SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended August 3, 2002
Commission file number: 015230
MICHAEL ANTHONY JEWELERS, INC.
(Exact name of registrant as specified in its charter)
Delaware No. 13-2910285
(State of Incorporation) (I.R.S. Employer Identification No.)
115 South MacQuesten Parkway
Mount Vernon, New York 10550-1724
(Address of principal executive offices)
Registrant's telephone number, including area code:
(914) 699-0000
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 [ ] .
Number of Shares
Outstanding as of
CLASS September 12, 2002
----- ------------------
Common Stock, Par Value $.001 6,245,000
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets,
August 3, 2002 (Unaudited) and
February 2, 2002 ............................................ 3
Consolidated Condensed Statements of Operations
Three-Month and Six-Month Periods Ended
August 3, 2002 and August 4, 2001 (Unaudited) ............... 4
Consolidated Condensed Statement of Changes in
Stockholders' Equity, Six-Month Period Ended
August 3, 2002 (Unaudited)................................... 5
Consolidated Condensed Statements of Cash Flows,
Six-Month Period Ended
August 3, 2002 and August 4, 2001 (Unaudited)................ 6
Notes to Consolidated Condensed Financial
Statements..................................................... 7-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS....................................................... 11-17
PART II OTHER INFORMATION:
Item 1 Through Item 6 ........................................... 18
Signature Page................................................... 19
-2-
MICHAEL ANTHONY JEWELERS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
August 3, February 2,
2002 2002
------------ ---------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 562 $ 2,129
Accounts receivable:
Trade (less allowances of $1,163 and $4,255, respectively) 16,203 17,067
Other 246 153
Inventories 26,266 25,826
Prepaid expenses and other current assets 2,688 1,544
Deferred taxes 672 672
-------- --------
Total current assets 46,637 47,391
PROPERTY, PLANT AND EQUIPMENT - net 16,442 17,605
OTHER ASSETS 1,035 364
-------- --------
$ 64,114 $ 65,360
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 3,737 $ 2,321
Line of credit 6,200 3,300
Current portion of long-term debt and lease liability 1,885 1,820
Taxes payable 72 1,274
Accrued expenses 2,311 3,952
-------- --------
Total current liabilities 14,205 12,667
-------- --------
LONG-TERM DEBT 8,206 9,166
-------- --------
DEFERRED TAXES 35 35
-------- --------
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; 8,386,000
and 8,329,000 shares issued and outstanding
as of August 3, 2002 and February 2, 2002 8 8
Additional paid-in capital 32,391 32,221
Retained earnings 15,711 17,753
Accumulated other comprehensive income (13) (61)
Treasury stock, 2,143,000, as of August 3, 2002
and February 2, 2002, respectively (6,429) (6,429)
-------- --------
Total stockholders' equity 41,668 43,492
-------- --------
$ 64,114 $ 65,335
======== ========
See accompanying notes to the consolidated condensed financial statements.
-3-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Three Months Ended Six Months Ended
-------------------------- ------------------------
August 3, August 4, August 3, August 4,
2002 2001 2002 2001
-------- -------- -------- --------
NET SALES $ 20,296 $ 28,210 $ 50,430 $ 57,386
COST OF GOODS SOLD 17,135 22,633 41,405 46,553
-------- -------- -------- --------
GROSS PROFIT ON SALES 3,161 5,577 9,025 10,833
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,467 5,531 11,302 10,650
-------- -------- -------- --------
OPERATING (LOSS)/INCOME (2,306) 46 (2,277) 183
OTHER INCOME/(EXPENSE):
Gold consignment fee (268) (407) (579) (657)
Interest expense (268) (275) (468) (522)
Interest income 5 9 11 43
Other income 8 27 19 34
-------- -------- -------- --------
Total Other Expense (523) (646) (1,017) (1,102)
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES (2,829) (600) (3,294) (919)
INCOME TAX BENEFIT (1,075) (234) (1,252) (349)
-------- -------- -------- --------
NET LOSS $ (1,754) $ (366) $ (2,042) $ (570)
======== ======== ======== ========
LOSS PER SHARE
- BASIC AND DILUTED $ (.28) $ (.06) $ (.33) $ (.09)
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER
OF SHARES 6,242 6,198 6,239 6,209
======== ======== ======== ========
See accompanying notes to the consolidated condensed financial statements.
