1
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 April 29, 1995
Commission file number: 0-15230
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
---------- ----------
CLASS
----- Number of Shares
Common Stock, Par Value $.001 Outstanding as of
May 19, 1995
------------------
8,536,701
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MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets,
April 29, 1995 (Unaudited) and
January 28, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Condensed Statements of Operations
Three-Month Period Ended
April 29, 1995 and April 30, 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Condensed Statement of Changes in
Stockholders' Equity, Three-Month Period Ended
April 29, 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Condensed Statements of Cash Flows,
For The Three-Month Period Ended
April 29, 1995 and April 30, 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Condensed Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-13
PART II - OTHER INFORMATION:
Items 1 Through Item 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-ii-
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MICHAEL ANTHONY JEWELERS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS April 29, January 28,
------ 1995 1995
---------- ---------
(Unaudited)
CURRENT ASSETS:
Cash and equivalents $ 11,074 $ 5,815
Accounts receivable:
Trade (less allowances of $1,268 and $1,400) 23,388 26,671
Other 265 150
Inventories 21,848 20,150
Prepaid expenses and other current assets 687 659
Deferred taxes 651 651
-------- --------
Total current assets 57,913 54,096
PROPERTY, PLANT AND EQUIPMENT - net 17,316 16,281
INTANGIBLES - net 1,161 705
OTHER ASSETS 1,002 957
-------- --------
$77,392 $72,039
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable - trade $5,511 $4,989
Current portion of long-term debt
and lease liability 2,686 2,680
Accrued expenses 3,892 3,255
Taxes payable 367 394
-------- --------
Total current liabilities 12,456 11,318
------- -------
LONG-TERM DEBT 17,086 12,528
------- -------
DEFERRED TAXES 994 994
-------- --------
CAPITAL LEASE LIABILITY 670 754
-------- --------
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, 9,239,000
shares issued and outstanding as of
April 29, 1995 and January 28, 1995,
respectively 9 9
Additional paid-in capital 35,170 35,170
Retained earnings 13,565 13,578
Treasury stock, 652,400 and 577,700 shares, respectively (2,558) (2,312)
-------- --------
Total stockholders' equity 46,186 46,445
------- -------
$77,392 $72,039
======= =======
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Three Months Ended
April 29, April 30,
1995 1994
------- --------
NET SALES $27,260 $30,990
COST OF GOODS SOLD 22,048 25,445
-------- -------
GROSS PROFIT ON SALES 5,212 5,545
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 4,493 4,331
-------- -------
OPERATING INCOME 719 1,214
OTHER INCOME (EXPENSES):
Gold consignment fee, net (414) (281)
Interest expense (456) (387)
Interest income 124 192
Other income 5 26
------- ------
(LOSS)/INCOME BEFORE INCOME TAXES (22) 764
INCOME TAX (BENEFIT)/PROVISION (9) 316
------- ------
NET (LOSS)/INCOME $ (13) $ 448
======= ======
(LOSS)/EARNINGS PER SHARE $ (.00) $ .05
======= ======
WEIGHTED AVERAGE NUMBER OF SHARES 8,657 8,750
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
Common Stock Additional Treasury Stock
--------------- Paid-In Retained ------------------
Shares Dollars Capital Earnings Shares Dollars Total
------ ------- ----------- -------- ------ -------- ---------
Balance -
January 28, 1995 9,239 $ 9 $35,170 $13,578 (578) $(2,312) $46,445
Purchase of treasury stock - - - - (74) (246) (246)
Net loss - - - (13) - - (13)
-------- ------- ---------- ------- ------ --------- -------
Balance -
April 29, 1995 9,239 $ 9 $35,170 $13,565 (652) $(2,558) $46,186
====== ====== ======= ======= ===== ======== =======
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Three Months Ended
April 29, April 30,
1995 1994
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/income $ (13) $ 447
Adjustments to reconcile net (loss)/income
to net cash provided by/(used in) operating activities:
Depreciation and amortization 1,014 472
Provision for accounts receivable 90 60
Provision for sales returns (280) (1,161)
(Increase)/decrease in operating assets:
Accounts receivable 3,358 3,138
Inventories (1,698) (1,609)
Prepaid expenses and other current assets (28) 60
Other assets (184) 70
Intangibles (500) -
Increase/(decrease) in operating liabilities:
Accounts payable 522 (480)
Accrued expenses 637 (6,380)
Taxes payable (27) 528
------- ------
Net cash provided by/(used in)
operating activities 2,891 (4,854)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment - net (1,866) (757)
------- ------
Net cash used in investing activities (1,866) (757)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt
and capital lease liabilities (1,520) (1,309)
Proceeds from long term debt 6,000 -
Purchase of treasury stock (246) -
Proceeds from option sales - 30
-------- --------
Net cash provided by/(used in)
financing activities 4,234 (1,279)
------ -------
NET INCREASE/(DECREASE) IN CASH AND EQUIVALENTS 5,259 (6,890)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 5,815 22,742
------ -------
CASH AND EQUIVALENTS AT END OF PERIOD $11,074 $15,852
======= =======
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest and gold consignment fees $ 765 $ 574
Taxes $ 0 $ 145
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED APRIL 29, 1995
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JANUARY 28, 1995 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The unaudited interim consolidated condensed balance sheet as of April
29, 1995 and the consolidated condensed statements of operations for
the three months ended April 29, 1995 and April 30, 1994, and the
consolidated condensed statements of cash flows for the three months
ended April 29, 1995 and April 30, 1994, 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 1995 Transition 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.
