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 2, 2003
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 [ ].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
CLASS
-----
Number of Shares
Common Stock, Par Value $.001 Outstanding as of
September 12, 2003
------------------
6,256,330
-1-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets,
August 2, 2003 (Unaudited) and
February 1, 2003................................................... 3
Consolidated Condensed Statements of Operations,
Three-Month and Six-Month Periods Ended
August 2, 2003 and August 3, 2002 (Unaudited) ..................... 4
Consolidated Condensed Statement of Changes in
Stockholders' Equity, Six-Month Period Ended
August 2, 2003 (Unaudited)......................................... 5
Consolidated Condensed Statements of Cash Flows,
Six-Month Period Ended
August 2, 2003 and August 3, 2002 (Unaudited)...................... 6
Notes to Consolidated Condensed Financial
Statements........................................................... 7-14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS......................................................... 15-20
PART II OTHER INFORMATION:
Item 1 Through Item 6 ................................................. 21-22
Signature Page........................................................ 23
-2-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS August 2, February 1,
2003 2003
-------- --------
(Unaudited)
CURRENT ASSETS:
Cash and equivalents $ 627 $ 1,124
Accounts receivable:
Trade (less allowances of $3,201 and $3,400, respectively) 13,191 14,173
Other 1,041 649
Inventories 26,949 25,952
Prepaid expenses and other current assets 2,684 3,095
Assets held for sale 2,579 2,579
Deferred taxes 578 578
-------- --------
Total current assets 47,649 48,150
PROPERTY, PLANT AND EQUIPMENT - net 12,659 13,100
INTANGIBLES - net 319 419
OTHER ASSETS 302 356
DEFERRED TAXES 140 140
-------- --------
$ 61,069 $ 62,165
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 1,714 $ 2,912
Line of credit 10,000 7,000
Current portion of long-term debt 1,757 1,697
Debt on buildings held for sale 53 183
Taxes payable 100 100
Accrued expenses 2,958 3,373
-------- --------
Total current liabilities 16,582 15,265
-------- --------
LONG-TERM DEBT 6,411 7,305
-------- --------
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;
8,397,175 and 8,385,747 shares issued and outstanding as of
August 2, 2003 and February 1, 2003, respectively 8 8
Additional paid-in capital 32,411 32,391
Retained earnings 12,178 13,579
Accumulated comprehensive (loss)/gain (92) 46
Treasury stock, 2,140,849 shares as of
August 2, 2003 and February 1, 2003, respectively (6,429) (6,429)
-------- --------
Total stockholders' equity 38,076 39,595
-------- --------
$ 61,069 $ 62,165
======== ========
The accompanying notes are an integral part of these consolidated
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 2, August 3, August 2, August 3,
2003 2002 2003 2002
---------- ---------- ---------- ----------
NET SALES $ 20,437 $ 20,296 $ 41,056 $ 50,430
COST OF GOODS SOLD 16,342 17,135 33,352 41,405
---------- ---------- ---------- ----------
GROSS PROFIT ON SALES 4,095 3,161 7,704 9,025
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 4,337 5,467 9,104 11,302
---------- ---------- ---------- ----------
OPERATING LOSS (242) (2,306) (1,400) (2,277)
OTHER INCOME/(EXPENSE):
Gold consignment fee (313) (268) (577) (579)
Interest expense (243) (268) (451) (468)
Interest income 3 5 6 11
Other income 157 8 163 19
---------- ---------- ---------- ----------
Total Other Expense (396) (523) (859) (1,017)
---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAXES (638) (2,829) (2,259) (3,294)
INCOME TAX BENEFIT (242) (1,075) (858) (1,252)
---------- ---------- ---------- ----------
NET LOSS $ (396) $ (1,754) $ (1,401) $ (2,042)
========== ========== ========== ==========
LOSS PER SHARE
- BASIC AND DILUTED $ (.06) $ (.28) $ (.22) $ (.33)
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES - BASIC AND DILUTED 6,251 6,242 6,248 6,239
========== ========== ========== ==========
See accompanying notes to the consolidated condensed financial
statements.
