SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 2, 2002
COMMISSION FILE NUMBER: 0-15230
MICHAEL ANTHONY JEWELERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 13-2910285
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
115 SOUTH MACQUESTEN PARKWAY 10550
MOUNT VERNON, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (914) 699-0000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK PAR VALUE $.001
AMERICAN STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. X
---
As of April 5, 2002, there were 6,338,234 shares outstanding of Michael
Anthony's common stock.
The aggregate market value of common stock held by nonaffiliates at April 5,
2002 was $10,731,921. For purposes of this calculation, affiliates includes
Michael Anthony's executive officers and directors.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III Portions of registrant's Definitive Proxy Statement for Annual
Meeting of Stockholders for Fiscal 2002 (to be filed within 120 days of end of
fiscal year).
2
PART I
ITEM 1. BUSINESS.
GENERAL
Michael Anthony Jewelers, Inc. ("Michael Anthony") is a leading
designer, marketer and manufacturer of affordable fine jewelry in the United
States. We sell our jewelry directly to jewelry chain stores, discount stores,
department stores, television home shopping networks, and wholesalers. Our
jewelry is targeted towards the middle market, which generally retails between
$20 and $200 and between $300 and $1,200 for watches. Our products include rope
chain, bracelets, charms, pendants, earrings, rings and watches. Our products
are sold in over 20,000 retail locations nationwide.
Our home page on the Internet is www.michaelanthony.com. You can learn
about Michael Anthony by visiting that site.
Michael Anthony was organized as a Delaware corporation in 1986 and is
the successor to Michael Anthony Jewelers, Inc., a New York corporation,
organized in 1977.
FISCAL YEAR
Fiscal years ended February 2, 2002, January 27, 2001, and January 29,
2000 were comprised of 53, 52 and 52 weeks, respectively.
As used throughout this document, (a) fiscal 2002 refers to the fiscal
year ended February 2, 2002 (b) fiscal 2001 refers to the fiscal year ended
January 27, 2001, and (c) fiscal 2000 refers to the fiscal year ended January
29, 2000.
PRODUCT LINES
Michael Anthony offers a broad selection of handcrafted gold and
gemstone jewelry. Many of our products carry the "Ma" trademark, which has
become widely recognized in the jewelry industry and with certain consumers.
Michael Anthony manufactures an extensive selection of casted gold charms and
pendants including religious symbols; popular sayings; sport themes and team
logos; animal motifs; nautical, seashore, western, musical, zodiac and other
thematic figures; initials; and abstract artistic creations. We manufacture gold
rope, mesh and other chains and gold locks, and gold tubing and bangle blanks
used in the production of bangle bracelets and earrings. We manufacture gold,
stamped and tubed earrings, pendants and certain jewelry components. We also
manufacture a line of men's and ladies' 14 karat gold watches under the "Michael
Anthony" brand name. In addition, Michael Anthony designs, manufactures and
distributes karat gold jewelry accented with colored gemstones and invisible set
diamond rings. We have begun the outsourcing of certain gold products to enhance
our product line.
3
The table below sets forth the approximate percentage of (a) sales and
(b) kilograms shipped in fiscal years 2002, 2001 and 2000, respectively,
attributable to each of Michael Anthony's product categories.
------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
2002 2001 2000
------------------------------------------------------------------------------
% of % of % of
% of Kilograms % of Kilograms % of Kilograms
Sales Shipped Sales Shipped Sales Shipped
- --------------------------------- ---------- --------------- ---------- -------------- ---------- --------------
Casted charms/rings 30 26 30 25 34 29
- --------------------------------- ---------- --------------- ---------- -------------- ---------- --------------
Chains 43 51 43 53 42 50
- --------------------------------- ---------- --------------- ---------- -------------- ---------- --------------
Stamped/tubed earrings 14 12 10 8 9 7
- --------------------------------- ---------- --------------- ---------- -------------- ---------- --------------
Watches and other items 13 11 17 14 15 14
- --------------------------------- ---------- --------------- ---------- -------------- ---------- --------------
Michael Anthony maintains an in-house design staff which utilizes
CAD/CAM (computer aided design/computer aided manufacturing) technology to
enhance our design, modeling and production capabilities. The equipment is
utilized for the design of Michael Anthony's new products and for modifying the
scale of existing designs whenever possible. Michael Anthony obtains proprietary
protection for its products and designs. Michael Anthony updates its product
offerings periodically by adding new designs and eliminating less popular
styles.
We believe that our future success will depend, in part, on our ability
to enhance existing product lines and develop new styles and products to meet an
expanding range of customer requirements. As of April 5, 2002, our product
development staff consisted of 21 full time employees. Product development
expenses for molds and models for fiscal 2002 were approximately $794,310. We
anticipate that we will continue to commit substantial resources to product
development.
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MANUFACTURING PROCESS
Our manufacturing facility is located in Mount Vernon, New York. We
utilize manufacturing processes that combine modern technology and mechanization
with hand craftsmanship to produce fashionable and affordable gold jewelry. Our
manufacturing processes include:
- the casting (or lost wax) method, which is a long-standing jewelry
manufacturing process;
- a photo etching process, which has allowed Michael Anthony to enter the
lower priced segment of the market through production of ultra light
weight products; and
- the diamond cut process, which produces a sparkling effect on a
finished piece of gold jewelry.
The machinery on which we manufacture our rope chain products can
operate 24 hours a day and requires minimal direct labor. This has enabled us to
become one of the lowest cost producers of rope chain in the world.
During fiscal 2002, Michael Anthony manufactured approximately 89% of
its products from gold bullion and other raw materials and purchased
approximately 11% of its product as semi-finished or finished goods. Michael
Anthony does not believe the loss of any supplier would have a material adverse
effect on its business. Alternative sources of supply for the goods purchased by
Michael Anthony are readily available.
During fiscal 2002, Michael Anthony completed construction of a new
40,000 square feet manufacturing and assembly facility located in the Dominican
Republic. The facility is used for manufacturing, finishing, assembly of
castings, earrings and bangle bracelets.
OPEN ORDERS
Orders from our retail customers typically have shipment dates that
range from 24 hours to 60 days. As of April 5, 2002, the aggregate dollar value
of open orders was approximately $10,851,000. We expect that substantially all
of the current orders will be shipped in the next 90 days. We do not believe
that open orders are indicative of our future results of operations, as open
orders as of any given date are not necessarily indicative of sales trends.
MARKETING AND SALES
We market and sell our jewelry primarily through our in-house sales
force. Sales are made by our sales personnel primarily at our showroom in Mount
Vernon, New York and direct presentations at customers' locations. Products are
promoted through the use of catalogues, advertisements in trade publications,
trade show exhibitions, cooperative advertising allowances with certain
customers and advertisements in consumer magazines like Vogue, In Style, Martha
Stewart and Vanity Fair.
5
Our marketing strategy is to increase brand recognition of the "Michael
Anthony" name. This includes advertising in consumer magazines and other
publications of many of America's finest retailers. We believe that there is
growing brand recognition of the "Michael Anthony" name and the "Ma" trademark
with consumers and that this recognition has enhanced sales of our products.
To better meet our customers' needs, we have a wide range of customer service
programs:
- inventory management assistance through electronic data interchange;
- customized packaging and bar coding; and
- computerized analysis of sales and marketing trends.
Our vertical integration and customer service programs enable us to be
responsive to our customers' needs. We manufacture and deliver most orders on a
timely and more cost-effective basis than many of our competitors.
Our jewelry is sold primarily to jewelry chain stores, discount stores,
department stores, television home shopping networks, and wholesalers. We assist
our customers in allocating their purchasing budget among the items in the
various product lines. We advise them of items having higher consumer demand as
determined by Michael Anthony's computerized market analysis. Prices vary on the
basis of service required by customers. We ship our products in bulk to
wholesale distributors. For certain retail jewelry chains, such as Sterling,
Inc. (a division of Signet Group PLC and the owner of Kay Jewelers and J.B.
Robinson Jewelers), Wal*Mart, J.C. Penney, Zales and Kmart, we prepackage and
price tag most items. We then ship an order of many different items to
distribution centers and stores in the chain. We provide additional services to
certain customers to meet their specific marketing needs, such as tagging,
boxing and point-of-sale displays.
We also ship our jewelry to a limited number of customers on a
consignment basis. Through these arrangements, we deliver our products on
consignment, and upon sale, the customer pays Michael Anthony for the consigned
merchandise. Consigned merchandise is subject to our own consignment
arrangements with our gold lenders. See Item 1. "Business - Supply; Related
Financing Arrangements" and Item 7. "Management's Discussion And Analysis Of
Financial Condition And Results of Operations - Liquidity and Capital
Resources."
During fiscal 2002, sales to the five largest of Michael Anthony's
customers totaled approximately 60% of total net sales. Our two largest
customers were Wal-Mart and Home Shopping Network, accounting for 17.4% and
14.3%, respectively, of net sales. Except for certain retail customers, Michael
Anthony generally has no long-term contractual commitments with any of our
customers. None of Michael Anthony's customers are prohibited from purchasing
products from our competitors.
6
We reduce gross sales by the amount of returns and discounts to
determine net sales each month. Each month we establish a reserve for returns
based on our historical experience, the amount of gross sales and the customer
base. The total of actual returns and the provision for the returns reserve
amounted to approximately 11.5%, 12.2% and 11.1% of gross sales in each of
fiscal 2002, fiscal 2001 and fiscal 2000, respectively. For further information
regarding the reserve for returns, see Note 1 - Notes to Consolidated Financial
Statements.
If we lose one or more of our top customers or if any of them reduce,
delay or cancel orders, return significant amounts of product or experience
financial difficulties that result in their inability to pay, it could have a
material adverse effect on our business, operating results and financial
condition.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
We use Italian-made machinery, together with acquired proprietary
knowledge, to manufacture our rope chain products. Michael Anthony maintains
certain trademarks and generally applies for copyrights covering the design of
certain of our products. The level of protection available for our proprietary
designs and products varies depending on a number of factors, including the
distinctiveness of the product and originality of design. Our patents,
trademarks and copyrights may not prevent competitors from producing products
that are substantially similar to those of Michael Anthony. See Item 1.
"Business - Product Lines."
Michael Anthony seeks to avoid disclosure of its trade secrets, and
requires those people with access to our proprietary information to sign
confidentiality agreements. Access to our systems is also restricted.
Despite Michael Anthony's efforts to protect our trademarks, copyrights
and other proprietary rights, unauthorized parties may attempt to copy aspects
of our products or to obtain and use information that Michael Anthony considers
confidential. Policing unauthorized use of Michael Anthony's intellectual
property rights is difficult. We take appropriate action whenever we discover
unauthorized use of our trademarks or if any of our copyrighted designs have
been copied. Knockoffs and counterfeit products are a persistent problem in the
jewelry industry. The laws of many countries do not protect our intellectual
property rights to the same extent as the laws of the United States. There can
be no assurance, that even if Michael Anthony's means of protecting our
intellectual property and other proprietary rights were successful, our
competitors may not independently develop similar products.
We do not believe that our products or processes infringe on the
proprietary rights of any third parties. There can be no assurance that third
parties will not claim infringement with respect to existing or future products
or processes. Any such claims, with or without merit, could be time-consuming,
result in costly litigation, cause product shipment delays or require Michael
Anthony to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to Michael
Anthony or at all, which could have a material adverse effect on Michael
Anthony's business, operating results and financial condition.
7
COMPETITION
The jewelry industry is highly competitive, both in the United States
and on a global basis. Michael Anthony encounters competition primarily from
manufacturers with national and international distribution capabilities and, to
a lesser extent, from small regional suppliers of jewelry. We believe that we
are well positioned in the industry and have a reputation for responsive
customer service, high quality and well-designed jewelry with broad consumer
appeal.
The principal competitive factors in the industry are price, quality,
design and customer service. Our specialized customer service programs are
important competitive factors in sales to nontraditional jewelry retailers,
including television shopping networks. The recent trend towards consolidation
at the retail level in the jewelry industry and low labor costs outside of the
United States may increase the level of competition facing Michael Anthony.