Earnings Per Share
------------------
Earnings per share for all periods presented were computed on a
primary basis using the weighted average number of shares of common
stock outstanding. Options and warrants outstanding were not
materially dilutive.
Reclassifications
-----------------
Certain reclassifications were made to me the prior year's financial
statements to conform to the current year's presentation.
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 shipped to the
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MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED APRIL 29, 1995
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JANUARY 28, 1995 IS UNAUDITED)
2. PRODUCT PRICING (Continued)
---------------
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.
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 price of gold in the current quarter was $386 per ounce as
compared to $382 per ounce for the quarter ended April 30, 1994.
3. INVENTORIES
-----------
Inventories consist of:
April 29, January 28,
1995 1995
--------- --------
(Unaudited)
(In thousands)
Finished goods $61,725 $60,411
Work in process 32,381 21,807
Raw materials 3,710 10,868
------- -------
97,816 93,086
Less:
Consigned gold 75,968 72,936
------- -------
$21,848 $20,150
======= =======
Inventories on April 29, 1995 and January 28, 1995 included 194,900
and 192,700 ounces of gold on consignment, respectively.
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MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED APRIL 29, 1995
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JANUARY 28, 1995 IS UNAUDITED)
4. STOCK REPURCHASE PROGRAM
------------------------
In May 1994, the Company announced a Common Stock repurchase program
pursuant to which the Company may repurchase up to 500,000 shares of
Common Stock. As of May 19 1995, the Company had repurchased a total
of 238,800 shares on the open market for an aggregate price of
approximately $875,000.
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ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO JANUARY 28, 1995 IS UNAUDITED)
RESULTS OF OPERATIONS FOR THE THREE MONTHS
- ------------------------------------------
ENDED APRIL 29, 1995 AND APRIL 30, 1994
- ---------------------------------------
Net sales for the three months ended April 29, 1995 were approximately
$27,260,000 a decrease of approximately 12% from net sales of approximately
$30,990,000 for the comparable period of the prior year. The decrease in net
sales resulted from decreased shipments to the wholesale segment of the
Company's customer base and lower sales of the Company's licensed products.
The decrease resulted from the weak retail sales environment throughout the
country.
Gross profit margin increased to 19.1% of net sales for the three months
ended April 29, 1995 as compared to 17.9% of net sales for the comparable
period of the prior year. The increase in gross profit margin was attributable
to a change in the Company's product mix compared to the comparable period of
the prior year.
Selling, general and administrative expenses for the three months ended
April 29, 1995 were approximately $4,493,000, an increase of approximately 4%
from $4,331,000 for the comparable period of the prior year. The increase is
primarily attributable to (i) increased salaries and benefits and (ii) a
recovery of bad debt in the three-month period ended April 30, 1994. These
increases were offset in part by lower advertising, royalties and retail
support costs. As a percentage of sales, selling, general and administrative
expenses increased to approximately 16.5% for the three months ended April 29,
1995 compared to 14.0% in the comparable period of the prior year.
Interest expense (including gold consignment fees) for the three months
ended April 29, 1995 was approximately $870,000, an increase of $202,000 from
the comparable period of the prior year. This increase was due to (i) the
placement of $6,000,000 senior secured notes, (ii) higher levels of consignment
inventory and (iii) higher consignment rates.
