price indices................................... $ 8,000 LIFO charge using internal index.......... 2,100 ------------------ Positive impact on gross margin........... $ 5,900 ==================
COMMENT
4. With regard to footnote (9), you state that you present EBITDA as it, "provides additional information for determining our ability to meet future debt service requirements." This implies that EBITDA is used as a liquidity measure. If EBITDA is a liquidity measure, Item 10(e)(1)(i) of Regulation S-K requires you to reconcile the measure with the most directly comparable financial measure calculated and presented in accordance with GAAP. You include a reconciliation of EBITDA to Income from operations as a financial measure, but if EBITDA is also used as a liquidity measure, you should reconcile to operating cash flows or whatever directly comparable cash flow measure exists in GAAP.
RESPONSE
In Item 6 - Selected Consolidated Financial Data of the 2004 Forms 10-K, we present EBITDA as a non-GAAP financial measure, because we believe it is an indicative measure of, and it is commonly used by certain investors and analysts to analyze and compare companies on the basis of, operating performance and a company's ability to service and/or incur debt. As such, we consider EBITDA to be both an operating measure and a liquidity measure.
Item 10(e)(1)(i) of Regulation S-K requires that we reconcile this measure with the most directly comparable financial measure calculated and presented in accordance with GAAP. The following table will be added to our Forms 10-K for the year ended January 28, 2006:
<TABLE>
FINLAY ENTERPRISES, INC.
FISCAL YEAR ENDED (DOLLARS IN THOUSANDS) ----------------------------------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 31, FEBRUARY 1, FEBRUARY 2, 2006 2005 2004 2003 2002 ----------------------------------------------------------------------
EBITDA $ 73,394 $ 73,550 $ 75,027 $ 72,516 ====================================================================== Most directly comparable GAAP measures: Net income $ 16,025 $ 8,410 $ 7,039 $ 18,535 ====================================================================== Net cash provided from operating activities $ 27,041 $ 41,183 $ 45,060 $ 40,231 ======================================================================
</TABLE>
<TABLE>
FINLAY FINE JEWELRY CORPORATION
FISCAL YEAR ENDED (DOLLARS IN THOUSANDS) ----------------------------------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 31, FEBRUARY 1, FEBRUARY 2, 2006 2005 2004 2003 2002 ----------------------------------------------------------------------
EBITDA $ 73,394 $ 74,398 $ 75,787 $ 73,297 ====================================================================== Most directly comparable GAAP measures: Net income $ 19,487 $ 13,244 $ 11,819 $ 23,327 ====================================================================== Net cash provided from (used in) operating activities $(14,172) $ 48,279 $ 52,291 $ 43,658 ====================================================================== </TABLE>
Further, we will include a reconciliation of EBITDA to net income as well as a reconciliation of EBITDA to cash flows from operating activities in both the FEI and FFJC Forms 10-K for the year ended January 28, 2006.
Additionally, in both the FEI and FFJC Forms 10-K for the year ended January 28, 2006, we will revise the EBITDA footnotes (footnote 9 in the FEI Form 10-K and footnote 10 in the FFJC Form 10-K) to Item 6 - Selected Consolidated Financial Data to include the following disclosure in accordance with Item 10(e)(1)(i) of Regulation S-K:
Our definition of EBITDA is earnings before interest, taxes, depreciation and amortization. Management uses EBITDA as one of several factors in evaluating our operating performance as compared to prior year and our financial plan. Additionally, we use EBITDA to determine incentive compensation payments. We believe EBITDA provides additional information for determining our ability to meet future debt service requirements. EBITDA is also widely used by us and others in our industry to evaluate and price potential acquisitions and it is commonly used by certain investors and analysts to analyze and compare companies on the basis of operating performance and to determine a company's ability to service and/or incur debt.
EBITDA should not be construed as a substitute for income from operations, net income or cash flow from operating activities (all as determined in accordance with generally accepted accounting principles) for the purpose of analyzing our operating performance, financial position and cash flows, as EBITDA is not defined by generally accepted accounting principles. EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
o EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures, or contractual commitments;
o Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements;
o EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
o EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; and
o Other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA only supplementally. See the Statements of Cash Flows included in our consolidated financial statements.