-4-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
Accumulated
Common Stock Additional Other Treasury Stock
------------ Paid-In Retained Comprehensive --------------
Shares Dollars Capital Earnings Income/(Loss) Shares Dollars Total
-------- -------- -------- -------- ------------- -------- -------- --------
Balance -
February 2, 2002 8,329 $ 8 $ 32,221 $ 17,753 $ (61) (2,143) $ (6,429) $ 43,492
Issuance of stock 57 -- 170 -- -- -- -- 170
Comprehensive Income:
Change in fair value of
Cash flow hedges -- -- -- -- 48 -- -- 48
Net loss -- -- -- (2,042) -- -- -- (2,042)
-------- -------- -------- -------- -------- -------- -------- --------
Total Comprehensive
income -- -- -- (2,042) 48 -- -- (1,994)
-------- -------- -------- -------- -------- -------- -------- --------
Balance - August 3, 2002 8,386 $ 8 $ 32,391 $ 15,711 $ (13) (2,143) $ (6,429) $ 41,668
======== ======== ======== ======== ======== ======== ======== ========
See accompanying notes to the consolidated condensed financial statements.
-5-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Six Months Ended
----------------
August 3, August 4,
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,042) $ (570)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 1,580 1,763
Provision for accounts receivable 88 (229)
Provision for sales returns (2,951) (826)
Issuance of stock 170 25
(Increase)/decrease in operating assets:
Accounts receivable 3,634 (5,125)
Inventories (440) (6,878)
Prepaid expenses and other current assets (1,144) 36
Other assets (677) 183
Increase/(decrease) in operating liabilities:
Accounts payable 1,416 203
Accrued expenses (1,593) (582)
Taxes payable (1,202) (287)
-------- --------
Net cash used in operating activities (3,161) (12,287)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment - net (411) (849)
-------- --------
Net cash used in investing activities (411) (849)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt
and capital lease liabilities (895) (834)
Proceeds from line of credit 2,900 9,950
Purchase of treasury stock -- (80)
-------- --------
Net cash provided by financing activities 2,005 9,036
-------- --------
DECREASE IN CASH AND EQUIVALENTS (1,567) (4,100)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 2,129 4,114
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 562 $ 14
======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest and gold consignment fees $ 1,089 $ 1,142
Taxes $ 581 $ --
SUPPLEMENTAL DISCLOSURE OF
NON-CASH INVESTING ACTIVITY:
Change in fair value of cash flow hedges $ 48 $ 128
See accompanying notes to the consolidated condensed financial statements.
-6-
-21-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED AUGUST 3, 2002
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO FEBRUARY 2, 2002 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The unaudited condensed consolidated financial statements as of August 3,
2002 and related notes have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations. The
accompanying unaudited interim consolidated condensed financial statements
and related notes should be read in conjunction with the financial
statements and related notes included in the 2002 Annual Report to
Stockholders of Michael Anthony Jewelers, Inc. (the "Company").
The information furnished reflects, in the opinion of the management of the
Company, all adjustments, consisting of normal recurring accruals, which
are necessary to present a fair statement of the results for the interim
periods presented.
The interim figures are not necessarily indicative of the results to be
expected for the fiscal year due to the seasonal nature of the business.
Reclassifications
-----------------
Certain reclassifications were made to the prior year's financial
statements to conform to the current year's presentation.
Effect of Recently Issued Accounting Standards
----------------------------------------------
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. The
Company has reviewed the statement, and has determined that the new
standard does not have any effect on its financial statements.
-7-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED AUGUST 3, 2002
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO FEBRUARY 2, 2002 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
------------------------------------------
Effect of Recently Issued Accounting Standards (Continued)
----------------------------------------------
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 has reviewed the statement, and
has determined that the new standard does not have any effect on its
financial statements.