There can be no assurance that Michael Anthony will be able to compete
successfully against current and future competitors or that competitive
pressures faced by us will not have a material adverse effect on our business,
operating results and financial condition.
SEASONAL NATURE OF BUSINESS
Our business is seasonal in nature. Presented below are our net sales
for each quarter of fiscal 2002, fiscal 2001 and fiscal 2000:
NET % OF
SALES NET SALES
----- ---------
($ IN THOUSANDS)
----------------
Fiscal 2002 Ended February 2, 2002
First Quarter $29,176 21%
Second Quarter $28,210 20%
Third Quarter $50,981 36%
Fourth Quarter $33,551 23%
Fiscal 2001 Ended January 27, 2001
First Quarter $25,700 21%
Second Quarter $24,821 20%
Third Quarter $41,045 33%
Fourth Quarter $33,152 26%
Fiscal 2000 Ended January 29, 2000
First Quarter $28,982 20%
Second Quarter $25,331 17%
Third Quarter $49,935 35%
Fourth Quarter $40,689 28%
Michael Anthony has experienced a seasonal pattern in its operating
results with the third and fourth quarters typically having the highest sales.
This fluctuation is mitigated to a degree by the early placement of orders by
many of our customers, particularly for the Christmas holiday season. In
addition, we market holiday and seasonal products year round for such
8
occasions as Mother's Day, Valentine's Day, Father's Day, religious holidays and
school graduations.
GOLD SUPPLY AND RELATED FINANCING ARRANGEMENTS
Gold used in the manufacturing process is at least .995 fine and is
then combined with other metals to produce 14 karat and 10 karat gold. The term
"karat" refers to the gold content of alloyed gold, measured from a maximum of
24 karats (100% fine gold). Varying quantities of metals such as silver, copper,
nickel and zinc are combined with fine gold to produce 14 karat gold of
different colors. These alloys are in abundant supply and are readily available
to Michael Anthony.
Michael Anthony uses gold consignment arrangements with the gold
lenders to supply substantially all of its gold needs. See Item 7. "Management's
Discussion And Analysis And Financial Condition And Results Of
Operations-Liquidity and Capital Resources."
INSURANCE
We maintain primary all-risk insurance, with limits in excess of our
current inventory levels (including consigned gold), to cover thefts and damage
to inventory located on our premises and insurance on Michael Anthony goods in
transit. We also maintain insurance covering theft and damage to inventory at
our suppliers' locations. The amount of coverage available under such policies
is limited and may vary by location, but generally is in excess of the value of
the gold held by a particular supplier. Additional insurance coverage is
provided by some of Michael Anthony's suppliers. We also maintain fidelity
insurance, which is insurance providing coverage against theft or embezzlement
by our employees.
EMPLOYEES
As of February 2, 2002, we employed 742 persons, 368 of which were
directly engaged in manufacturing and distribution operations, 164 of which were
engaged in administration and sales and 210 of which were employed at our
assembly facility in the Dominican Republic. None of our employees are
represented by a union and we have not experienced any labor-related work
stoppage. We place a heavy emphasis on employee relations through educational
and training programs and employee teams. We consider our relations with our
employees to be good. We believe there is an adequate pool of labor available to
satisfy our foreseeable hiring needs for our sales, manufacturing and
distribution operations.
ENVIRONMENTAL MATTERS
Extensive environmental laws and regulations and various other federal,
state and local laws and regulations regarding health and safety matters affect
our operations. Since our manufacturing operations routinely use materials
regulated by the environmental laws we may incur material liabilities if any
claims are brought against us in connection with these operations. We have taken
steps to reduce the environmental risks associated with our operations and
believe that we are currently in substantial compliance with all environmental
laws.
9
AGREEMENTS
Although we intend to continue to aggressively market our gold jewelry
product lines to our existing customer base, we believe there are opportunities
to increase sales by expanding our customer base and exploring product lines
that may utilize diamonds or colored stones, which are precious, semiprecious or
synthetic. Our strategy is to increase sales to new and existing customers as
well as raise our average price points and gross margins.
On December 22, 2000, Michael Anthony entered into a distribution
agreement with the Almond Jewelry Group. Under the arrangement, Michael Anthony
has acquired the exclusive rights to market and distribute gold jewelry products
manufactured by Almond to retailers in the United States. Almond will no longer
directly market its gold jewelry products to retailers in the United States.
Michael Anthony has also entered into a supply agreement with Almond, which will
assure its customer base the continuity of a supply of high quality and
innovative merchandise. In connection with the distribution agreement, Almond
was issued warrants to purchase 300,000 shares of common stock at a price of
$1.62 per share.
As a result of this agreement, we have increased our market share with
an existing customer and added new customers. We plan to pursue our long term
growth strategy, that may include the acquisition of one or more additional
companies that manufacture and distribute jewelry products.
ITEM 2. PROPERTIES.
Our manufacturing and distribution facilities are all owned and they
are located in three adjacent buildings in Mount Vernon, New York having a total
of approximately 74,000 square feet.
On September 16, 1999, Michael Anthony acquired the buildings which
house two manufacturing facilities, located at 70 and 60 South MacQuesten
Parkway, Mount Vernon, NY from MacQuesten Realty Company for a price of
$2,450,000. Michael Anthony incurred $929,000 of long term debt, which has a
four-year term and accrues interest at an annual rate of 7.50%, and paid the
balance with cash. At February 2, 2002, $427,000 of principal remained
outstanding under the loan.
On February 10, 1999, the Company obtained a loan in the amount of
$937,500. As collateral for the loan, the Company granted the lender a first
mortgage on one of its manufacturing facilities. The mortgage has a fifteen-year
term and accrues interest at an annual rate of 7.05%. At February 2, 2002,
$823,000 of principal remained outstanding under the loan.
We also own the building housing our sales and administrative offices
located at 115 South MacQuesten Parkway, in Mount Vernon, New York, and an
adjacent parking area. The headquarters building has approximately 71,000 square
feet. The mortgage has a ten-year term and accrues interest at an annual rate of
8.0%. There is a balloon payment of $1,149,000 due on October 20, 2002. At
February 2, 2002, $1,785,000 of principal remained outstanding under the loan.
10
See Item 7. "Management's Discussion And Analysis Of Financial
Condition And Results Of Operations" and Item 13. "Certain Relationships And
Related Transactions."
Our offices and facilities are protected by state-of-the-art security
systems, procedures and a security staff. The Company believes our current
manufacturing, distribution and administrative facilities are adequate for our
current needs.
During fiscal 2000, Michael Anthony began leasing a 7,500 square foot
assembly facility in the Dominican Republic. The facility was used for finishing
and assembly of earrings and bangle bracelets. The lease was terminated in June
2001.
During fiscal 2002, Michael Anthony, through MADOR S.A., completed the
construction of a 40,000 square feet assembly and manufacturing facility located
in the Dominican Republic. The facility was operational in May 2001 at a cost of
approximately $2,000,000 for land, building, machinery and equipment with cash.
ITEM 3. LEGAL PROCEEDINGS.
Legal proceedings to which Michael Anthony is a party are routine
litigation incidental to our business which are not material to Michael
Anthony's business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock is traded on the American Stock Exchange under the
symbol MAJ. Our common stock began its listing on AMEX on October 25, 1991.
Prior to its listing on AMEX, our common stock was traded in NASDAQ National
Market System. The following table sets forth the high and low sale prices per
share on AMEX for the fiscal years 2002 and 2001.
HIGH LOW
---- ---
FISCAL YEAR ENDED FEBRUARY 2, 2002
- ----------------------------------
First Quarter 1 1/2 2
Second Quarter 1 11/16 2 13/16
Third Quarter 2 1/8 2 3/4
Fourth Quarter 2 13/16 2 15/16
FISCAL YEAR ENDED JANUARY 27, 2001
- ----------------------------------
First Quarter 3 1/8 2 9/16
Second Quarter 3 2 1/8
Third Quarter 2 1/2 1 3/4
Fourth Quarter 2 1 7/16
As of April 5, 2002, there were 1,094 holders of record of Michael
Anthony's common stock.
We have never paid a cash dividend. We anticipate that all of our
earnings will be retained for use in our business and we do not intend to pay
cash dividends in the foreseeable future. Future dividend policy will depend
upon, among other factors, our earnings and financial condition. See Item 7.
"Management's Discussion And Analysis Of Financial Condition And Results Of
Operations," and Note 6 "Long Term Debt" - Notes to the Consolidated Financial
Statements.
In December 1995, we announced a common stock repurchase program under
which Michael Anthony may repurchase up to 750,000 shares of common stock. On
April 4, 1997, the board of directors authorized an increase of an additional
500,000 shares of common stock that we may repurchase under the stock repurchase
plan. On May 26, 1998, the board authorized a further increase of up to an
additional 1,000,000 shares of common stock that we may repurchase under the
stock repurchase plan. The combined total of the stock repurchase programs
amount to 2,250,000 shares.
As of April 5, 2002, Michael Anthony had purchased a total of 2,143,000
shares on the open market for an aggregate of approximately $6,429,000, at an
average price of $3.00.
12
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data of Michael Anthony should be read
in conjunction with the consolidated financial statements and related notes
appearing elsewhere in this Form 10-K.
Feb. 2, Jan. 27, Jan. 29, Jan. 30, Jan. 31,
2002 2001 2000 1999 1998
--------- --------- --------- --------- ---------
(In thousands, except per share amounts)
Statement of Operations
- -----------------------
Net sales $ 141,918 $ 124,718 $ 144,937 $ 137,567 $ 129,949
Cost of goods sold 113,263 99,983 110,096 105,870 107,182
--------- --------- --------- --------- ---------
Gross profit 28,655 24,735 34,841 31,697 22,767
Selling, general and
administrative expenses 24,435 24,940 28,257 25,942 25,155
--------- --------- --------- --------- ---------
Operating income/(loss) 4,220 (205) 6,584 5,755 (2,388)
Other(expense)/income:
Interest expense/
Gold consignment fee (2,806) (2,261) (2,699) (2,290) (2,827)
Other income/(expense), net 119 140 342 326 1,002
--------- --------- --------- --------- ---------
Income/(loss) before extraordinary
item and income taxes 1,533 (2,326) 4,227 3,791 (4,213)
Income tax provision/(benefit) 582 (886) 1,607 1,441 (1,601)
--------- --------- --------- --------- ---------
Income/(loss) before
extraordinary item 951 (1,440) 2,620 2,350 (2,612)
--------- --------- --------- --------- ---------
Extraordinary item (net of income
taxes of $130,000) - - - 212 -
--------- --------- --------- --------- ---------
Net income/(loss) $ 951 $ (1,440) $ 2,620 $ 2,138 $ (2,612)
========= ========= ========= ========= =========
Earnings/(loss) per share before
extraordinary item - basic $ .15 $ (0.23) $ 0.40 $ 0.30 $ (0.34)
========= ========= ========= ========= =========
Earnings/(loss) per share before
extraordinary item - diluted $ .15 $ (0.23) $ 0.39 $ 0.30 $ (0.34)
========= ========= ========= ========= =========
Extraordinary item $ - $ - $ - $ (.03) $ -
========= ========= ========= ========= =========
Weighted average number
of shares - basic 6,203 6,319 6,592 7,111 7,746
Weighted average number
of shares - diluted 6,314 6,319 6,702 7,111 7,746
Balance Sheet Data:
- -------------------
Working capital $ 34,724 $ 33,231 $ 35,960 $ 39,171 $ 37,260
Total assets(1) 65,360 63,335 67,914 65,037 65,644
Long-term debt and capital
lease liability 9,166 10,987 12,684 12,509 12,736
Stockholders' equity 43,492 42,681 44,044 43,298 43,389
(1) The fiscal years ended February 2, 2002, January 27, 2001, January 29,
2000, January 30, 1999, and January 31, 1998 do not include consigned
inventory, which had approximate value of $40,635,000, $30,718,000,
$38,076,000, $35,096,000, and $33,208,000, respectively.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
CRITICAL ACCOUNTING POLICIES
Inventories and Cost of Goods Sold
- ----------------------------------
Inventories are valued at lower of cost (first-in, first-out method) or
market.