COMMENT
5. Since you indicate that you use pro forma EBITDA and pro forma net income as measures of performance, please revise your filing to include the following items:
o The manner in which management uses the non-GAAP measure to conduct or evaluate its business;
o The economic substance behind management's decision to use such a measure;
o The material limitations associated with use of the non-GAAP financial measure as compared to the use of the most directly comparable GAAP financial measure;
o The manner in which management compensates for these limitations when using the non-GAAP financial measure; and
o The substantive reasons why management believes the non-GAAP financial measure provides useful information to investors.
See Question 8 from the Frequently Asked Questions Regarding the Use of Non-GAAP Financial Measures, which can be found on the SEC website.
RESPONSE
As noted in our response to comment number 2 above, we will revise our future filings for FEI to exclude pro forma financial information in Item 6 - Selected Consolidated Financial Data. In the future, if we deem it meaningful to the users of our financial statements to present similar data, we will include a discussion as to reasons why management believes the adjusted EBITDA is useful information to investors. We plan to add additional footnotes to the FEI Form 10-K following Item 6 - Selected Consolidated Financial Data describing any unusual items included in the results of operations for the respective fiscal years.
This comment is not applicable for the FFJC Form 10-K as there are no pro forma disclosures included within Item 6 - Selected Consolidated Financial Data.
CRITICAL ACCOUNTING POLICIES, PAGE 33 -------------------------------------
COMMENT
6. Your discussion of critical accounting policies should include quantification of the underlying accounts and discussion of changes and trends associated with the underlying accounts. For example, your discussion of merchandise inventories should quantify the amount of expenses that you recorded in each period for allowances and discuss any trends or significant changes. Your discussion of asset impairments should discuss any impairments incurred as well as the reasons for significant changes and trends. Your discussion of revenue recognition should highlight any changes in historical sales return rates or the lack of any changes.
RESPONSE
In response to the Staff's comment, in future filings, we will expand all of our critical accounting policies and estimates to include
Show Raw Text
CORRESP
1
filename1.htm
August 23, 2005
U.S. Securities and Exchange Commission
Mr. Michael Moran
Branch Chief
Division of Corporation Finance
Mail Stop 03-08
Washington, D.C. 20549-0308
Re: Finlay Enterprises, Inc. ("FEI")
Finlay Fine Jewelry Corporation ("FFJC" and collectively with FEI, the
"Company" or "Finlay")
Forms 10-K for the Fiscal Year Ended January 29, 2005, Filed
April 14, 2005 ("2004 Forms 10-K")
Forms 10-Q for the Fiscal Quarter ended April 30, 2005, Filed
June 10, 2005 ("2005 First Quarter Forms 10-Q")
File No. 0-25716
Dear Mr. Moran:
The Company hereby submits its responses to comments raised in your
letter, dated July 21, 2005. The Company has addressed each of the comments
below and, as appropriate, will incorporate these responses in its Forms 10-Q
for the quarter ended July 30, 2005 and in its Forms 10-K for the fiscal year
ending January 28, 2006.
For your convenience, we have included your comments below.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA, PAGE 15
-----------------------------------------------------
COMMENT
1. We note that you present non-GAAP financial measures on a per share
basis. In future filings, please revise your disclosures to omit
non-GAAP measures on a per share basis. See ASR 142 as well as Question
11 from the Frequently Asked Questions Regarding the Use of Non-GAAP
Financial Measures, which can be found on the SEC website.
RESPONSE
We will revise our future filings for FEI to omit non-GAAP financial
measures on a per share basis. This comment is not applicable for the
FFJC 10-K as there are no per share disclosures.
1
COMMENT
2. We note that the term pro forma is generally associated with Article 11
of Regulation S-X. Please change the term pro forma to another term,
such as "adjusted EBIDTA", and "adjusted income from continuing
operations".
RESPONSE
We will revise our future filings for FEI to exclude pro forma
financial information in Item 6 - Selected Consolidated Financial Data.
In the future, if we deem it meaningful to the users of our financial
statements to present similar data, we will use the term "adjusted" as
opposed to pro forma.
This comment is not applicable for the FFJC 10-K as there are no pro
forma disclosures included within Item 6 - Selected Consolidated
Financial Data.