-4-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
Common Stock Additional Accumulated Treasury Stock
------------------- Paid-In Retained Comprehensive --------------------
Shares Dollars Capital Earnings Gain/(Loss) Shares Dollars Total
------ ------- ------- -------- ----------- ------ ------- -----
Balance - February 1, 2003 8,386 $ 8 $ 32,391 $ 13,579 $ 46 (2,141) $ (6,429) $ 39,595
Issuance of Stock 11 -- 20 -- -- -- -- 20
Comprehensive Loss:
Change in fair value of
Cash flow hedges -- -- -- -- (138) -- -- (138)
Net loss -- -- -- (1,401) -- -- -- (1,401)
-------- -------- -------- -------- -------- -------- -------- --------
Total comprehensive
Loss -- -- -- (1,401) (138) -- -- (1,539)
-------- -------- -------- -------- -------- -------- -------- --------
Balance - August 2, 2003 8,397 $ 8 $ 32,411 $ 12,178 $ (92) (2,141) $ (6,429) $ 38,076
======== ======== ======== ======== ======== ======== ======== ========
See accompanying notes to the consolidated condensed
financial statements.
-5-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Six Months Ended
-----------------------
August 2, August 3,
2003 2002
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,401) $ (2,042)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 1,005 1,580
Provision for doubtful accounts (117) 88
Credit for sales returns -- (2,951)
Gain on sale of machinery and equipment 150 --
Non-cash stock compensation 20 170
(Increase)/decrease in operating assets:
Accounts receivable 857 3,634
Inventories (997) (440)
Prepaid expenses and other current assets 411 (1,144)
Other assets 54 (677)
Increase/(decrease) in operating liabilities:
Accounts payable (1,198) 1,416
Taxes payable -- (1,202)
Accrued expenses (553) (1,593)
-------- --------
Net cash used in operating activities (2,069) (3,161)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (464) (411)
-------- --------
Net cash used in investing activities (464) (411)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt
and capital lease liabilities (964) (895)
Proceeds from line of credit 3,000 2,900
-------- --------
Net cash provided by financing activities 2,036 2,005
-------- --------
DECREASE IN CASH EQUIVALENTS (497) (1,567)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 1,124 2,129
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 627 $ 562
======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest and gold consignment fees $ 1,156 $ 1,089
Taxes -- $ 581
See accompanying notes to the consolidated condensed
financial statements.
-6-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED AUGUST 2, 2003
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 2003 IS UNAUDITED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited condensed consolidated financial statements as of August 2,
2003 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 2003 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.
Nature of Operations
Michael Anthony Jewelers, Inc. ("Michael Anthony" or "the Company"), is a
leading designer, marketer and manufacturer of affordable branded fine
jewelry whose customers include jewelry chain stores, discount stores,
department stores, television home shopping networks, 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.
-7-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED AUGUST 2, 2003
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 2003 IS UNAUDITED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT 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 3). 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. Building improvements are amortized over the lesser
of the estimated life of the asset.
Intangibles
In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, "Business Combinations", ("FAS
141"), and No. 142, "Goodwill and Other Intangible Assets", ("FAS 142"),
effective for fiscal years beginning after December 15, 2001. Under the
new standards, goodwill and intangible assets deemed to have indefinite
lives are no longer amortized but are subject to annual impairment tests
in accordance with FAS 142. Other intangibles with determinable lives will
continue to amortized for the duration of their useful lives.
The adoption of this statement in Fiscal 2003 had no material effect on
the Company. Intangible assets (acquired in Fiscal 2003, in connection
with an immaterial acquisition) as of February 1, 2003, consisted of a
covenant-not-to-compete which is being amortized over the life of the
related revenue not to exceed five years.
-8-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED AUGUST 2, 2003
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 2003 IS UNAUDITED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Long-lived Assets
The Company reviews certain long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount may
not be recoverable. In that regard, the Company assesses the
recoverability of such assets based upon estimated non-discounted cash
flow forecasts. If asset impairment is identified, the asset is written
down to fair value based on discounted cash flow or other fair value
measures.
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.
Credit Risk
Financial instruments, which potentially subject us to concentration of
credit risk, consist principally of temporary cash investments and
accounts receivable. The Company performs ongoing credit evaluations of
its customers' financial condition and, generally, require no collateral
from our customers. The allowance for non-collections of accounts
receivable is based upon the expected collectibility of all accounts
receivable.
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.
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.
-9-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED AUGUST 2, 2003
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 2003 IS UNAUDITED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Advertising Expense
Advertising costs are expensed as incurred. Advertising costs associated
with cooperative advertising programs are accrued as the related revenues
are recognized.
Cash Equivalents
Highly liquid investments with maturities of three months or less when
purchased 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
other comprehensive loss.
-10-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED AUGUST 2, 2003
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 2003 IS UNAUDITED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Stock Options
The Company accounts for all transactions under which employees receive
shares of stock or other equity instruments in the Company based on the
price of its stock in accordance with the provisions of Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees." No stock-based employee compensation cost is reflected in net
loss, as all options granted under the plan had an exercise price equal to
the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net loss and earnings per share
if the Company had applied the fair value recognition provisions of SFAS
No. 123 "Accounting for Stock-Based Compensation".