The Company satisfies a majority of its gold supply needs through gold
consignment agreements with financial institutions that lease gold to the
Company ("gold lenders"), whereby the gold lenders have agreed to consign fine
gold to the Company (see Note 4). In accordance with the terms of the
agreements, the Company has the option of repaying the gold lenders in an
equivalent number of ounces of fine gold or cash based upon the then quoted
market price of gold.
The principal component of cost of goods sold is the cost of the gold
bullion and other raw materials used in the production of the Company's
jewelry. Other components of cost of goods sold include direct costs incurred
by the Company in its manufacturing operations, depreciation, freight and
insurance.
Revenue Recognition
- -------------------
Revenue from sales to customers (other than consignment) is recognized
at the time the merchandise is shipped. Merchandise sold under consignment
arrangements between the Company and certain customers is not recognized as
revenue by the Company until the products are sold by the consignee. In certain
cases, the Company accepts payment for merchandise in gold. Additionally, the
Company enters into arrangements for certain customers of its rope chain and
tubing products whereby the gold value of the finished product is transferred in
the form of fine gold ounces from the customer to the Company. The value of the
finished product that exceeds the gold content value is recovered as revenue and
the related cost to manufacture is recorded as an expense ("tolling
arrangements").
Allowance for Sales Returns
- ---------------------------
The Company reduces gross sales by the amount of discounts and returns
to determine net sales. Each month the Company estimates a reserve for returns
based on historical experience and the amount of gross sales. The reserve is
adjusted periodically to reflect the Company's actual return experience.
Adjustments to the Company's reserve have not been material.
Derivative Financial Instruments
- --------------------------------
On January 28, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133 ("FAS 133") "Accounting for Derivative Instruments
and Hedging Activities", as amended, and interpreted, which requires that all
derivative instruments be recorded on the balance sheet at their fair value.
SFAS 133 requires the Company to recognize all derivatives as
14
either assets or liabilities on the balance sheet and to measure those
instruments at fair value. Additionally, the fair value adjustments will affect
either stockholders' equity or net income depending on whether the derivative
instrument qualifies as a hedge for accounting purposes and, if so, the nature
of the hedging activity. The impact of adopting FAS 133 on the Company's
Consolidated Statement of Operations and Consolidated Balance Sheet was not
material.
The Company uses financial instruments, including commodity futures,
forwards and options on futures, to limit its exposure to fluctuations in the
price of gold. The Company does not enter such contracts for speculative
purposes.
For derivative instruments that are designated and qualify as a fair
value hedge (i.e., hedging the exposure to changes in the fair value of an asset
or a liability or an identified portion thereof that is attributable to a
particular risk), the gain or loss on the derivative instrument as well as the
offsetting gain or loss on the hedged item attributable to the hedged risk are
recognized in earnings in the current period. For derivative instruments that
are designated and qualify as a cash flow hedge (i.e., hedging the exposure of
variability in expected future cash flows that would be attributable to a
particular risk), the effective portion of the gain or loss on the derivative
instrument is reported as a component of Accumulated comprehensive loss (a
component of stockholders' equity) and reclassified into earnings in the same
period or periods during which the hedged transaction affects earnings. The
remaining gain or loss on the derivative instrument, if any (i.e., the
ineffective portion and any portion of the derivative instrument excluded from
the assessment of effectiveness) is recognized in earnings in the current
period.
Results of Operations
The following table sets forth, as a percentage of net sales,
certain items appearing in our Statements of Operations for the indicated fiscal
years.
YEAR ENDED
---------------------------------------------------------------------
FEBRUARY 2, JANUARY 27, JANUARY 29, JANUARY 30,
2002 2001 2000 1999
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 79.8 80.2 76.0 77.0
Selling, general and
administrative expenses 17.2 20.0 19.5 18.8
Interest and gold consignment
fee expense 2.0 1.8 1.9 1.7
Other income (.1) (.1) (.2) (.2)
Income tax provision/(benefit) .4 (.7) 1.1 1.0
Extraordinary item - - - .1
Net income/(loss) .7 (1.2) 1.8 1.6
15
FISCAL 2002 VS. FISCAL 2001
Net sales for fiscal 2002 were approximately $141,918,000, an
increase of 13.8% from net sales of approximately $124,718,000 for the
comparable period in fiscal 2001. The increase in sales was primarily due to
increased shipments to the retail segment of our customer base, primarily from
the introduction of new products.
Gross profit on sales for fiscal 2002 were approximately $28,655,000,
an increase of $3,920,000 from approximately $24,735,000 for the comparable
period in fiscal 2001. As a percentage of net sales, gross profit increased to
20.2% in fiscal 2002 compared to 19.8% in fiscal 2001. The increase in gross
margin was attributable to a change in the customer and product mix and a
reduction of costs primarily from the Company's manufacturing facility located
in the Dominican Republic.
Selling, general and administrative expenses for fiscal 2002 were
approximately $24,435,000, a decrease of $505,000 or 2.0% from approximately
$24,940,000 for the comparable period in fiscal 2001. The decrease is primarily
attributable to decreases in (a) advertising expenses, (b) payroll and payroll
related expenses, and (c) product and packaging supplies.
Interest expense and gold consignment fees for fiscal 2002, were
approximately $2,806,000, an increase of $545,000 or 24.1% compared to
approximately $2,261,000 for the comparable period in fiscal 2001. The increase
was primarily due to the Company's higher average level of consigned inventory,
higher consignment rates and increased borrowings under the Company's line of
credit.
For the year ended February 2, 2002, an income tax provision of
$582,000 was recorded compared to an income tax benefit of $886,000 for the
prior year. The effective tax rates for fiscal 2002 and fiscal 2001 were 38%.
As a result of the above factors our net income for fiscal 2002 was
approximately $951,000 compared to a net loss of $(1,440,000) for fiscal 2001.
FISCAL 2001 VS. FISCAL 2000
- ---------------------------
Net sales for fiscal 2001 were approximately $124,718,000, a
decrease of 14.0% from net sales of approximately $144,937,000 for the
comparable period in fiscal 2000. The decrease in sales was primarily due to
decreased shipments to the retail segment of our customer base.
Gross profit on sales for fiscal 2001 were approximately $24,735,000, a
decrease of $10,106,000 from approximately $34,841,000 for the comparable period
in fiscal 2000. As a percentage of net sales, gross profit decreased to 19.8% in
fiscal 2001 compared to 24.0% in fiscal 2000. The decrease in gross margin was
attributable to a change in the customer and product mix.
Selling, general and administrative expenses for fiscal 2001 were
approximately $24,940,000, a decrease of $3,317,000 or 11.7% from approximately
$28,257,000 for the
16
comparable period in fiscal 2000. The decrease is primarily attributable to
decreases in (a) advertising expenses, (b) payroll and payroll related expenses,
and (c) product and packaging supplies.
Interest expense and gold consignment fees for fiscal 2001, were
approximately $2,261,000, a decrease of $438,000 or 16.2% compared to
approximately $2,699,000 for the comparable period in fiscal 2000. The decrease
was primarily due to the Company's lower consignment rates and lower average
level of consigned inventory.
For the year ended January 27, 2001, an income tax benefit of $886,000
was recorded compared to an income tax provision of $1,607,000 for the prior
year. The effective tax rates for fiscal 2001 and fiscal 2000 were 38%.
As a result of the above factors our net loss for fiscal 2001 was
approximately $(1,440,000) compared to net income of $2,620,000 for fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
We rely on a gold consignment program, short-term borrowings and
internally generated funds to finance our inventories and accounts receivable.
We fill most of our gold supply needs through gold consignment arrangements with
gold lenders. Under the terms of those arrangements, we are entitled to lease
the lesser of (a) an aggregate of 240,000 ounces of fine gold or (b) consigned
gold with an aggregate value equal to $79,000,000. The consigned gold is secured
by certain property of Michael Anthony, including inventory and machinery and
equipment. Michael Anthony pays the gold lenders a consignment fee based on the
dollar value of ounces of gold outstanding under their respective agreements,
which value is based on the daily Second London Gold Fix. We believe that our
financing rate under the consignment arrangements is substantially similar to
the financing rates charged to gold consignees similarly situated to Michael
Anthony. As of February 2, 2002, Michael Anthony held approximately 143,100
ounces of gold on consignment with a market value of $40,635,000.
In December 2001, Michael Anthony was notified by one of its gold
lenders that it planned to discontinue its involvement in gold trading and
jewelry financing. In January 2002, the Company received approval from a new
gold lender, and in February 2002, began a relationship with this new lender.
The consignment agreements contain restrictive covenants relating to
maximum usage, net worth, working capital and other financial ratios and each of
the agreements requires Michael Anthony to own a specific amount of gold at all
times. At February 2, 2002, Michael Anthony's owned gold inventory was valued at
approximately $6,280,000. We believe that the supply of gold available through
our gold consignment arrangements, together with the gold we own, is sufficient
to meet our requirements.
The consignment agreements are terminable by Michael Anthony or the
respective gold lenders upon 30 days notice. If any gold lender were to
terminate its existing gold consignment arrangement, we do not believe we would
experience an interruption of our gold supply that would materially adversely
affect the business. Michael Anthony believes that other consignors
17
would be willing to enter into similar arrangements if any gold lender
terminates its relationship with Michael Anthony.
Consigned gold is not included in our inventory, and there is no
related liability recorded. As a result of these consignment arrangements,
Michael Anthony is able to shift a substantial portion of the risk of market
fluctuations in the price of gold to the gold lenders, since Michael Anthony
does not purchase gold from the gold lenders until receipt of a purchase order
from, or shipment of jewelry to, our customers. Michael Anthony then either
locks in the selling price of the jewelry to our customers at the same time as
the required purchase of gold from the gold lenders or hedges against changes in
the price of gold by entering into forward contracts or purchasing futures or
options on futures that are listed on the COMEX. At February 2, 2002 there were
17,000 ounces on forward contracts and no options on futures outstanding.
While we believe our supply of gold is relatively secure, significant
increases or rapid fluctuations in the cost of gold may impact the demand for
our products. From February 1999 until February 2, 2002, the closing price of
gold according to the Second London Gold Fix ranged from a low of $252.80 per
ounce to a high of nearly $325.50 per ounce. Fluctuations in the precious metals
markets and credit may result in an interruption of our gold supply or the
credit arrangements necessary to allow us to support our accounts receivable and
continue the use of consigned gold.
In January 1999, Michael Anthony entered into a Loan and Security
Agreement with General Electric Capital Business Asset Funding Corporation in
the principal amount of $10,444,444. This loan is secured by our machinery and
equipment. The loan agreement contains a cross collateral/cross default clause
in connection with Michael Anthony's line of credit agreement. The loan
agreement does not contain any restrictive financial covenants. The loan bears
interest at 6.85% per annum and payments of interest only are due for the first
year of the loan. The loan matures in January 2007. As of February 2, 2002,
$7,951,000 of principal remained outstanding under the notes.
On October 6, 1995, Michael Anthony obtained a loan from a bank in the
amount of $2,500,000. As collateral for the loan, we granted the bank a first
mortgage on our corporate headquarters. The mortgage has a ten-year term and
interest on the mortgage will accrue at 8% per annum. There is a balloon on
payent of $1,149,000 due on October 10, 2005. In addition, the mortgage contains
restrictive financial covenants. As of February 2, 2002, $1,785,000 of principal
remained outstanding under the mortgage.
