Finlay Issues Warning on Liquidity Position

By JCK Online Staff -- JCK Online, 12/17/2008 12:23:00 PM

Finlay Enterprises has issued a warning that the U.S. recession had hurt its liquidity position and it may not meet its financial obligations.

“The current banking and credit crisis, the high unemployment rate, continued home foreclosures, the rising cost of basic necessities, and the reality that the U.S. has entered a recession has created a highly challenging retail environment during 2008 and, in particular, in the third quarter and fourth quarter-to-date periods,” Finlay said in the regulatory filing Tuesday. "These negative economic conditions may result in financial difficulties for our vendors, the department stores in which we operate and the financial institutions that are counterparties to our credit facilities, which could negatively affect us."

Finlay, which operates its own stores as well as counters in department store chains, added that its lenders decreased the borrowing availability under its revolving credit agreement and are performing another review which may further affect Finlay Jewelry’s borrowing capacity. The company said its debt includes $200 million in senior notes and $353 million under the revolving credit facility on Nov. 1.

“These current conditions have negatively impacted our liquidity position and operating performance and our sales are significantly below our original projections,” Finlay said. “There can be no assurances that our business operations, working capital and borrowing availability through the end of the fiscal year will be sufficient to meet current estimates of working capital requirements as well as allow Finlay Jewelry to maintain compliance with the $30.0 million minimum unused balance as required by the Revolving Credit Agreement.”

Finlay, which also operates the Bailey Banks & Biddle and Carlyle jewelry chains, said its loss widened to $20.8 million in the third quarter ended Nov. 1 from $7.5 million in the third quarter of the prior year.

In addition, Macy's has told the company it is not renewing license agreements expiring on Jan. 31 at 93 of the 343 jewelry departments it operates for the department store chain. Finlay derives 52 percent of its total sales from the counters it operates at Macy’s.

Finlay will also end its jewelry counter relationship with 47 Lord & Taylor stores that accounted for sales of about $44 million in its last fiscal year.

The jeweler moved its stock listing to the OTC Bulletin Board from Nasdaq earlier this year after it failed to maintain a required minimum market value.