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. The Company has reviewed the statement, and has determined that the
new standard does not have any effect on its financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which changes the accounting
for costs such as lease termination costs and certain employee severance
costs that are associated with a restructuring, discontinued operation,
plant closing, or other exit or disposal activity initiated after December
31, 2002. The standard requires companies to recognize the fair value of
costs associated with exit or disposal activities when they are incurred
rather than at the date of a commitment to an exit or disposal plan. We do
not expect the adoption of this standard to have a material effect on our
results of operations.
2. PRODUCT PRICING
---------------
The Company's products, the principal component of which is gold, are
generally sold at prices which are based on the market price of gold on the
date merchandise is ordered or shipped to the customer, therefore, the
Company's sales volume is significantly influenced by the market price of
gold. The selling prices for certain customers may be fixed for a specific
period of time. In such cases, the Company is able to shift a substantial
portion of the risks of gold price fluctuation by hedging against changes
in the price of gold by entering into forward contracts or purchasing
futures or options on futures.
-8-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED AUGUST 3, 2002
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO FEBRUARY 2, 2002 IS UNAUDITED)
2. PRODUCT PRICING (Continued)
---------------
The Company has recorded a $48,000 gain and a $128,000 loss as a component
of accumulated other comprehensive income for the six months ended August
3, 2002 and August 4, 2001, respectively, related to the gold price hedge.
The Company's consigned gold inventory is hedged against the effects of
price fluctuations. The Company has entered into arrangements with certain
gold lenders (the "Gold Lenders") pursuant to which the Company does not
purchase gold from the Gold Lenders until receipt of a purchase order from,
or shipment of jewelry to, its customers. These arrangements permit the
Company to match the sales price of the product with the price the Company
pays for the gold.
The average selling price of gold in the current quarter was $314 per ounce
compared to $272 per ounce for the quarter ended August 4, 2001.
3. INVENTORIES
-----------
Inventories consist of:
August 3, February 2,
2002 2002
---------- --------
(Unaudited)
(In thousands)
Finished goods $48,178 $42,151
Work in process 20,907 18,494
Raw materials 7,534 5,816
-------- --------
76,619 66,461
Less:
Consigned gold 50,353 40,635
-------- -------
$26,266 $25,826
======= =======
Inventories as of August 3, 2002 and February 2, 2002 excluded
approximately 165,000 and 143,000 ounces of gold on consignment,
respectively.
4. ACQUISITION
-----------
On August 8, 2002, the Company announced a business agreement with A&A
Jewelers, Inc. Under the terms of the agreement, the Company will acquire
the gold jewelry division of A&A, and at the same time, the Company will
sell its family jewelry and special order division to A&A.
-9-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED AUGUST 3, 2002
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO FEBRUARY 2, 2002 IS UNAUDITED)
4. ACQUISITION (Continued)
-----------
The purchase and sale will include inventory, models and molds, displays
and fixtures, and manufacturing equipment. Included in other assets was
$675,000 paid for models and molds. The Company is in the process of
determining the final purchase price and the allocation among the assets.
Not included in the transaction are accounts receivable, for which each
respective company will handle all prior invoices and claims.
5. EMPLOYEE RELATIONS
------------------
Based upon a petition filed by a local union, the National Labor Relations
Board has scheduled an election among certain employees of the Company to
decide whether or not they desire union representation. The election has
been scheduled for October 2, 2002. At this stage of the proceeding the
outcome is uncertain.
-10-
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO FEBRUARY 2, 2002 IS UNAUDITED)
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
- ------------------------------------------------
AUGUST 3, 2002 AND AUGUST 4, 2001
- ---------------------------------
Net sales for the three months ended August 3, 2002 were approximately
$20,296,000, a decrease of 28.1% from net sales of approximately $28,210,000 for
the comparable period last year. The decrease in sales was primarily due to a
decrease in the amount of gold jewelry sold, which was offset in part due to
increases in the sales prices due to an increase in the average market price of
gold.