At February 2, 2002, the Company had a line of credit arrangement with
a commercial bank which varies seasonally from $10,000,000 to $18,350,000. On
October 20, 2001, the Bank temporarily increased the Company's line of credit to
$24,000,000. This temporary increase was repaid on December 21, 2001. The line
of credit is secured by certain assets of the Company, including accounts
receivable and inventory. Borrowings under the facility bear interest, at the
Company's option, at (a) the bank's prime rate, (b) the fixed rate loan (as
defined in the agreement) or (c) the adjusted Eurodollar rate plus 2.5%. The
line of credit expires on July 31, 2002 subject to annual renewal. Management
believes that the line of credit will be renewed; however, if the current lender
decides not to renew the line, we believe that other lenders would
18
be willing to enter into a similar arrangement. As of February 2, 2002,
$3,300,000 was outstanding under the line of credit. The amount was repaid in
full on February 13, 2002.
On February 10, 1999, Michael Anthony obtained a loan in the amount of
$937,500. As collateral for the loan, we granted the lender a first mortgage on
one of our manufacturing facilities. The mortgage has a fifteen-year term and
accrues interest at an annual rate of 7.05%. At February 2, 2002, approximately
$823,000 of principal remained outstanding under the loan.
On September 16, 1999, Michael Anthony acquired two buildings which
house two manufacturing facilities, located at 70 and 60 South MacQuesten
Parkway, Mount Vernon, NY from MacQuesten Realty Company for a price of
$2,450,000. Michael Anthony incurred $929,000 of long-term debt, which has a
four-year term and accrues interest at an annual rate of 7.50%, and paid the
balance with cash from its operations. At February 2, 2002, approximately
$427,000 of principal remained outstanding under the loan.
During fiscal 2002, cash used from operating activities was $2,127,000.
This was primarily the result of an increase in inventory and accounts
receivable, offset by depreciation and amortization, and the provision for sales
returns. The increase in inventory at year end was primarily due to the increase
in projected sales for the months of February and March 2002.
Cash of $1,357,000 was utilized for investing purposes during fiscal
2002, primarily for the purchase of machinery and equipment.
During fiscal 2002, cash provided by financing activities totaled
$1,499,000. This was primarily attributed to the net proceeds from the line of
credit which were offset by payments of long-term debt.
For fiscal 2003, Michael Anthony projects capital expenditures of
approximately $1,000,000, which includes machinery and equipment expenses and
certain improvements on its leased and owned properties. See Item 2.
"Properties" and Item 13. "Certain Relationships And Related Transactions."
We believe that our existing lines of credit provide sufficient funding
for our operations. In the event that we require additional financing during
fiscal 2003, it will be necessary to fund this requirement through expanded
credit facilities with existing or other lenders. We believe that additional
financing can be arranged.
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains certain forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934. These forward-looking statements include the words "believe," "expect,"
"plans" or similar words and are based in part on Michael Anthony's reasonable
expectations and are subject to a number of factors and risks, many of which are
beyond Michael Anthony's control. Actual results could differ materially from
those discussed under "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," as a result of any of these
factors:
19
(a) general economic conditions and their impact on the retail
sales environment;
(b) fluctuations in the price of gold and other metals used to
manufacture our jewelry;
(c) risks related to the concentration of our customers,
particularly the operations of any of our top customers;
(d) increased competition from outside the United States where
labor costs are substantially lower;
(e) variability of customer requirements and the nature of
customers' commitments on projections and orders; and
(f) the extent to which we are able to retain and attract key
personnel.
In light of these uncertainties and risks, there can be no assurance
that the forward-looking statements in this annual report on Form 10-K will
occur or continue in the future. Except for as required in periodic filings
under the Securities Exchange Act of 1934, Michael Anthony undertakes no
obligations to release publicly any revisions to these forward-looking
statements that may reflect events or circumstances after the date of this
annual report on Form 10-K or to reflect the occurrence of unanticipated events.
NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
(SFAS 141), which supersedes APB Opinion No. 16, "Business Combinations". SFAS
No. 141 eliminates the pooling-of-interests method of accounting for business
combinations and modifies the application of the purchase accounting method. The
elimination of the pooling-of-interests method is effective for transactions
initiated after June 30, 2001. The remaining provisions of SFAS No. 141 will be
effective for transactions accounted for using the purchase method that are
completed after June 30, 2001. The Company is currently reviewing the statement,
but does not anticipate the new standard will have any effect on its financial
statements.
In July 2001, the FASB also issued Statement of Financial Accounting
Standards No. 142, "Goodwill and Intangible Assets" (SFAS No. 142), which
supersedes APB Opinion No. 17, "Intangible Assets". SFAS No. 142 eliminates the
current requirement to amortize goodwill and indefinite-lived intangible assets,
addresses the amortization of intangible assets with a defined life and
addresses the impairment testing and recognition for goodwill and intangible
assets. SFAS 142 will apply to goodwill and intangible assets arising from
transactions completed before and after the Statement's effective date. SFAS No.
142 is effective for fiscal 2003. As of February 2, 2002, the Company had no
goodwill or intangible assets with indefinite lives. Therefore, this standard
has no impact on the financial statements.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment of Disposal of Long-Lived Assets. SFAS No. 144 requires that those
long-lived assets be measured at the lower of carrying amount of fair value less
cost to sell, whether reported in continuing
20
operations or in discontinued operations. Therefore, discontinued operations
will no longer be measured at net realizable value or include amounts for
operating losses that have not occurred. SFAS No. 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2001 and,
generally, is to be applied prospectively. The Company does not expect the
adoption of SFAS No. 144 to have a material effect on its financial condition or
results of operations.
In November 2001, the FASB Emerging Issues Task Force released Issue
01-9, "Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor's Products)." The scope of Issue 01-9 includes vendor
consideration to any purchasers of the vendor's products at any point along the
distribution chain, regardless of whether the purchaser receiving the
consideration is a direct customer of the vendor. Issue 01-9 is to be applied to
annual or interim periods beginning after December 15, 2001. Our adoption,
effective February 3, 2002 will not change the Company's presentation of
cooperative advertising expenses.
ITEM 7a. QUANTATIVE AND QUALITATIVE DISCOUNT ABOUT MARKET
RISK.
The Company utilizes financial instruments, including commodity
futures, forwards and options on futures, to limit its exposure to fluctuations
in the price of gold. The Company does not hold or issue such instruments for
trading purposes. The Company hedges its future contracts for gold against
anticipated sales commitments with its customers. Gains or losses on the future
contracts are deferred until settlement of the related anticipated sales to a
customer. The Company's exposure to market risk related to the derivative
financial instruments is limited to fluctuations in the price of gold. The
Company is also exposed to credit loss in the event of nonperformance by the
counterparties to the instruments; however, the risk of credit loss is not
considered to be significant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14 and pages F-1 through F-26, S-1 and S-2.
21
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under the headings "Election of Directors"
and "Compliance with Section 16 of the Exchange Act" of Michael Anthony's Proxy
Statement for the 2002 Annual Meeting of Stockholders is incorporated herein by
reference.
ITEM 10. EXECUTIVE COMPENSATION.
The information contained under the heading "Executive Compensation" of
Michael Anthony's Proxy Statement for the 2002 Annual Meeting of Stockholders is
incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the heading "Beneficial Ownership of
Common Stock" of Michael Anthony's Proxy Statement for the 2002 Annual Meeting
of Stockholders is incorporated by reference herein.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the heading "Certain Transactions" of
Michael Anthony's Proxy Statement for the 2002 Annual Meeting of Stockholders is
incorporated herein by reference. See also Item 2. "Properties."
22
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K.
(a) The following documents are filed as a part of this Report:
PAGE
----
(1) Financial Statements:
Report of Independent Certified Public Accountants' F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Changes in Stockholders'
Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-7
(2) Financial Statement Schedule:
Report of Independent Certified Public Accountants' S-1
Schedule II-Valuation and Qualifying Accounts S-2
All other schedules are omitted as the required information is
inapplicable or is presented in the consolidated financial statements or related
notes.
The financial statement schedule should be read in conjunction with the
financial statements in the 2002 Annual Report to Stockholders.
(3) Exhibits:
Exhibit
No. Description Page No.
--- ----------- --------
3.1 Certificate of Incorporation of Registrant, as Incorporated by reference to Exhibit 3.1 to
amended Amendment No. 2 to the Company's Registration
Statement on Form S-3 (File No. 3371308) (the
"1993 Registration Statement")
3.1.1 Certificate of Merger of Michael Anthony Jewelers, Incorporated by reference to Exhibit 3.1.1 of the
Inc. (New York) and Michael Anthony Jewelers, Inc. Company's Annual Report on Form 10-K for the
(Delaware) fiscal year ended June 30, 1993 (the "1993 Form
10-K")
3.2 Amended and Restated ByLaws of Registrant Incorporated by reference to Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended July 29, 1995
23
Exhibit
No. Description Page No.
--- ----------- --------
4.1 Form of Common Stock Certificate Incorporated by reference to Exhibit 3.3 to the
Company's Registration Statement on Form S-1
(File No. 338289) (the "1986 Registration
Statement")
4.2 Common Stock Purchase Warrant issued to Almond Filed as Exhibit 4.2 to this Form 10-K.
International Inc.
10.1 Consignment Agreement dated as of August 20, 1993 Filed as Exhibit 10.40 to the 1993 Form 10-K; and
between the Registrant and Registrant's Gold Exhibit 10.45 to the 2000 Form 10-K
Lenders, as amended
10.2 Security Agreement dated as of August 20, 1993 Filed as Exhibit 10.39 to the 1993 Form 10-K;
among the Registrant and Registrant's Gold Exhibit 10.5 to the October 1995 Form 10-Q;
Lenders, as amended Exhibit 10.6 to the October 1995 Form 10-Q and as
Exhibit 10.44 to the 2000 10-K.
10.3 Amended and Restated Consignment Agreement dated Filed as Exhibit 10.44 to the 1993 Form 10-K
as of August 20, 1993 between the Registrant and
ABN AMRO Bank N.V., New York Branch
10.4 First Amendment to 1993 Long-Term Incentive Plan Filed as Exhibit 10.48 to the 1993 Form 10-K
of the Registrant dated as of September 21, 1993
10.5 Consignment Agreement dated as of January 31, 1994 Filed as Exhibit 10.46 to the 1994 Form 10-K
(effective as of May 16, 1994) between the
Registrant and Credit Suisse, New York Branch
10.6 Loan Agreement dated October 6, 1995 between First Filed as Exhibit 10.1 to the October 1995 Form
Fidelity Bank, National Association ("First 10-Q
Fidelity") and Registrant
10.7 Mortgage Note in principal amount of $2,500,000 Filed as Exhibit 10.2 to the October 1995 Form
dated October 6, 1995 issued by Registrant in 10-Q
favor of First Fidelity
24
Exhibit
No. Description Page No.
--- ----------- --------
10.8 Mortgage and Security Agreement dated October Filed as Exhibit 10.3 to the October 1995 Form
6,1995 by Registrant for the benefit of First 10-Q
Fidelity
10.9 Fifth Amendment to Assignment of Trademarks and Filed as Exhibit 10.7 to the October 1995 Form
Service Marks dated October 20, 1995 among 10-Q
Registrant and Registrant's gold lenders
10.10 Deferred Compensation Plan dated as of March 4, Filed as Exhibit 10.59 to the 1996 Form 10-K
1996
10.11 Amendment to the 1993 Long Term Incentive Plan Filed as Exhibit 10.1 to the Company's October
1996 Form 10-Q.
10.12 Amendment to the Non-Employees Directors' Plan Filed as Exhibit 10.2 to the Company's October
1996 Form 10-Q
10.13 1993 Long-term Incentive Plan of the Registrant Filed as Exhibit 10.54 to the 1998 Form 10-K
10.14 1993 Non-Employee Directors' Stock Option Plan of Filed as Exhibit 10.55 to the 1998 Form 10-K
the Registrant
10.15 Loan and Security Agreement, dated January 29, Filed as Exhibit 10.33 to the 1999 Form 10-K;
1999, by and between the Registrant and General Exhibit 10.34 to the 1999 Form 10-K
Electric Capital Business Asset Funding
Corporation, as amended
10.16 Term Promissory Note, dated January 29, 1999, of Filed as Exhibit 10.35 to the 1999 Form 10-K
the Registrant in favor of General Electric
Capital Business Asset Funding Corporation
10.17 Mortgage, Security Agreement and Assignment of Filed as Exhibit 10.37 to the 1999 Form 10-K
Leases and Rents dated February 10, 1999, by and
between Registrant and General Electric Capital
Business Asset Funding Corporation
25
10.18 Promissory Note dated February 10, 1999 by and Filed as Exhibit 10.38 to the 1999 Form 10-K
between the Registrant and General Electric
Capital Business Asset Funding Corporation
10.19 Consignment Agreement dated as of November 29,1999 Filed as Exhibit 10.40 to the 2000 Form 10-K
between Registrant and Mitsui & Co. (U.S.A.), Inc.