Three Months Ended Six Months Ended
----------------------- -----------------------
August 2, August 3, August 2, August 3,
2003 2002 2003 2002
-------- -------- -------- --------
Net loss:
As reported $ (396) $ (1,754) $ (1,401) $ (2,042)
Deduct: Total stock-based
employee compensation expense
determined under fair value
based methods for all awards,
net of related tax effects (47) (46) (94) (92)
-------- -------- -------- --------
Proforma Net Loss $ (443) $ (1,800) $ (1,495) $ (2,134)
======== ======== ======== ========
Basic and diluted net loss per share:
As reported $ (.06) $ (.28) $ (.22) $ (.33)
Proforma SFAS 123 $ (.07) $ (.29) $ (.24) $ (.34)
-11-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED AUGUST 2, 2003
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 2003 IS UNAUDITED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Stock Options
The fair value for each option granted was estimated at the date of grant
using the Black-Scholes option-pricing model, one of the allowable
valuation methods under SFAS 123, with the following assumptions:
Six Months Ended
-----------------------
August 2, August 3,
2003 2002
-------- --------
Average risk free interest rates 6.5% 6.5%
Average expected life (in years) 3.00 3.00
Volatility 60.0% 60.0%
Effect of Recently Issued Accounting Standards
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. The
implementation of this standard did not have a material effect on the
results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45, ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others". FIN 45 addresses
the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees. The
disclosure requirements in this Interpretation are effective for financial
statements of interim or annual periods ending after December 15, 2002.
The implementation of this interpretation did not have an effect on the
consolidated financial statements.
-12-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED AUGUST 2, 2003
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 2003 IS UNAUDITED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Effect of Recently Issued Accounting Standards (Continued)
In April 2003, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 149 "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS No. 149"). FASB
Statements No. 133 "Accounting for Derivative Instruments and Hedging
Activities" and No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities", establish accounting and reporting
standards for derivative instruments including derivatives embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. SFAS No. 149 amends Statement 133 for certain decisions made
by the Board as part of the Derivatives Implementation Group process. This
Statement contains amendments relating to FASB Concepts Statement No. 7,
"Using Cash Flow Information and Present Value in Accounting
Measurements", and FASB Statements No. 65, "Accounting for Certain
Mortgage Banking Activities", No. 91 "Accounting for Nonrefundable Fees
and Costs Associated with Originating or Acquiring Loans and Initial
Direct Costs of Leases", No. 95, "Statement of Cash Flows", and No. 126,
"Exemption from Certain Required Disclosures about Financial Instruments
for Certain Nonpublic Entities". The provisions of SFAS No. 149 are
effective for contracts entered into or modified after June 30, 2003. The
adoption of SFAS No. 149 is not expected to have any impact on the
Company's financial statements or 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.
-13-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED AUGUST 2, 2003
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 2003 IS UNAUDITED)
2. PRODUCT PRICING (Continued)
The Company has recorded a $138,000 loss as a component of accumulated
other comprehensive (loss)/income for the six months ended August 2, 2003
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 $350 per
ounce compared to $314 per ounce for the quarter ended August 3, 2002.
3. INVENTORIES
Inventories consist of:
August 2, February 1,
2003 2003
-------- --------
(Unaudited)
(In thousands)
Finished goods $ 45,478 $ 47,236
Work in process 22,674 19,027
Raw materials 5,599 9,590
-------- --------
73,751 75,853
Less:
Consigned gold 46,802 49,901
-------- --------
$ 26,949 $ 25,952
======== ========
Inventories as of August 2, 2003 and February 1, 2003 excluded
approximately 133,000 and 136,000 ounces of gold on consignment,
respectively.
-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 1, 2003 IS UNAUDITED)
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
AUGUST 2, 2003 AND AUGUST 3, 2002
Net sales for the three months ended August 2, 2003 were approximately
$20,437,000, an increase of 0.7% from net sales of approximately $20,296,000 for
the comparable period last year. The increase in sales was primarily due to
increases in the sales prices due to an increase in the average market price of
gold which was offset in part by decreased shipments to the retail segment of
our customer base and a higher reserve for returns.
Gross profit margin increased to 20.0% of net sales for the three months ended
August 2, 2003 compared to 15.6% 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 21.3% for the three months ended August 2, 2003. The
increase in the gross margin is primarily due to the Company's increased
utilization of its offshore manufacturing facility as well as the Company's
reduced manufacturing costs in New York.