COMMENT
3. With regard to footnote (3), make sure your disclosure in future
filings quantifies the impact on gross margin of the change in
accounting principle.
RESPONSE
We advise the Staff that it is not possible to determine the effect of
this change on previously reported fiscal periods prior to the year
ended January 29, 2005. This is addressed in SFAS No. 3, Paragraph 12,
which addresses changes to a LIFO method, including changing from one
method of LIFO to another. We further advise the Staff that we
disclosed the impact of the change on net income, net income per share
and our LIFO provision for the year ended January 29, 2005 in Note 3 to
FEI's consolidated financial statements, along with a discussion on why
the prior year impact was not disclosed. In future Form 10-K filings,
we will enhance our disclosure to quantify the impact on gross margin
of the change in accounting principle related to LIFO for the next
three fiscal years. We will disclose, as noted below, this impact until
all fiscal years included in the financial statements are accounted for
on the same basis of LIFO.
The following table will be added to our Forms 10-K for the year ended
January 28, 2006 (in thousands):
FISCAL YEAR ENDED
JANUARY 29,
2005
------------------
LIFO charge using producer price
indices................................... $ 8,000
LIFO charge using internal index.......... 2,100
------------------
Positive impact on gross margin........... $ 5,900
==================
2
COMMENT
4. With regard to footnote (9), you state that you present EBITDA as it,
"provides additional information for determining our ability to meet
future debt service requirements." This implies that EBITDA is used as
a liquidity measure. If EBITDA is a liquidity measure, Item 10(e)(1)(i)
of Regulation S-K requires you to reconcile the measure with the most
directly comparable financial measure calculated and presented in
accordance with GAAP. You include a reconciliation of EBITDA to Income
from operations as a financial measure, but if EBITDA is also used as a
liquidity measure, you should reconcile to operating cash flows or
whatever directly comparable cash flow measure exists in GAAP.
RESPONSE
In Item 6 - Selected Consolidated Financial Data of the 2004 Forms
10-K, we present EBITDA as a non-GAAP financial measure, because we
believe it is an indicative measure of, and it is commonly used by
certain investors and analysts to analyze and compare companies on the
basis of, operating performance and a company's ability to service
and/or incur debt. As such, we consider EBITDA to be both an operating
measure and a liquidity measure.
Item 10(e)(1)(i) of Regulation S-K requires that we reconcile this
measure with the most directly comparable financial measure calculated
and presented in accordance with GAAP. The following table will be
added to our Forms 10-K for the year ended January 28, 2006:
<TABLE>
FINLAY ENTERPRISES, INC.
FISCAL YEAR ENDED
(DOLLARS IN THOUSANDS)
----------------------------------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 31, FEBRUARY 1, FEBRUARY 2,
2006 2005 2004 2003 2002
----------------------------------------------------------------------
EBITDA $ 73,394 $ 73,550 $ 75,027 $ 72,516
======================================================================
Most directly comparable GAAP measures:
Net income $ 16,025 $ 8,410 $ 7,039 $ 18,535
======================================================================
Net cash provided from operating activities $ 27,041 $ 41,183 $ 45,060 $ 40,231
======================================================================
</TABLE>
3
<TABLE>
FINLAY FINE JEWELRY CORPORATION
FISCAL YEAR ENDED
(DOLLARS IN THOUSANDS)
----------------------------------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 31, FEBRUARY 1, FEBRUARY 2,
2006 2005 2004 2003 2002
----------------------------------------------------------------------
EBITDA $ 73,394 $ 74,398 $ 75,787 $ 73,297
======================================================================
Most directly comparable GAAP measures:
Net income $ 19,487 $ 13,244 $ 11,819 $ 23,327
======================================================================
Net cash provided from (used in) operating activities $(14,172) $ 48,279 $ 52,291 $ 43,658
======================================================================
</TABLE>
Further, we will include a reconciliation of EBITDA to net income as
well as a reconciliation of EBITDA to cash flows from operating
activities in both the FEI and FFJC Forms 10-K for the year ended
January 28, 2006.