10.20 Amended and Restated Intercreditor Agreement Filed as Exhibit 10.41 to the 2000 Form 10-K; as
dated, January 28, 1999 among Registrant and Exhibit 10.42 to the 2000 Form 10-K
Registrant's gold lenders, as amended
10.21 Second Amendment and Agreement to Amended and Filed as Exhibit 10.43 to the 2000 Form 10-K
Restated Collateral Sharing Agreement, dated
March 1,2000, among Registrant and Registrant's
gold lenders
10.22 1999 Employee Change of Control Plan of the Filed as Exhibit 10.46 to the 2000 Form 10-K
Registrant
10.23 1999 Non-Employee Director Change of Control Plan Filed as Exhibit 10.47 to the 2000 Form 10-K
of the Registrant
10.24 Assumption Agreement dated September16, 1999 among Filed as Exhibit 10.50 to the 2000 Form 10-K
Registrant, MacQuesten Realty Company, and First
Union National Bank, successor in interest to
First Fidelity
10.25 Promissory Note dated August 16, 2000 issued by Filed as Exhibit 10.37 to the 2001 Form 10-K
Registrant to the Chase Manhattan Bank
10.26 Consignment Agreement dated January 22, 2001 Filed as Exhibit 10.26 to this Form 10-K
between the Company and Commerzbank International
S.A.
10.27 Fourth Amendment to the Restated Intercreditor Filed as Exhibit 10.27 to this Form 10-K
Agreement dated January 31, 2002 among Registrant,
Registrant's Gold Lenders, JPMorgan Chase Bank and
General Electric Capital Business Asset Funding
Corporation
26
10.28 Fifth Amendment and Agreement to Amended and Filed as Exhibit 10.28 to this Form 10-K
Restated Collateral Sharing Agreement dated January
31, 2002 among Registrant and Registrant's Gold
Lenders
10.29 Ninth Amendment to Amended and Restated Security Filed as Exhibit 10.29 to this Form 10-K
Agreement dated January 31, 2002 among Registrant
and Registrant's Gold Lenders
10.30 Fourth Amendment to Security Agreement (Trademarks Filed as an Exhibit to this Form 10-K
and Service Marks) dated January 31, 2002 among
Registrant and Registrant's Gold Lenders
10.31 Twelfth Amendment and Agreement to Consignment Filed as Exhibit 10.31 to this Form 10-K
Agreement dated January 31, 2002 between the Company
and Fleet Precious Metals, Inc.
10.32 Consignment Agreement dated January 31, 2002 between Filed as Exhibit 10.32 to this Form 10-K
the Company and Sovereign Precious Metals, LLC
10.33 Employment Agreement between the Company and Claudia Filed as Exhibit 10.33 to this Form 10-K
Hollingsworth dated February 2, 2002
21 Subsidiaries of the Registrant Filed as an Exhibit to this Form 10-K
23 Consent of BDO Seidman, LLP Filed as an Exhibit to this Form 10-K
REPORT ON FORM 8-K
None
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: April 22, 2002 MICHAEL ANTHONY JEWELERS, INC.
By: /s/ Michael Paolercio
--------------------------------------------
Michael W. Paolercio, Co-Chairman of the
Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Michael Paolercio Co-Chairman of the Board April 22, 2002
- ----------------------------------- and Chief Executive Officer
(Michael W. Paolercio) (Principal Executive Officer)
/s/ Anthony Paolercio Co-Chairman of the Board April 22, 2002
- ----------------------------------- and Chief Operating Officer
(Anthony Paolercio, Jr.)
/s/ Claudia Hollingsworth President and Director April 22, 2002
- -----------------------------------
(Claudia Hollingsworth)
/s/ Allan Corn Chief Financial Officer, April 22, 2002
- -----------------------------------
(Allan Corn) Senior Vice President
and Director (Principal
Accounting Officer)
/s/ Michael A. Paolercio Senior Vice President, April 22, 2002
- ----------------------------------- Treasurer and Director
(Michael Anthony Paolercio)
/s/ Michael Wager Director April 22, 2002
- -----------------------------------
(Michael Wager)
/s/ David Harris Director April 22, 2002
- -----------------------------------
(David Harris)
/s/ Nathan Light Director April 22, 2002
- -----------------------------------
(Nathan Light)
/s/ Barry Scheckner Director April 22, 2002
- -----------------------------------
(Barry Scheckner)
28
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders of
Michael Anthony Jewelers, Inc.
Mount Vernon, New York
We have audited the accompanying consolidated balance sheets of Michael Anthony
Jewelers, Inc. and subsidiaries as of February 2, 2002 and January 27, 2001 and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended February 2, 2002.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Michael Anthony
Jewelers, Inc. and subsidiaries at February 2, 2002, and January 27, 2001 and
the result of their operations and their cash flows for each of the three years
in the period ended February 2, 2002, in conformity with accounting principles
generally accepted in the United States.
BDO Seidman, LLP
New York, New York
March 28, 2002
F-1
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS February 2, January 27,
- ------
2002 2001
-------- --------
CURRENT ASSETS:
Cash and equivalents $ 2,129 $ 4,114
Accounts receivable:
Trade (less allowances of $4,255 and $2,536, respectively) 17,067 15,105
Other 153 224
Inventories 25,826 20,496
Prepaid expenses and other current assets 1,544 1,424
Deferred taxes 672 1,186
-------- --------
Total current assets 47,391 42,549
PROPERTY, PLANT AND EQUIPMENT - net 17,605 19,675
INTANGIBLES - net - 62
OTHER ASSETS 364 1,049
-------- --------
$ 65,360 $ 63,335
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable - trade $ 2,321 $ 3,302
Line of credit 3,300 -
Current portion of long-term debt 1,820 1,696
Taxes payable 1,274 529
Accrued expenses 3,952 3,791
-------- --------
Total current liabilities 12,667 9,318
-------- --------
LONG-TERM DEBT 9,166 10,987
-------- --------
DEFERRED TAXES 35 349
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - par value $1.00 per share;
1,000,000 shares authorized; none issued - -
Common stock - par value $.001 per share;
20,000,000 shares authorized; 8,329,000 and
8,317,000 shares issued and outstanding as of
February 2, 2002, and January 27, 2001, respectively 8 8
Additional paid-in capital 32,221 32,196
Retained earnings 17,753 16,802
Accumulated comprehensive loss (61) -
Treasury stock, 2,143,000 and 2,095,000 shares as of
February 2, 2002 and January 27, 2001, respectively (6,429) (6,325)
-------- --------
Total stockholders' equity 43,492 42,681
-------- --------
$ 65,360 $ 63,335
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended
--------------------------------------------
February 2, January 27, January 29,
2002 2001 2000
--------- --------- ---------
NET SALES $ 141,918 $ 124,718 $ 144,937
COST OF GOODS SOLD 113,263 99,983 110,096
--------- --------- ---------
GROSS PROFIT ON SALES 28,655 24,735 34,841
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 24,435 24,940 28,257
--------- --------- ---------
OPERATING INCOME/(LOSS) 4,220 (205) 6,584
--------- --------- ---------
OTHER INCOME (EXPENSES):
Gold consignment fee (1,379) (1,039) (1,483)
Interest expense (1,427) (1,222) (1,216)
Interest income 68 139 175
Other income 51 1 167
--------- --------- ---------
TOTAL OTHER EXPENSES (2,687) (2,121) (2,357)
--------- --------- ---------
INCOME/(LOSS) BEFORE INCOME TAXES 1,533 (2,326) 4,227
INCOME TAX PROVISION/(BENEFIT) 582 (886) 1,607
--------- --------- ---------
NET INCOME/(LOSS) $ 951 $ (1,440) $ 2,620
========= ========= =========
EARNINGS/(LOSS) PER SHARE - Basic
Income/(loss) $ .15 $ (.23) $ .40
========= ========= =========
EARNINGS/(LOSS) PER SHARE - Diluted
Income/(loss) $ .15 $ (.23) $ .39
========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES - Basic 6,203 6,319 6,592
========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES - Diluted 6,314 6,319 6,702
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
Common Stock Additional Accumulated Treasury Stock
-------------------- Paid-In Retained Comprehensive --------------------
Shares Dollars Capital Earnings Loss Shares Dollars Total
-------- -------- -------- -------- -------- -------- -------- --------
Balance - January 30, 1999 8,288 $ 8 $ 31,762 $ 15,622 - (1,457) $ (4,094) $ 43,298
Purchase of treasury stock - - - - - (494) (1,938) (1,938)
Proceeds from exercise of
stock options 15 - 44 - - - - 44
Issuance of stock 5 - 20 - - - - 20
Net income - - - 2,620 - 2,620
-------- -------- -------- -------- -------- -------- -------- --------
Balance - January 29, 2000 8,308 8 31,826 18,242 - (1,951) (6,032) 44,044
Purchase of treasury stock - - - - - (144) (293) (293)
Issuance of stock 9 - 25 - - - - 25
Issuance of warrants - - 345 - - 345
Net loss - - - (1,440) - - - (1,440)
-------- -------- -------- -------- -------- -------- -------- --------
Balance - January 27, 2001 8,317 8 32,196 16,802 - (2,095) (6,325) 42,681
Purchase of treasury stock - - - - - (48) (104) (104)
Issuance of stock 12 - 25 - - - - 25
Comprehensive Income:
Change in fair value of
cash flow hedges - - - - (61) - - (61)
Net income - - - 951 - - 951
-------- -------- -------- -------- -------- -------- -------- --------
Total comprehensive
income - - - 951 (61) - - 890
-------- -------- -------- -------- -------- -------- -------- --------
Balance - February 2, 2002 8,329 $ 8 $ 32,221 $ 17,753 $ (61) (2,143) $ (6,429) $ 43,492
======== ======== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Year Ended
----------------------------------------
February 2 January 27, January 29,
2002 2001 2000
---------- --------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 951 $ (1,440) $ 2,620
Adjustments to reconcile net income/(loss) to net cash
provided by operating activities:
Depreciation and amortization 3,501 3,547 4,091
Provision for doubtful accounts (54) 79 60
Provision for sales returns 1,773 1,450 (110)
Deferred tax (benefit)/provision 200 (572) (293)
Gain/(loss) on disposal of property, plant
and equipment (6) 45 (45)
Provision for stock compensation 25 25 20
(Increase)/decrease in operating assets:
Accounts receivable (3,610) 8,950 3,639
Inventories (5,330) (4,226) (2,058)
Prepaid expenses and other current assets (120) 137 8
Other assets 679 (474) 210
Increase/(decrease) in operating liabilities:
Accounts payable (981) 1,104 (610)
Taxes payable 745 (1,445) 1,162
Accrued expenses 100 (1,150) 789
-------- -------- --------
Net cash (used in)/provided by in
operating activities (2,127) 6,030 9,483
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,365) (2,553) (6,642)
Proceeds from sale of equipment 8 7 175
-------- -------- --------
Net cash used in investing activities (1,357) (2,546) (6,467)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt
and capital lease liabilities (1,697) (1,657) (404)
Proceeds from long-term debt - - 901
Proceeds from line of credit 24,000 17,100 16,400
Payments to line of credit (20,700) (17,100) (16,400)
Proceeds from exercise of stock options - - 44
Purchase of treasury stock (104) (293) (1,938)
-------- -------- --------
Net cash provided by/(used in)
financing activities 1,499 (1,950) (1,397)
-------- -------- --------
NET (DECREASE)/INCREASE IN CASH (1,985) 1,534 1,619
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 4,114 2,580 961
-------- -------- --------
CASH AND EQUIVALENTS AT END OF YEAR $ 2,129 $ 4,114 $ 2,580
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Year Ended
------------------------------------
February 2, January 27, January 29,
2002 2001 2000
------ ------ ------
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Investing:
Mortgage incurred with purchase of building $ - $ - $ 929
Issuance of warrants $ - $ 345 $ -
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest and gold consignment fees $2,747 $2,399 $2,959
Income taxes $ 428 $1,441 $ 804
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------------------
Nature of Operations
--------------------
Michael Anthony Jewelers, Inc. ("Michael Anthony" or "the Company"), is
a leading designer, marketer and manufacturer of affordable fine jewelry
whose customers include jewelry chain stores, discount stores,
department stores, television home shopping networks, catalogue
retailers, and wholesalers.