Selling, general and administrative expenses for the three months ended August
2, 2003 were approximately $4,337,000, a decrease of $1,130,000 or 20.7% from
approximately $5,467,000 for the comparable period last year. The decrease is
primarily attributable to decreases in payroll and payroll related expenses of
$627,000, a decrease in the provision for bad debts of $239,000 a decrease in
packaging and packaging related expenses of $136,000, a decrease in advertising
of $67,000, a decrease in freight expenses of $67,000 and a decrease in
occupancy expenses of $48,000. Theses decreases were offset in part by increases
in legal fees of $85,000.
Interest expense and gold consignment fees for the three months ended August 2,
2003, were approximately $556,000, an increase of $20,000 or 3.7% compared to
approximately $536,000 for the comparable period last year. The increase was
primarily due to the Company's higher consignment interest fees resulting from
the higher average gold price as compared to last year.
Other income for the three months ended August 2, 2003 were approximately
$157,000 compared to $8,000 for the comparable period last year. The increase
was primarily due to a gain on the Company's sale of excess machinery and
equipment
The effective income tax rate was approximately 37.9% for the three months ended
August 2, 2003, and 38.0% for the three months ended August 3, 2002.
As a result of the above factors, the Company had a net loss for the three
months ended August 2, 2003 of $396,000 compared to a net loss of $1,754,000 for
the comparable period last year.
Basic and diluted loss per share for the three months ended August 2, 2003 was
$.06 compared to $.28 for the comparable period last year.
-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 1, 2003 IS UNAUDITED)
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
AUGUST 2, 2003 AND AUGUST 3, 2002
Net sales for the six months ended August 2, 2003 were approximately
$41,056,000, a decrease of 18.6% from net sales of approximately $50,430,000 for
the comparable period last year. The decrease in sales was primarily due to
decreased shipments to the retail segment of our customer base and a higher
reserve for returns which was offset in part by increases in the sales prices
due to an increase in the average market price of gold.
Gross profit margin increased to 18.8% of net sales for the six months ended
August 2, 2003 compared to 17.9% 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 20.5% for the three months ended August 2, 2003. The
increase in the gross margin as a percent of sales is primarily due to the
Company's increased utilization of its offshore manufacturing facility as well
as the Company's reduced manufacturing costs in New York.
Selling, general and administrative expenses for the six months ended August 2,
2003 were approximately $9,104,000, a decrease of $2,198,000 or 19.4% from
approximately $11,302,000 for the comparable period last year. The decrease is
primarily attributable to decreases in payroll and payroll related expenses of
$1,602,000, a decrease in the provision for bad debts of $331,000 a decrease in
packaging and packaging related expenses of $297,000, a decrease in freight
expenses of $147,000, a decrease in computer expenses of $108,000, a decrease in
occupancy expenses of $97,000 and a decrease in royalty and licensing fees of
$70,000. These decreases were offset in part by increases in advertising of
$289,000 and legal fees of $168,000.
Interest expense and gold consignment fees for the six months ended August 2,
2003, were approximately $1,028,000 a decrease of $19,000 or 1.8% compared to
approximately $1,047,000 for the comparable period last year. The decrease was
primarily due to a decrease in the Company's interest payments on its lower
long-term debt balances, which were offset in part due the Company's increased
borrowings under its Line of Credit.
Other income for the six months ended August 2, 2003 were approximately $163,000
compared to $19,000 for the comparable period last year. The increase was
primarily due to a gain on the Company's sale of excess machinery and equipment
The effective income tax rate was approximately 38.0% for the six months ended
August 2, 2003, and 38.5% for the three months ended August 3, 2002.
As a result of the above factors, the Company had a net loss for the six months
ended August 2, 2003 of $1,401,000 compared to a net loss of $2,042,000 for the
comparable period last year.
Basic and diluted loss per share for the six months ended August 2, 2003 was
$.22 compared to $.33 for the comparable period last year.
-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 1, 2003 IS UNAUDITED)
Liquidity and Capital Resources
We rely on a gold consignment program, short-term borrowings and internally
generated funds to finance our working capital requirements. 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 175,000 ounces of fine gold or (b) consigned gold with an aggregate
value equal to $62,200,000. The consigned gold is secured by certain property of
Michael Anthony, including inventory and accounts receivable. 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 August 2, 2003,
Michael Anthony held approximately 133,000 ounces of gold on consignment with a
market value of $46,802,000.
