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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 November 2, 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 December 13, 2002
----- -----------------
Common Stock, Par Value $.001 6,245,000
-1-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets,
November 2, 2002 (Unaudited) and
February 2, 2002............................................ 3
Consolidated Condensed Statements of Operations
Three-Month and Nine-Month Periods Ended
November 2, 2002 and November 3, 2001 (Unaudited) .......... 4
Consolidated Condensed Statement of Changes in
Stockholders' Equity, Nine-Month Period Ended
November 2, 2002 (Unaudited)................................ 5
Consolidated Condensed Statements of Cash Flows,
Nine-Month Periods Ended
November 2, 2002 and November 3, 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............................................... 11-16
PART II OTHER INFORMATION:
Item 1 Through Item 6 ..................................... 17
Signature Page............................................. 18
Certifications of Principle Executive Officer and
Principle Financial Officer................................ 19-24
-2-
MICHAEL ANTHONY JEWELERS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
November 2, February 2,
2002 2002
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 624 $ 2,129
Accounts receivable:
Trade (less allowances of $2,817 and $4,255, respectively) 32,826 17,067
Other 192 153
Inventories 28,321 25,826
Prepaid expenses and other current assets 2,693 1,544
Deferred taxes 672 672
-------- --------
Total current assets 65,328 47,391
PROPERTY, PLANT AND EQUIPMENT - net 16,204 17,605
INTANGIBLES - net 469 --
OTHER ASSETS 358 364
-------- --------
$ 82,359 $ 65,360
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 8,146 $ 2,321
Line of credit 19,200 3,300
Current portion of long-term debt and lease liability 1,907 1,820
Taxes payable 93 1,274
Accrued expenses 4,159 3,952
-------- --------
Total current liabilities 33,505 12,667
-------- --------
LONG-TERM DEBT 7,725 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 November 2, 2002 and February 2, 2002 8 8
Additional paid-in capital 32,391 32,221
Retained earnings 15,131 17,753
Accumulated other comprehensive income (7) (61)
Treasury stock, 2,143,000 shares,
as of November 2, 2002 and February 2, 2002 respectively (6,429) (6,429)
-------- --------
Total stockholders' equity 41,094 43,492
-------- --------
$ 82,359 $ 65,360
======== ========
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 Nine Months Ended
------------------ -----------------
November 2, November 3, November 2, November 3,
2002 2001 2002 2001
---- ---- ---- ----
NET SALES $39,593 $50,981 $90,023 $108,367
COST OF GOODS SOLD 32,009 40,027 73,414 86,580
------- ------- ------- --------
GROSS PROFIT ON SALES 7,584 10,954 16,609 21,787
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 7,894 7,631 19,196 18,281
------- ------- ------- --------
OPERATING (LOSS)/INCOME (310) 3,323 (2,587) 3,506
OTHER INCOME/(EXPENSE):
Gold consignment fee (313) (428) (892) (1,088)
Interest expense (320) (463) (788) (982)
Interest income 7 1 18 49
Other (expense)/income (1) 15 18 44
------- ------- ------- --------
Total Other Expense (627) (875) (1,644) (1,977)
------- ------- ------- --------
(LOSS)/INCOME BEFORE INCOME TAXES (937) 2,448 (4,231) 1,529
INCOME TAX (BENEFIT)/PROVISION (357) 930 (1,609) 580
------- ------- ------- --------
NET (LOSS)/INCOME $ (580) $ 1,518 $(2,622) $ 949
======= ======= ======= ========
(LOSS)/INCOME PER SHARE - BASIC $ (.09) $ .25 $ (.42) $ .15
======= ======= ======= ========
(LOSS)/INCOME PER SHARE - DILUTED $ (.09) $ .24 $ (.42) $ .15
======= ======= ======= ========
WEIGHTED AVERAGE NUMBER
OF SHARES - BASIC 6,245 6,192 6,241 6,206
======= ======= ======= ========
WEIGHTED AVERAGE NUMBER
OF SHARES - DILUTED 6,245 6,232 6,241 6,214
======= ======= ======= ========
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)
Common Stock Additional Accumulated 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 -- -- -- -- 54 -- -- 54
Net loss -- -- -- (2,622) -- -- -- (2,622)
----- --- ------- -------- ---- ------ ------- --------
Total Comprehensive