Basis of Consolidation and Presentation
---------------------------------------
The accompanying consolidated financial statements include the accounts
of Michael Anthony Jewelers, Inc. and its subsidiaries, all of which are
wholly-owned. All intercompany balances and transactions have been
eliminated.
Inventories and Cost of Goods Sold
----------------------------------
Inventories are valued at lower of cost (first-in, first-out method) or
market.
The Company satisfies a majority of its gold supply needs through gold
consignment agreements with financial institutions that lease gold to
the Company ("gold lenders"), whereby the gold lenders have agreed to
consign fine gold to the Company (see Note 4). In accordance with the
terms of the agreements, the Company has the option of repaying the gold
lenders in an equivalent number of ounces of fine gold or cash based
upon the then quoted market price of gold.
The principal component of cost of goods sold is the cost of the gold
bullion and other raw materials used in the production of the Company's
jewelry. Other components of cost of goods sold include direct costs
incurred by the Company in its manufacturing operations, depreciation,
freight and insurance.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are carried at cost. Depreciation is
computed using the straight-line method over the estimated useful lives
of the assets, five to fifteen years for machinery and equipment and
thirty years for buildings. Leasehold improvements are amortized over
the lesser of the estimated life of the asset or the lease.
F-7
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------------------
(Continued)
Molds and Models
----------------
For molds and models with a life greater than one year, the Company
capitalizes and amortizes the costs over a three-year period. In fiscal
2002, 2001 and 2000 the Company capitalized approximately $475,000,
$538,000 and $556,000, respectively.
Intangibles
-----------
Intangible assets which became fully amortized in fiscal 2002 (net of
accumulated amortization of $1,938,000 as of January 27, 2001),
consisted of patents which were amortized on a straight-line basis over
the lives of the patents, approximately 14 years and a
covenant-not-to-compete which was amortized on a straight-line basis
over the life of the covenant of five years.
Long-lived Assets
-----------------
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of ", long-lived assets, consisting of
property, plant and equipment, to be held, and used are reviewed by the
Company for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
If a review for recoverability is necessary, the Company estimates the
future cash flows expected to result from the use of the asset and its
eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss is recognized. Otherwise, an
impairment loss is not recognized. Any impairment loss recognized is
measured as excess of carrying amount of the asset over the fair value
of the asset. For the years ended February 2, 2002, January 27, 2001 and
January 29, 2000, there were no impairment losses.
Revenue Recognition
-------------------
Revenue from sales to customers (other than consignment) is recognized
at the time the merchandise is shipped. Merchandise sold under
consignment arrangements between the Company and certain customers is
not recognized as revenue by the Company until the
F-8
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------------------
(Continued)
Revenue Recognition (Continued)
-------------------
products are sold by the consignee. In certain cases, the Company
accepts payment for merchandise in gold. Additionally, the Company
enters into arrangements for certain customers of its rope chain and
tubing products whereby the gold value of the finished product is
transferred in the form of fine gold ounces from the customer to the
Company. The value of the finished product that exceeds the gold content
value is recovered as revenue and the related cost to manufacture is
recorded as an expense ("tolling arrangements").
Allowance for Sales Returns
---------------------------
The Company reduces gross sales by the amount of discounts and returns
to determine net sales. Each month the Company estimates a reserve for
returns based on historical experience and the amount of gross sales.
The reserve is adjusted periodically to reflect the Company's actual
return experience. Adjustments to the Company's reserve have not been
material.
Catalog Costs
-------------
Catalog costs are charged to expense as incurred, the only exception
being major catalog revisions. Costs capitalized are amortized over the
units of catalogs shipped, up to a maximum of two years. At February 2,
2002, January 27, 2001 and January 29, 2000, in connection with three
significant catalog revisions, approximately $-0-, $36,000, and
$169,000, respectively, had been capitalized. Included in the statements
of operations for the years ended February 2, 2002, January 27, 2001 and
January 29, 2000, is amortization expense of $36,000, $110,000 and
$124,000, respectively.
Shipping and Handling Costs
---------------------------
Shipping and handling costs billed to customers are recorded as revenue.
The costs associated with shipping goods to customers are recorded as a
selling expense. Shipping and handling expenses for the years ended
February 2, 2002, January 27, 2001 and January 28, 2000 were $1,078,000,
$1,051,000 and $1,030,000, respectively.
<
F-9
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------------------
(Continued)
Advertising Expense
-------------------
Advertising costs are expensed as incurred. Advertising costs associated
with our cooperative advertising programs are accrued as the related
revenues are recognized. Total advertising expenses were $4,464,000,
$5,038,000 and $6,057,000 for the years ended February 2, 2002, January
27, 2001 and January 29, 2000, respectively.
Cash Equivalents
----------------
Highly liquid investments with maturities of three months or less at the
date of acquisition are classified as cash equivalents.
Derivative Financial Instruments
--------------------------------
On January 28, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133 ("FAS 133") "Accounting for Derivative
Instruments and Hedging Activities", as amended, and interpreted, which
requires that all derivative instruments be recorded on the balance
sheet at their fair value. SFAS 133 requires the Company to recognize
all derivatives as either assets or liabilities on the balance sheet and
to measure those instruments at fair value. Additionally, the fair value
adjustments will affect either stockholders' equity or net income
depending on whether the derivative instrument qualifies as a hedge for
accounting purposes and, if so, the nature of the hedging activity. The
impact of adopting FAS 133 on the Company's Statement of Income and
Balance Sheet was not material.
The Company uses financial instruments, including commodity futures,
forwards and options on futures, to limit its exposure to fluctuations
in the price of gold. The Company does not enter such contracts for
speculative purposes.
For derivative instruments that are designated and qualify as a fair
value hedge (i.e., hedging the exposure to changes in the fair value of
an asset or a liability or an identified portion thereof that is
attributable to a particular risk), the gain or loss on the derivative
instrument as well as the offsetting gain or loss on the hedged item
attributable to the hedged risk are recognized in earnings in the
current period. For derivative instruments that are designated and
qualify as a cash flow hedge (i.e., hedging the exposure of variability
in expected future cash flows that would be attributable to a particular
risk), the effective portion of the gain or loss on the derivative
instrument is reported as a component of Accumulated comprehensive loss
(a component of stockholders' equity) and reclassified
F-10
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------------------
(Continued)
Derivative Financial Instruments (Continued)
--------------------------------
into earnings in the same period or periods during which the hedged
transaction affects earnings. The remaining gain or loss on the
derivative instrument, if any (i.e., the ineffective portion and any
portion of the derivative instrument excluded from the assessment of
effectiveness) is recognized in earnings in the current period.
Earnings (Loss) Per Share
-------------------------
Basic EPS is computed by dividing net income (loss) by the weighted
average shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if options to issue common stock
were exercised and converted to common stock.
The following table sets forth the computation of diluted earnings per
share (in thousands):
Feb. 2, Jan. 27, Jan. 29,
2002 2001 2000
------------------------------------------------------------------------------------------------
Numerator:
Net income (loss) available to
common shareholders $951 $(1,440) $2,620
------------------------------------------------------------------------------------------------
Denominator (shares in thousands):
Weighted-average shares
outstanding 6,203 6,319 6,592
Effect of dilutive securities:
Stock options and warrants 111 - 110
------------------------------------------------------------------------------------------------
Adjusted weighted-average
shares and assumed
conversions 6,314 6,319 6,702
------------------------------------------------------------------------------------------------
The following options to purchase shares of common stock were
outstanding during a portion of each year but were not included in the
computation of diluted earnings per share because the exercise prices of
the options were greater than the average market price of the common
shares and, therefore, would be antidilutive.
Feb. 2, Jan. 27, Jan. 29,
2002 2001 2000
-------------- ------------ --------------
Number of options 966,000 760,000 896,000
Weighted-average exercise price $2.49 $2.79 $3.18
F-11
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------------------
(Continued)
New Accounting Pronouncements Not Yet Adopted
---------------------------------------------
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business
Combinations" (SFAS 141), which supersedes APB Opinion No. 16, "Business
Combinations". SFAS No. 141 eliminates the pooling-of-interests method of
accounting for business combinations and modifies the application of the
purchase accounting method. The elimination of the pooling-of-interests
method is effective for transactions initiated after June 30, 2001. The
remaining provisions of SFAS No. 141 will be effective for transactions
accounted for using the purchase method that are completed after June 30,
2001. The Company is currently reviewing the statement, but does not
anticipate the new standard will have any effect on its financial
statements.
In July 2001, the FASB also issued Statement of Financial Accounting
Standards No. 142, "Goodwill and Intangible Assets" (SFAS No. 142), which
supersedes APB Opinion No. 17, "Intangible Assets". SFAS No. 142
eliminates the current requirement to amortize goodwill and
indefinite-lived intangible assets, addresses the amortization of
intangible assets with a defined life and addresses the impairment
testing and recognition for goodwill and intangible assets. SFAS 142 will
apply to goodwill and intangible assets arising from transactions
completed before and after the Statement's effective date. SFAS No. 142
is effective for fiscal 2003. As of February 2, 2002, the Company had no
goodwill or intangible assets with indefinite lives. Therefore, this
standard has no impact on the financial statements.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment of Disposal of Long-Lived Assets. SFAS No. 144 requires that
those long-lived assets be measured at the lower of carrying amount of
fair value less cost to sell, whether reported in continuing operations
or in discontinued operations. Therefore, discontinued operations will no
longer be measured at net realizable value or include amounts for
operating losses that have not occurred. SFAS No. 144 is effective for
financial statements issued for fiscal years beginning after December 15,
2001 and, generally, is to be applied prospectively. The Company does not
expect the adoption of SFAS No. 144 to have a material effect on its
financial condition or results of operations.
In November 2001, the FASB Emerging Issues Task Force released Issue
01-9, "Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products)." The scope of Issue 01-9
includes vendor consideration to any purchasers of the vendor's products
at any point along the distribution chain, regardless of
F-12
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------------------
(Continued)
New Accounting Pronouncements Not Yet Adopted (Continued)
---------------------------------------------
whether the purchaser receiving the consideration is a direct customer of
the vendor. Issue 01-9 is to be applied to annual or interim periods
beginning after December 15, 2001. The adoption, effective February 3,
2002, will not change the Company's presentation of cooperative
advertising expenses.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fiscal Year End
---------------
The Company's fiscal year end is the Saturday closest to the end of
January. The financial statements for the fiscal years ended February 2,
2002, January 27, 2001 and January 29, 2000 were comprised of 53, 52 and
52 weeks, respectively.
Reclassifications
-----------------
Certain reclassifications were made to the prior year's financial
statements to conform to the current year's presentation.
2. INVENTORIES
-----------
Inventories consist of: February 2, January 27,
2002 2001
---------- -----------
(In thousands)
Finished goods $42,151 $32,837
Work in process 18,494 14,636
Raw materials 5,816 3,741
-------- --------
66,461 51,214
Less:
Consigned gold 40,635 30,718
------- --------
$25,826 $20,496
======= =======
At February 2, 2002 and January 27, 2001, inventories excluded
approximately 143,000 and 117,000 ounces of gold on consignment,
respectively.