Gross profit margin decreased to approximately 15.6% of net sales for the three
months ended August 3, 2002 compared to approximately 19.8% for the comparable
period last year. Excluding the effect of the increase in the average market
price of gold the gross profit margin would have been 17.1% for the three months
ended August 3, 2002. The decrease in the gross profit margin is primarily due
to the Company's more aggressive disposition of returns and a change in the
product and customer mix.
Selling, general and administrative expenses for the three months ended August
3, 2002 were approximately $5,467,000, a decrease of $64,000 or 1.2% from
approximately $5,531,000 for the comparable period last year. The decrease is
primarily attributable to decreases in royalty and licensing expenses, which
were offset in part by increases in advertising.
Other expenses which consist primarily of interest expense and gold consignment
fees for the three months ended August 3, 2002 were approximately $523,000, a
decrease of $123,000 or 19.0% compared to approximately $646,000 for the
comparable period last year. The decrease was primarily due to the Company's
lower consignment levels.
The effective income tax rate was approximately 38.0% for the three months ended
August 3, 2002 and 39.0% for the three months ended August 4, 2001.
As a result of the above factors, the Company had a net loss for the three
months ended August 3, 2002 of $1,754,000 compared to a net loss of $366,000 for
the comparable period last year.
Basic and diluted loss per share for the three months ended August 3, 2002 was
$.28 compared to $.06 for the comparable period last year on a .7% increase in
weighted average shares outstanding.
-11-
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO FEBRUARY 2, 2002 IS UNAUDITED)
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
- ----------------------------------------------
AUGUST 3, 2002 AND AUGUST 4, 2001
- ---------------------------------
Net sales for the six months ended August 3, 2002 were approximately
$50,430,000, a decrease of 12.1% from net sales of approximately $57,386,000 for
the comparable period last year. The decrease in sales was primarily due to a
decrease in the amount of gold jewelry sold, which was offset in part due to
increases in the sales prices due to an increase in the average market price of
gold.
Gross profit margin decreased to approximately 17.9% of net sales for the six
months ended August 3, 2002 compared to approximately 18.9% for the comparable
period last year. Excluding the effect of the increase in the average market
price of gold the gross profit margin would have been 19.0% for the six months
ended August 3, 2002.
Selling, general and administrative expenses for the six months ended August 3,
2002 were approximately $11,302,000, an increase of $652,000 or 6.1% from
approximately $10,650,000 for the comparable period last year. The increase is
primarily attributable to increases in payroll and payroll related expenses and
advertising expenses, which were offset in part by decreases in royalty and
licensing expenses.
Other expenses which consist primarily of interest expense and gold consignment
fees for the six months ended August 3, 2002 were approximately $1,017,000, a
decrease of $85,000 or 7.7% compared to approximately $1,102,000 for the
comparable period last year. The decrease was primarily due to the Company's
lower consignment levels.
The effective income tax rate was approximately 38.0% for the six months ended
August 3, 2002 and 38.0% for the six months ended August 4, 2001.
As a result of the above factors, the Company had a net loss for the six months
ended August 3, 2002 of $2,042,000 compared to a net loss of $570,000 for the
comparable period last year.
Basic and diluted loss per share for the six months ended August 3, 2002 was
$.33 compared to $.09 for the comparable period last year on a .5% increase in
weighted average shares outstanding.
-12-
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO FEBRUARY 2, 2002 IS UNAUDITED)
Liquidity and Capital Resources
- -------------------------------
The Company relies on a gold consignment program, short-term and long-term
borrowings and internally generated funds to finance its operations. The Company
fills most of its gold supply needs through gold consignment arrangements with
the Gold Lenders. Under the terms of those arrangements, the Company is entitled
to lease the lesser of (i) an aggregate of 257,000 ounces of fine gold or (ii)
consigned gold with an aggregate value equal to $86,350,000.
The consigned gold is secured by certain property of the Company including
inventory and machinery and equipment. The Company 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.
The Company believes that its financing rate under the consignment arrangements
is substantially similar to the financing rates charged to gold consignees
similarly situated to the Company. As of August 3, 2002, the Company held
approximately 165,000 ounces of gold on consignment with a market value of
approximately $50,353,000.