As a result of the above factors, the Company's net loss for the three
months ended April 29, 1995 was $13,000 compared to net income of $448,000 for
the comparable period of the prior year.
Due to the slowing economy and continued weak retail sales, the Company
expects second quarter sales and earnings to be lower than last year's
comparable quarter. Commencing in April 1995, the Company implemented a cost
reduction program which Management expects will bring expenses in line on an
annualized basis with expected sales levels.
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ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO JANUARY 28, 1995 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 inventories and
accounts receivable. 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 250,000 ounces of fine gold or (ii) consigned gold with an aggregate fair
market value equal to $109,715,000. 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.
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 from,
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.
In 1987 and 1992, the Company placed $10,000,000 principal amount of
senior secured notes with various insurance companies, which accrue interest at
10.5% and 8.61% per annum, respectively. In February 1995, the Company issued
an additional $6,000,000 principal amount of senior secured notes with various
insurance companies, which currently accrue interest at 7.63% per annum, which
is 1.5% above the three-month London Interbank Offered Rate,
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ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO JANUARY 28, 1995, IS UNAUDITED)
Liquidity and Capital Resources (Continued)
- -------------------------------
adjusted quarterly. These notes are secured by the Company's accounts
receivable, machinery and equipment, inventory (secondary lien to the Gold
Lenders) and proceeds. In addition, the note purchase agreements contain
certain restrictive financial covenants and restrict the payment of dividends.
At April 29, 1995, the Company was in compliance with the covenants. As of
April 29, 1995, $19,447,000 of principal remained outstanding under these
notes.
In September 1994, the Company entered into a line of credit arrangement
with a commercial bank (the "Line of Credit"), under which the Company may
borrow up to $15,000,000. The Line of Credit is secured by certain assets of
the Company, including accounts receivable and inventory. As of April 29,
1995, there was no amount outstanding under the Line of Credit. The Line of
Credit currently expires on January 31, 1996, subject to annual renewal.
Cash and marketable securities increased $5,256,000 as of April 29, 1995
compared to January 28, 1995, primarily due to the Company's decreased accounts
receivable level and the Company's placement of $6,000,000 of debt in February
1995. This increase was offset in part by the Company's higher inventory
level. Accounts receivable-trade decreased 12% to $23,388,000 from $26,671,000.
The decrease is attributable to the seasonality of the Company's sales.
During the quarter ended April 28, 1995, cash from operations provided
the Company with $2,891,000 as compared with using $4,854,000 for the
comparable period of the prior year. The increase in cash is primarily due to
increases in the Company's accrued expenses and other current liabilities. The
Company used $1,866,000 of cash from investing activities as compared to
$757,000 for the comparable period of the prior last year. The increase was
due to the purchase of land, machinery and equipment. During the quarter
financing activities provided the Company with $4,234,000 of cash compared with
using $1,279,000 in the comparable period last year. The increase is due to
the receipt of the proceeds of $6,000,000 senior secured notes which was offset
in part by the purchase of treasury stock and repayment of its long term debt
and capital lease liabilities.
As part of its long-term strategic planning, the Company is reviewing a
plan to expand its manufacturing and distribution facilities and to acquire
certain properties it is currently leasing (the "Leased Properties") from
Michael Anthony Company, a
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ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO JANUARY 28, 1995 IS UNAUDITED)
Liquidity and Capital Resources (Continued)
- -------------------------------
general partnership, the partners of which are Michael Paolercio and Anthony
Paolercio. In the event the Company were to acquire such properties, the
Company would incur additional long-term indebtedness in order to finance their
purchase.
For fiscal 1996, the Company projects that its remaining capital
expenditures will be approximately $3,000,000, which includes certain leasehold
improvements on its leased properties but does not include any other expenses
related to the possible acquisition of the Leased Properties.
Except with respect to financing for the possible acquisition of its
Leased Properties as discussed above, 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 1996, 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.
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MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 through Item 5
Not applicable.
Item 6.
(a) Exhibits Page No.
-------- --------
10 Lease dated as of May 1, 1995 between Registrant
and Michael Anthony Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(b) Reports on Form 8-K
-------------------
Not applicable.
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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: June 9, 1995 By:/s/Allan Corn
----------------
Allan Corn
Senior Vice President and
Chief Financial Officer
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EXHIBIT INDEX
Page No.
--------
10 Lease dated as of May 1, 1995
between Registrant and Michael
Anthony Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
16