F-13
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment consist of the following:
February 2, January 27,
2002 2001
------- -------
(In thousands)
Machinery and equipment $41,198 $41,351
Building and building improvements 12,677 11,381
Land 2,341 2,192
------- -------
56,216 54,924
Less: Accumulated depreciation
and amortization 38,611 35,249
------- -------
$17,605 $19,675
======= =======
4. GOLD CONSIGNMENT AGREEMENTS
---------------------------
The Company has gold consignment agreements with gold lenders. Under the
terms of the agreements, the Company is entitled to lease the lesser of
an aggregate amount of 240,000 ounces, or an aggregate consigned gold
value not to exceed $79,000,000. The consigned gold is secured by certain
property of the Company including its inventory and equipment. Title to
such consigned gold remains with the gold lenders until the Company
purchases the gold. However, during the period of consignment, the entire
risk of physical loss, damage or destruction of the gold is borne by the
Company. The purchase price per ounce is based on the daily Second London
Gold Fix. The Company pays the gold consignors a consignment fee based on
the dollar value of gold ounces outstanding, as defined in the
agreements.
In December 2001, Michael Anthony was notified by one of its gold lenders
that it planned to discontinue its involvement in gold trading and
jewelry financing. In January 2002, the Company received approval from a
new gold lender, and in February 2002, began a relationship with this new
lender.
The consignment agreements are terminable by the Company or the
respective gold lenders upon 30 days notice. If any gold lender were to
terminate its existing gold consignment agreement, the Company does not
believe it would experience an interruption of its gold supply that would
materially adversely affect its business. The Company believes that other
consignors would be willing to enter into similar arrangements if any
gold lender terminates its relationship with the Company.
F-14
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. GOLD CONSIGNMENT AGREEMENTS (Continued)
---------------------------
The consignment agreements contain certain restrictive covenants relating
to maximum usage, net worth, working capital, and other financial ratios,
and each of the agreements require the Company to own a specific amount
of gold at all times. The Company was in compliance of all restrictive
covenants as of February 2, 2002.
5. ACCRUED EXPENSES
----------------
Accrued expenses consist of the following:
February 2, January 27,
2002 2001
------ ------
(In thousands)
Accrued advertising $2,259 $1,930
Accrued payroll expenses 655 845
Customer deposits payable 222 331
Accrued interest 239 179
Other accrued expenses 577 506
------ ------
$3,952 $3,791
====== ======
6. LONG-TERM DEBT
--------------
Long-term debt consists of the following:
February 2, January 27,
2002 2001
--------- --------
(In thousands)
Note payable - interest at 6.85%, interest only of $60,000 payable
monthly for first year, interest and principal of $157,000 payable
monthly over a seven-year term through
January 2007.(a) $7,951 $9,240
Mortgage payable - interest at 8%, interest and principal of $24,000
payable monthly over a ten-year term through
October 2005.(b) 1,785 1,924
Note payable - interest at 7.05%, interest and principal of $8,500
payable monthly over a fifteen year term
through March 2014.(c) 823 865
Mortgage payable - interest at 7.5%, interest and principal of $22,000
payable monthly over a four-year term through
September 2003.(d) 427 654
-------- ----------
10,986 12,683
Less: current portion 1,820 1,696
------- ----------
$9,166 $10,987
======= ==========
F-15
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. LONG-TERM DEBT (Continued)
--------------
(a) On January 27, 1999, the Company repaid its existing long-term debt
with the insurance companies. The Company obtained a loan from a new
lender in the amount of $10,444,000. As collateral for the loan, the
Company granted the lender a lien on the Company's machinery and
equipment. The loan does not contain any restrictive financial covenants.
The loan agreement contains a cross collateral/cross default clause in
connection with the Company's Line of Credit Agreement (see Note. 7).
(b) The 8.0% mortgage is secured by a lien on the Company's corporate
headquarters. There is a balloon payment of $1,149,000 due on October 10,
2002. Additionally, the mortgage agreement contains certain restrictive
financial covenants. The Company was in compliance of all restrictive
financial covenants as of February 2, 2002.
(c) On February 10, 1999, the Company obtained a loan in the amount of
$937,500. As collateral for the loan, the Company granted the lender a
first mortgage on one of its manufacturing facilities.
(d) On September 16, 1999 the Company exercised the option to purchase
the remaining manufacturing and distribution facilities housed in the
buildings located at 60 and 70 South MacQuesten Parkway, Mt. Vernon at an
aggregate purchase price of $2,450,000.
Maturities of long-term debt as of February 2, 2002 are as follows (in
thousands):
Year Ending January
-------------------
2003 1,820
2004 1,873
2005 1,812
2006 3,042
2007 1,874
Thereafter 565
-------
$10,986
=======
F-16
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. LINE OF CREDIT
--------------
At February 2, 2002, the Company had a credit arrangement with a
commercial bank which varies seasonally from $10,000,000 to $18,350,000
(the "line of credit"). On October 20, 2001, the Bank temporarily
increased the Company's line of credit to $24,000,000. This temporary
increase was repaid on December 21, 2001. The line of credit is secured
by a lien on certain assets of the Company, including accounts receivable
and inventory. Borrowings under the facility bear interest at the
Company's option of the bank's prime rate, the fixed rate loan (as
defined in the agreement) or the adjusted Eurodollar rate plus 2.5%. The
line of credit expires on July 31, 2002 subject to annual renewal.
Management believes that the line of credit will be renewed; however, if
the current lender decides not to renew the line, the Company believes
that other lenders would be willing to enter into a similar arrangement.
At February 2, 2002, there was $3,300,000 outstanding under the line of
credit. The amount was repaid in full on February 13, 2002.
8. FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATIONS
----------------------------------------------------
(A) Notes and mortgage payable
The carrying amounts and fair values of the Company's financial
instruments are as follow:
February 2, 2002 January 27, 2001
---------------- ----------------
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
(In thousands)
Notes with lenders:
6.85% note payable $7,951 $8,044 $9,240 $9,496
8.0% mortgage payable 1,785 1,915 1,924 2,040
7.05% note payable 823 839 865 891
7.5% mortgage payable 427 453 654 654
The Company believes the carrying amount of the following financial
instruments is equal to their fair value due to their short period of
maturity: cash, accounts receivable, accounts payable and accrued
expenses. The Second London Gold Fix is used daily to value the ounces
of gold and as such the carrying value of gold inventory approximates
fair value.
F-17
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATIONS (Continued)
-----------------------------------------------------
(B) Forward Contracts
To reduce its exposure to fluctuations in the price of gold, the Company
is party to commodity futures, forwards and options on futures, which are
hedged against anticipated sales commitments with its customers. Gains or
losses on the future contracts are deferred until settlement of the
related anticipated sales to a customer.
As of February 2, 2002, there were 17,000 ounces on forward contracts
which were all related to the sale of merchandise to customers. The
contracts hedge against fluctuations of gold prices. As of February 2,
2002, the fair value of these contracts, which are determined by quoted
market prices and expire through June 25, 2002 was $61,000 which was
recorded as accumulated comprehensive income and will be reclassed to
cost of goods sold during fiscal 2003. For the year ended February 2,
2002, the Company recognized an immaterial loss relating to its future
contracts.
While the Company is exposed to credit loss in the event of
nonperformance by the counter parties of these contracts, the Company
does not anticipate nonperformance by the counter parties. The risk of
credit loss is not considered to be significant.
(C) Concentrations of Credit Risk
Certain financial instruments potentially subject the Company to
concentrations of credit risk. These financial instruments consist
primarily of trade receivables and short-term cash investments. The
Company places its short-term cash investments with high credit quality
financial institutions and, by policy, limits the amount of credit
exposure to any one financial institution. Concentrations of credit risk
with respect to trade receivables are limited due to a large customer
base and its dispersion across geographic areas. The Company maintains an
allowance for losses based on the expected collectability of all
receivables.
F-18
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. INCOME TAXES
------------
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial purposes and for income tax purposes.
Income tax provision/(benefit) consists of the following:
Year Ended
---------------------------------------
February 2, January 27, January 29,
2002 2001 2000
------- ------- -------
(In thousands)
Current:
Federal $ 342 $ (268) $ 1,630
State and local 40 (46) 270
------- ------- -------
382 (314) 1,900
Deferred income tax 200 (572) (293)
------- ------- -------
Total $ 582 $ (886) $ 1,607
======= ======= =======
The following is a reconciliation of the federal statutory rate to the
effective tax rate:
Year Ended
--------------------------------------
February 2, January 27, January 29,
2002 2001 2000
Statutory tax (benefit) rate 34.0% (34.0)% 34.0%
State and local taxes (benefit),
net of federal benefit 3.0 (3.0) 3.0
Other 1.0 (1.0) 1.0
---- ---- ----
Statutory tax (benefit) rate 38.0% (38.0)% 38.0%
==== ==== ====
F-19
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. INCOME TAXES (Continued)
------------
The tax effects of significant items comprising the Company's deferred
tax (liabilities) and assets are as follows (in thousands):
February 2, January 27,
2002 2001
------- -------
Non-current deferred tax items:
Difference between book and tax
depreciation methods $ (35) $ (349)
------- -------
Current deferred tax assets:
Reserves for sales returns and
doubtful accounts 473 964
Other 199 222
------- -------
672 1,186
------- -------
Net deferred tax asset $ 637 $ 837
======= =======
10. RELATED PARTY TRANSACTIONS
--------------------------
On September 16, 1999, the Company acquired two buildings which house two
manufacturing facilities, located at 70 and 60 South MacQuesten Parkway,
Mount Vernon, New York from MacQuesten Realty Company ("MRC"), a
partnership consisting of certain stockholders of the Company, for a
price of $2,450,000.
Rent expense related to the MRC leases for the year ended January 29,
2000 amounted to $349,000, principally for manufacturing and distribution
facilities.
On February 29, 2000, the Company loaned $123,000 to an officer. On
December 31, 2000, the Company extended the term of the note until
December 31, 2002 and increased the principal to $131,000. Interest on
the unpaid principal of $131,000 accrues at the rate of 8% per annum
until the maturity date of December 31, 2002.
F-20
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. COMMITMENTS
-----------
The Company's product line includes licensed goods manufactured pursuant
to two or three year agreements with licensors. Royalty fees range from
6% to 12% of net sales of these products, or a minimum guarantee,
whichever is greater. The Company records the related expense over the
units sold.
As of February 2, 2002, the future guaranteed royalty commitments are
$152,000 for the fiscal year ending February 1, 2003.
On December 22, 2000 the Company entered into a distribution agreement
with the Almond Jewelry Group. Under the arrangement, the Company
acquired the exclusive rights to market and distribute gold jewelry
products manufactured by Almond to retailers in the United States. Almond
will no longer directly market its gold jewelry products to retailers in
the United States. The Company has also entered into a supply agreement
with Almond, which will assure its customer base the continuity of a
supply of high quality and innovative merchandise. In connection with the
distribution agreement, Almond was issued warrants to purchase 300,000
shares of common stock at a price of $1.62 per share. The warrants were
ascribed a value of $345,000 using the Black-Scholes option pricing
model. The warrants are being amortized into expense as the related
income is earned. As of February 2, 2002 the unamortized balance was
$247,000 and is recorded in prepaid and other current assets.