The consignment agreements contain certain restrictive covenants relating to
maximum usage, net worth, working capital and other financial ratios and each of
the agreements requires the Company to own a specific amount of gold at all
times. At August 3, 2002, the Company was in compliance with the covenants in
its consignment agreements and the Company's owned gold inventory was valued at
approximately $4,512,000. Management believes that the supply of gold available
through the Company's gold consignment arrangements, in conjunction with the
Company's owned gold, is sufficient to meet the Company's requirements.
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 arrangement, 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.
Consigned gold is not included in the Company's inventory, and there is no
related liability recorded. As a result of these consignment arrangements, the
Company is able to shift a substantial portion of the risk of market
fluctuations in the price of gold to the Gold Lenders, since the Company does
not purchase gold from the Gold Lenders until receipt of a purchase order,
projection, or shipment of jewelry to, its customers.
-13-
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO FEBRUARY 2, 2002 IS UNAUDITED)
Liquidity and Capital Resources (Continued)
- -------------------------------
The Company then either establishes the selling price of the jewelry to its
customers concurrently with 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.
While the Company believes its supply of gold is relatively secure, significant
increases or rapid fluctuations in the cost of gold may result in reduced demand
for the Company's products. From February 2, 2002 until August 3, 2002, the
closing price of gold according to the Second London Gold Fix ranged from a low
of $287 per ounce to a high of nearly $327 per ounce. There can be no assurances
that fluctuations in the precious metals and credit markets would not result in
an interruption of the Company's gold supply or the credit arrangements
necessary to allow the Company to support its accounts receivable and continue
the use of consigned gold.
On January 27, 1999, the Company repaid its long-term debt with the insurance
companies by obtaining 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 has an eight-year term and will accrue
interest at 6.85%. The loan does not contain any restrictive financial
covenants. At August 3, 2002, $7,272,000 of principal remained outstanding under
the loan.
On February 10, 1999, Michael Anthony 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 August 3, 2002, $801,000 of
principal remained outstanding under the loan.
In October 1995, the Company obtained a loan from a bank in the amount of
$2,500,000. As collateral for the loan, the Company granted the bank a first
mortgage on the Company's corporate headquarters. The mortgage has a ten-year
term and interest on the mortgage accrues at 8% per annum. In addition, the
mortgage contains certain restrictive financial covenants. At August 3, 2002,
the Company was in compliance with the covenants and $1,710,000 of principal
remained outstanding under the mortgage.
On September 16, 1999, the Company 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. The Company
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 August 3, 2002, $307,000 of principal remained outstanding under
the loan.
-14-
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO FEBRUARY 2, 2002 IS UNAUDITED)
Liquidity and Capital Resources (Continued)
- -------------------------------
The Company has a line of credit arrangement with a commercial bank which varies
seasonally from $10,000,000 to $18,350,000 (the "Line of Credit"). The Line of
Credit is secured by certain assets of the Company, including accounts
receivable and inventory. As of August 3, 2002 $6,200,000 was outstanding under
the Line of Credit.
During the six months ended August 3, 2002, cash used in operating activities
was $3,161,000. During the comparable period of the prior year, the Company used
$12,287,000 of cash in operating activities, primarily due to the increased
accounts receivable and inventories.
Cash of $411,000 was used in investing activities as compared to $849,000 used
during the comparable six-month period last year. The decrease is primarily due
to decreases in the Company's purchase of machinery and equipment.
Cash of $2,005,000 was provided by financing activities during the six-month
period, compared to $9,036,000 in the comparable period of the prior year. The
decrease was primarily due to the Company's decreased borrowings on its line of
credit as compared to the six months ended August 4, 2001.
For the balance of fiscal 2003, the Company projects capital expenditures of
approximately $1,100,000.
The Company believes that its long-term debt and existing lines of credit
provide sufficient funding for the Company's operations. In the event that the
Company requires additional financing during fiscal 2003, it will be necessary
to fund this requirement through expanded credit facilities with its existing or
other lenders. The Company believes that such additional financing can be
arranged.