Additionally, in both the FEI and FFJC Forms 10-K for the year ended
January 28, 2006, we will revise the EBITDA footnotes (footnote 9 in
the FEI Form 10-K and footnote 10 in the FFJC Form 10-K) to Item 6 -
Selected Consolidated Financial Data to include the following
disclosure in accordance with Item 10(e)(1)(i) of Regulation S-K:
Our definition of EBITDA is earnings before interest, taxes,
depreciation and amortization. Management uses EBITDA as one of several
factors in evaluating our operating performance as compared to prior
year and our financial plan. Additionally, we use EBITDA to determine
incentive compensation payments. We believe EBITDA provides additional
information for determining our ability to meet future debt service
requirements. EBITDA is also widely used by us and others in our
industry to evaluate and price potential acquisitions and it is
commonly used by certain investors and analysts to analyze and compare
companies on the basis of operating performance and to determine a
company's ability to service and/or incur debt.
EBITDA should not be construed as a substitute for income from
operations, net income or cash flow from operating activities (all as
determined in accordance with generally accepted accounting principles)
for the purpose of analyzing our operating performance, financial
position and cash flows, as EBITDA is not defined by generally accepted
accounting principles. EBITDA has limitations as an analytical tool,
and you should not consider it in isolation, or as a substitute for
analysis of our results as reported under GAAP. Some of these
limitations are:
o EBITDA does not reflect our cash expenditures, or future
requirements for capital expenditures, or contractual
commitments;
o Although depreciation and amortization are non-cash charges, the
assets being depreciated and amortized will often have to be
replaced in the future, and EBITDA does not reflect any cash
requirements for such replacements;
o EBITDA does not reflect changes in, or cash requirements for, our
working capital needs;
4
o EBITDA does not reflect the significant interest expense, or the
cash requirements necessary to service interest or principal
payments, on our debt; and
o Other companies in our industry may calculate EBITDA differently
than we do, limiting its usefulness as a comparative measure.
Because of these limitations, EBITDA should not be considered as a
measure of discretionary cash available to us to invest in the growth
of our business. We compensate for these limitations by relying
primarily on our GAAP results and using EBITDA only supplementally. See
the Statements of Cash Flows included in our consolidated financial
statements.
COMMENT
5. Since you indicate that you use pro forma EBITDA and pro forma net
income as measures of performance, please revise your filing to include
the following items:
o The manner in which management uses the non-GAAP measure to
conduct or evaluate its business;
o The economic substance behind management's decision to use such a
measure;
o The material limitations associated with use of the non-GAAP
financial measure as compared to the use of the most directly
comparable GAAP financial measure;
o The manner in which management compensates for these limitations
when using the non-GAAP financial measure; and
o The substantive reasons why management believes the non-GAAP
financial measure provides useful information to investors.
See Question 8 from the Frequently Asked Questions Regarding the Use
of Non-GAAP Financial Measures, which can be found on the SEC website.
RESPONSE
As noted in our response to comment number 2 above, we will revise our
future filings for FEI to exclude pro forma financial information in
Item 6 - Selected Consolidated Financial Data. In the future, if we
deem it meaningful to the users of our financial statements to present
similar data, we will include a discussion as to reasons why management
believes the adjusted EBITDA is useful information to investors. We
plan to add additional footnotes to the FEI Form 10-K following Item 6
- Selected Consolidated Financial Data describing any unusual items
included in the results of operations for the respective fiscal years.
This comment is not applicable for the FFJC Form 10-K as there are no
pro forma disclosures included within Item 6 - Selected Consolidated
Financial Data.
5
CRITICAL ACCOUNTING POLICIES, PAGE 33
-------------------------------------
COMMENT
6. Your discussion of critical accounting policies should include
quantification of the underlying accounts and discussion of changes and
trends associated with the underlying accounts. For example, your
discussion of merchandise inventories should quantify the amount of
expenses that you recorded in each period for allowances and discuss
any trends or significant changes. Your discussion of asset impairments
should discuss any impairments incurred as well as the reasons for
significant changes and trends. Your discussion of revenue recognition
should highlight any changes in historical sales return rates or the
lack of any changes.
RESPONSE
In response to the Staff's comment, in future filings, we will expand
all of our critical accounting policies and estimates to include