12. STOCK PLANS
-----------
The Company has elected to continue to account for employees stock-based
transactions under Accounting Principles Board No. 25, "Accounting for
Stock Issued to Employees". Since the exercise price of all stock options
granted under the stock plans were equal to the price of the stock at the
date of grant, no compensation has been recognized by the Company. Under
the Company's stock option agreements, had the compensation expense been
determined based upon the fair value at the grant date consistent with
the methodology prescribed under SFAS No. 123, "Accounting for Stock
Based Compensation," the Company's pro forma, net income (loss) and
earnings (loss) per share would have been net income/(loss) of $828,000,
$(1,526,000) and $2,543,000, and $.13, $(.24) and $.38 earnings/(loss)
per share for the years ended February 2, 2002, January 27, 2001 and
January 29, 2000, respectively. The weighted average per share fair value
of the options granted during the years ended February 2, 2002, January
27, 2001 and January 29, 2000 were estimated at $.67, $.75 and $1.11,
respectively, on the dates of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
F-21
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
12. STOCK PLANS (Continued)
-----------
February 2, January 27, January 29,
2002 2001 2000
---- ---- ----
Expected life (years) 3 3 3
Risk-free interest rates 6.5% 6.5% 6.5%
Expected volatility 60.0% 60.0% 49.7%
Expected dividend yield - - -
The pro forma effect on net income and earnings per share for the year
ended February 2, 2002 may not be representative of the pro forma effect
in future years because it includes compensation cost on a straight line
basis over the vesting periods of the grants.
INCENTIVE STOCK OPTION PLANS
During the year ended June 30, 1994, the Company adopted the 1993
Long-Term Incentive Plan and the 1993 Non-Employee Directors' Stock
Option Plan. The Plans permit the granting of incentive stock options
and non-qualified stock options to employees and non-employee directors
for the purchase of up to an aggregate of 2,000,000 and 250,000 shares
of common stock, respectively. The option term is for a period not to
exceed five years from the date of grant.
F-22
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
12. STOCK PLANS (Continued)
-----------
Long-term Incentive Plan
Weighted
Average Exercise
Shares Option Price Price
------ ------------ ------------------
Outstanding at January 30, 1999 648,500 $3.33 $2.13 - $6.13
Lapsed (86,000) $5.35 $2.75 - $6.13
Exercised (15,000) $2.94 $2.94
Granted 288,000 $3.51 $3.13 - $3.63
--------
Outstanding at January 29, 2000 835,500 $3.19 $2.13 - $3.63
--------
Lapsed (433,440) $3.15 $2.13 - $3.63
Granted - $ - $ -
--------
Outstanding at January 27, 2001 402,060 $3.01 $2.88 - $3.63
--------
Lapsed (82,040) $3.26 $3.13 - $3.63
Granted 347,000 $2.19 $2.11 - $2.30
--------
Outstanding at February 2, 2002 667,020 $2.71 $2.11 - $3.63
========
Options exercisable at February 2, 2002 were for 271,510 shares of
common stock at prices between $2.88 - $3.63 a share. At February 2,
2002, shares for future option grants totaling 1,287,980 were available
under the plan.
F-23
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
12. STOCK PLANS (Continued)
-----------
Non-Employee Directors' Stock Option Plan
-----------------------------------------
Weighted
Average Exercise
Shares Option Price Price
------ ------------ -------------
Outstanding at January 30, 1999 65,000 $3.08 $2.39 - $5.00
Lapsed (5,000) $5.00 $5.00
Granted 15,000 $3.27 $2.88 - $3.88
--------
Outstanding at January 29, 2000 75,000 $3.03 $2.56 - $3.88
Lapsed (15,000) $3.02 $2.63 - $3.50
Granted 35,000 $2.49 $1.88 - $2.94
--------
Outstanding at January 27, 2001 95,000 $2.81 $1.88 - $3.06
--------
Lapsed (10,000) $3.00 $3.00
Granted 25,000 $2.33 $1.80 - $2.68
--------
Outstanding at February 2, 2002 110,000 $2.73 $1.80 - $3.88
========
Options exercisable at February 2, 2002 for 66,850 shares of common stock
at prices between $1.88 - $3.06 a share. At February 2, 2002, shares for
future option grants totaling 140,000 were available under this plan.
WARRANTS AND NON-QUALIFIED OPTIONS
The Company has granted common stock purchase warrants and non-qualified
options.
The changes in the number of shares under the stock purchase warrants and
non-qualified options and the weighted average option price per share are
as follows:
F-24
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
12. STOCK PLANS (Continued)
-----------
Weighted
Average Exercise
Shares Option Price Price
-------- ------------ --------------
Outstanding at January 30, 1999 96,000 $3.00 $3.00
Granted - $ - $ -
-------
Outstanding and exercisable
at January 29, 2000 96,000 $3.00 $3.00
Issued - See Note 11 300,000 $1.62 $1.62
Lapsed (96,000) $3.00 $3.00
-------
Outstanding at January 27, 2001 300,000 $1.62 $1.62
-------
Issued - $ - $ -
Lapsed - $ - $ -
Outstanding and exercisable at February 2, 2002 300,000 $1.62 $1.62
=======
In connection with the distribution agreement with Almond, Almond was
issued 300,000 shares of common stock purchase warrants. (See Note 11.)
Options outstanding and exercisable at February 2, 2002 were as follows:
OUTSTANDING EXERCISABLE
-------------------------------------------- ---------------------------
Weighted
Average
Remaining Weighted Weighted
Years of Average Average
Range of Exercise Number of Contractual Exercise Number of Exercise
Prices Options Life Price Options Price
----------------- ---------------------------------------------------------------------------
$1.80 - $2.75 707,000 4.1 $1.97 323,300 $1.69
$2.81 - $3.06 149,000 1.0 $2.93 144,000 $2.93
$3.13 - $3.88 221,020 2.1 $3.49 170,700 $3.45
---------------------------------------------------------------------------
In Total 1,077,020 3.3 $2.41 638,000 $2.44
---------------------------------------------------------------------------
F-25
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. RETIREMENT PLAN
---------------
The Company established a 401(k) Retirement Plan and Trust for all
eligible employees. Under the terms of the plan the employee may
contribute 1% to 20% of compensation. There is a partial employer
matching contribution. Included in the statement of operations for the
years ended February 2, 2002, January 27, 2001 and January 29, 2000 is
$72,000, $70,000 and $58,000 of expense for the employer portion of the
contribution.
14. SIGNIFICANT CUSTOMERS
---------------------
Sales to the Company's two largest customers were approximately 17% and
14%, 15% and 13%, and 15% and 13%, respectively, of net sales for the
years ended February 2, 2002, January 27, 2001 and January 29, 2000. One
customer accounted for approximately 16% of accounts receivable at
February 2, 2002.
15. STOCK REPURCHASE PROGRAM
------------------------
In December 1995, the Company announced a Common Stock Repurchase
Program, (the "1995 Stock Repurchase Program"), pursuant to which the
Company may repurchase up to 750,000 shares of Common Stock. On April 4,
1997, the Board of Directors authorized an increase of an additional
500,000 shares of common stock that the Company may repurchase under the
stock repurchase plan. On May 26, 1998, the Board of Directors authorized
an increase of up to an additional 1,000,000 shares of common stock that
the Company may repurchase under the Stock Repurchase Plan. During the
years ended February 2, 2002, January 27, 2001 and January 29, 2000, the
Company repurchased a total of 48,000, 144,000 and 494,000 shares,
respectively, on the open market under the 1995 Stock Repurchase Program
for an aggregate price of approximately $104,000, $293,000 and
$1,938,000, respectively.
16. LEGAL PROCEEDINGS
-----------------
The Company is involved in various legal claims and disputes, none of
which is considered material and all of which, for the most part, are
normal to the Company's business. In the opinion of management, the
amount of losses that might be sustained, if any, from such claims and
disputes would not have a material effect on the Company's financial
statements.
F-26
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
17. COMMITMENTS AND CONTINGENCIES
------------------------------
In early 1999, at the decision of the compensation committee the Company
adopted a Change of Control Plan for executive officers, other key
employees, and Non-Employee Directors. The Plan provides for severance
payments to executive officers and other key employees. The severance
payments will be an amount equal to one times the individual's most
recent salary and bonus. The Plan also provides for continuation of
medical and dental benefits for a period of one year and automatic
vesting of stock options, if permissible under the applicable stock
option plan. The Non-Employee Director Plan provides for a payment of the
sum of the Non-Employee Director's regular compensation at the rate in
effect at the time of the change of control. These benefits are triggered
upon a change of control, as defined in the plan. Individual Agreements
under the Plan have been entered into with each of the executive
officers, other key employees and Non-Employee Directors.
F-27
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Summary of Quarterly Results (Unaudited) (in thousands)
Year Ended February 2, 2002 Year Ended January 27, 2001
Quarter Ended Quarter Ended
----------------------------------------------- ---------------------------------------------
Apr. 28 Aug. 4, Nov. 3, Feb. 2, Apr. 29, Jul. 29, Oct. 28, Jan. 27,
2001 2001 2001 2002 2000 2000 2000 2001
---- ---- ---- ---- ---- ---- ---- ----
Net sales(A) $ 29,176 $ 28,210 $ 50,981 $ 33,551 $ 25,700 $ 24,821 $ 41,045 $ 33,152
Cost of goods sold 23,920 22,633 40,027 26,683 20,111 20,147 33,203 26,522
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit 5,256 5,577 10,954 6,868 5,589 4,674 7,842 6,630
Selling, general &
administrative expenses 5,119 5,531 7,631 6,154 5,955 5,821 6,854 6,310
-------- -------- -------- -------- -------- -------- -------- --------
Operating income/(loss) 137 46 3,323 714 (366) (1,147) 988 320
Other income (expense):
Gold consignment fees (250) (407) (428) (291) (222) (246) (347) (224)
Interest expense (247) (275) (463) (445) (249) (244) (294) (435)
Interest income 34 9 1 24 90 20 5 24
Other - net 7 27 15 2 14 16 10 (39)
-------- -------- -------- -------- -------- -------- -------- --------
Total other income (expense) (456) (646) (875) (710) (367) (454) (626) (674)
Income/(loss) from operations
before income taxes (319) (600) 2,448 4 (733) (1,601) 362 (354)
Income tax provision/(benefit) (116) (234) 930 2 (279) (608) 137 (136)
-------- -------- -------- -------- -------- -------- -------- --------
Net (loss)/income $ (203) $ (366) $ 1,518 $ 2 $ (454) $ (993) $ 225 $ (218)
======== ======== ======== ======== ======== ======== ======== ========
(Loss)/earnings per share (B):
Net (loss)/earnings per share $(.03) $ (.06) $ .25 $ .00 $ (.07) $ (.16) $ .04 $ (.03)
======== ======== ======== ======== ======== ======== ======== ========
(A) The Company's net sales are subject to seasonal fluctuation. This
fluctuation is mitigated to a degree by the early placement of orders for
the holiday season.
(B) Per share amounts do not always add to the annual per share amount
because the figures are required to be independently calculated.
F-28
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Michael Anthony Jewelers, Inc.
Mount Vernon, New York
The audits referred to in our report dated March 28, 2002 relating to the
consolidated financial statements of Michael Anthony Jewelers, Inc. and
subsidiaries which is contained in Item 8 of this Form 10-K, included the audits
of the financial statements schedule listed in the accompanying index for the
years ended February 2, 2002 and January 27, 2001. The financial statements
schedule is the responsibility of management. Our responsibility is to express
an opinion on the financial statements schedule based on our audits.
In our opinion, such financial statements schedule presents fairly, in all
material respects, the information set forth therein.
/s/: BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
March 28, 2002
S-1
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT ADDITIONS BALANCE AT
BEGINNING OF CHARGED TO COSTS END OF
DESCRIPTION PERIOD AND EXPENSES DEDUCTIONS(A) PERIOD
- ----------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful
accounts:
- ----------------------------------------------------------------------------------------------------------------------------------
Year ended February 2, 2002 $610 $205 $259 $556
Year ended January 27, 2001 530 60 20 610
Year ended January 29, 2000 538 60 (68) 530
Allowance for sales returns:
Year ended February 2, 2002 $1,926 $3,699 $(1,926) $3,699
Year ended January 27, 2001 477 1,926 (477) 1,926
Year ended January 29, 2000 586 397 (506) 477
(A) Allowances, returns and uncollectible accounts charged against the
reserve, (net of collections on previously written-off accounts).
S-2