The consignment agreements contain restrictive covenants relating to maximum
usage, net worth, working capital and other financial ratios and the agreements
requires Michael Anthony to own a specific amount of gold at all times. At
August 2, 2003, Michael Anthony's owned gold inventory was valued at
approximately $7,600,000. 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 for a period of one year ending March 30, 2004.
Management believes that the consignment agreements will be renewed.
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 August 2, 2003 there were
23,000 ounces on forward contracts and no options on futures outstanding.
-17-
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 2003 IS UNAUDITED)
Liquidity and Capital Resources (continued)
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 2, 2003 until August 2, 2003, the closing price of gold
according to the Second London Gold Fix ranged from a low of $341 per ounce to a
high of nearly $371 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 April 2003 the Company accepted an offer on its 70 building and entered into
a contract in August 2003 for the sale of this building for $2,300,000. The
Company expects to complete this transaction in October 2003. In August 2003 the
Company received an offer on its 60 building. The Company expects to complete
this transaction in January 2004.
The Company has a credit arrangement with a commercial bank which varies
seasonally from $10,000,000 to $20,000,000 (the "line of credit"). The line of
credit is secured by a lien on certain assets of the Company, including accounts
receivable, inventory and certain real estate holdings. The Company believes
that the interest rate under the line of credit is substantially similar to the
interest rates of other companies similarly situated to Michael Anthony. The
line of credit expires on March 30, 2004 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 August 2, 2003, there was
$10,000,000 outstanding under the line of credit.
During the six months ended August 2, 2003, cash used in operating activities
was $2,069,000. During the comparable period of the prior year, the Company used
$3,161,000 of cash in operating activities.
Cash of $464,000 was used in investing activities as compared to $411,000 used
during the comparable six-month period last year.
Cash of $2,036,000 was used by financing activities during the six-month period,
compared to $2,005,000 provided in the comparable period of the prior year.
For the balance of fiscal 2004, the Company projects capital expenditures of
approximately $300,000.
-18-
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 2003 IS UNAUDITED)
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:
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.
-19-
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 2003 IS UNAUDITED)
Effect of Recently Issued Accounting Standards.
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. The implementation of this standard did
not have a material effect on our results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45, ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN 45 addresses the disclosures
to be made by a guarantor in its interim and annual financial statements about
its obligations under guarantees. The disclosure requirements in this
Interpretation are effective for financial statements of interim or annual
periods ending after December 15, 2002. The implementation of this
interpretation did not have an effect on the consolidated financial statements.
In April 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 149 "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities" ("SFAS No. 149"). FASB Statements No. 133
"Accounting for Derivative Instruments and Hedging Activities" and No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities",
establish accounting and reporting standards for derivative instruments
including derivatives embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS No. 149 amends Statement 133 for
certain decisions made by the Board as part of the Derivatives Implementation
Group process. This Statement contains amendments relating to FASB Concepts
Statement No. 7, "Using Cash Flow Information and Present Value in Accounting
Measurements", and FASB Statements No. 65, "Accounting for Certain Mortgage
Banking Activities", No. 91 "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases", No. 95, "Statement of Cash Flows", and No. 126, "Exemption from Certain
Required Disclosures about Financial Instruments for Certain Nonpublic
Entities". The provisions of SFAS No. 149 are effective for contracts entered
into or modified after June 30, 2003. The adoption of SFAS No. 149 is not
expected to have any impact on the Company's financial statements or results of
operations.
-20-
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. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's Chief Executive Officer and its Chief Financial Officer, after
evaluating the effectiveness of the Company's disclosure controls and procedures
(as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)
as of the end of the period covered by the filing date of this quarterly report
on Form 10-Q (the "Evaluation Date")), have concluded that as of the Evaluation
Date, the Company's disclosure controls and procedures were adequate and
effective to ensure that material information relating to the Company and its
consolidated subsidiaries is recorded, processed, summarized and reported by
management of the Company on a timely basis in order to comply with the
Company's disclosure obligations under the Securities Exchange Act of 1934 and
the SEC rules thereunder.
-21-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Changes in Internal Controls
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect the Company's disclosure controls and
procedures subsequent to the Evaluation Date, nor any significant deficiencies
or material weaknesses in such disclosure controls and procedures requiring
corrective actions.
Item 5
Not applicable
Item 6.
(a) Exhibits
None
(b) Reports on Form 8-K
Press Release.
-22-
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 12, 2003 By: /s/ Allan Corn
-------------------------------
Allan Corn
Senior Vice President and
Chief Financial Officer
-23-