Forward Looking Statements
- --------------------------
This Quarterly Report on Form 10-Q 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 the Company's reasonable expectations and
are subject to a number of factors and risks, many of which are beyond the
Company's control. Actual results could differ materially from those discussed
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" as a result of any of the following factors:
-15-
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO FEBRUARY 2, 2002 IS UNAUDITED)
Forward Looking Statements (Cont'd)
- ---------------------------
a) general economic conditions and their impact on the retail environment;
b) fluctuations in the price of gold and other metals used to manufacture
the Company's jewelry;
c) risks related to the concentration of the Company's customers,
particularly the operations of any of its 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 the Company is able to attract and retain key
personnel.
In light of these uncertainties and risks, there can be no assurance that the
forward-looking statements in this Quarterly Report on Form 10-Q will occur or
continue in the future. Except for its required, periodic filings under the
Securities Exchange Act of 1934, the Company undertakes no obligations to
release publicly any revisions to these forward looking statements that may
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
Effect of Recently Issued Accounting Standards.
- -----------------------------------------------
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. The Company has reviewed the statement, and
has determined that the new standard does not have any effect on its financial
statements.
-16-
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO FEBRUARY 2, 2002 IS UNAUDITED)
Effect of Recently Issued Accounting Standards (Continued)
- ----------------------------------------------
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 has reviewed the statement, and has determined that the new standard
does not have any effect on its financial statements.
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. The Company has
reviewed the statement, and has determined that the new standard does not have
any effect on its financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which changes the accounting for costs such
as lease termination costs and certain employee severance costs that are
associated with a restructuring, discontinued operation, plant closing, or
other exit or disposal activity initiated after December 31, 2002. The standard
requires companies to recognize the fair value of costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. We do not expect the adoption of this
standard to have a material effect on our results of operations.
-17-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 and 2
Not applicable.
Item 3.
Quantitative and Qualitative Disclosure about Market Risk
---------------------------------------------------------
The carrying amounts of financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities,
approximate fair value because of the current nature of these instruments.
The carrying amount reported for revolving credit and long-term debt
approximate fair value because of the interest rates on these instruments
approximate current market rates. Because the interest rates on our long
term debt is fixed and our revolving debt is utilized seasonally we do not
hedge against interest rate increases.
Consigned gold is not included in the Company's inventory, and there is no
related liability recorded. As a result of these consignment arrangements,
the Company is able to shift a substantial portion of the risk of market
fluctuations in the price of gold to the Gold Lenders, since the Company
does not purchase gold from the Gold Lenders until receipt of a purchase
order form, or shipment of jewelry to, its customers. The Company then
either locks in the selling price of the jewelry to its customers
concurrently with 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. While the Company believes its supply of gold is relatively secure,
significant increases or rapid fluctuations in the cost of gold may result
in reduced demand for the Company's products.
All of our revenues are realized in U.S. dollars and all of our revenues are
from customers in the United States. Therefore, we do not believe we face
significant direct foreign currency exchange rate risk. We do not hedge
against foreign currency exchange rate changes.
Item 4 and 5
Not applicable
Item 6.
(a) Exhibits
--------
None
(b) Reports on Form 8-K
-------------------
Not applicable.
-18-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICHAEL ANTHONY JEWELERS, INC.
Dated: September 13, 2002 By: /s/ Allan Corn
--------------------------------------
Allan Corn
Senior Vice President and
Chief Financial Officer
-19-
EXHIBIT A
---------
CERTIFICATION PURSUAT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Michael Anthony Jewelers, Inc. (the
"Company") on Form 10-Q for the period ending August 3, 2002, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Michael
W. Paolercio, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) the Report fully complies with the requirements of section
13(a) or 159(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
/s/ Michael W. Paolercio
- ----------------------------
Michael W. Paolercio
Chief Executive Officer
September 13, 2002
-20-
EXHIBIT A
---------
CERTIFICATION PURSUAT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Michael Anthony Jewelers, Inc. (the
"Company") on Form 10-Q for the period ending August 3, 2002, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Allan
Corn, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) the Report fully complies with the requirements of section
13(a) or 159(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
/s/ Allan Corn
- ------------------------
Allan Corn
Chief Financial Officer
September 13, 2002
-21-