income -- -- -- (2,622) 54 -- -- (2,568)
----- --- ------- -------- ---- ------ ------- --------
Balance -
November 2, 2002 8,386 $ 8 $32,391 $ 15,131 $ (7) (2,143) $(6,429) $ 41,094
===== === ======= ======== ==== ====== ======= ========
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)
Nine Months Ended
-----------------
November 2, November 3,
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/income $ (2,622) $ 949
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 2,359 2,580
Provision for accounts receivable 213 234
Provision for sales returns (1,451) --
Issuance of stock 170 25
Loss on sale of property 8 --
(Increase)/decrease in operating assets:
Accounts receivable (14,560) (27,201)
Inventories (2,495) (6,138)
Prepaid expenses and other current assets (1,149) (88)
Other assets -- 298
Increase/(decrease) in operating liabilities:
Accounts payable 5,825 6,010
Accrued expenses 261 534
Taxes payable (1,181) 642
-------- --------
Net cash used in operating activities (14,622) (22,155)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment - net (910) (1,045)
Acquisition (519) --
-------- --------
Net cash used in investing activities (1,429) (1,045)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt
and capital lease liabilities (1,354) (1,262)
Proceeds from line of credit 15,900 24,000
Purchase of treasury stock -- (80)
-------- --------
Net cash provided by/(used in) financing activities 14,546 22,658
-------- --------
DECREASE IN CASH AND EQUIVALENTS (1,505) (542)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 2,129 4,114
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 624 $ 3,572
======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest and gold consignment fees $ 1,610 $ 1,884
Taxes $ -- $ --
SUPPLEMENTAL DISCLOSURE OF
NON-CASH INVESTING ACTIVITY:
Change in fair value of cash flow hedges $ 54 $ 103
See accompanying notes to the consolidated condensed financial statements.
-6-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED NOVEMBER 2, 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 November
2, 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.
Effect of Recently Issued Accounting Standards
In July 2001, the FASB 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, currently, 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 NOVEMBER 2, 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 NOVEMBER 2, 2002
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO FEBRUARY 2, 2002 IS UNAUDITED)
2. PRODUCT PRICING (Continued)
The Company has recorded a $6,000 and $54,000 gain, and a $25,000 and
$103,000 loss as a component of accumulated other comprehensive income for
the three and nine months ended November 2, 2002 and November 3, 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 $276 per ounce for the quarter ended November 3, 2001.
3. INVENTORIES
Inventories consist of:
November 2, February 2,
2002 2002
---------- --------
(Unaudited)
(In thousands)
Finished goods $52,784 $42,151
Work in process 21,716 18,494
Raw materials 9,235 5,816
------- -------
83,735 66,461
Less:
Consigned gold 55,414 40,635
------- -------
$28,321 $25,826
======= =======
Inventories as of November 2, 2002 and February 2, 2002 excluded
approximately 173,000 and 143,000 ounces of gold on consignment,
respectively.
4. ACQUISITION
On July 30, 2002, the Company acquired the gold jewelry division of A&A
Jewelers, Inc. ("A&A"). Under the terms of the agreement, the Company will
acquire the molds and inventory of A&A, and at the same time, sell its
family jewelry and special order division of A&A. As a result of this
acquisition, the Company expects to increase sales to its existing
customers.
-9-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED NOVEMBER 2, 2002
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO FEBRUARY 2, 2002 IS UNAUDITED)
4. ACQUISITION (Continued)
The acquisition was accounted for under the purchase method of accounting.
No goodwill was recognized as a result of this transaction. The aggregate
purchase price was $1,180. Part of the purchase was offset by the sale of
other assets.
The following table summarizes the estimated fair values for the assets
acquired, no liabilities were assumed at the date of acquisition.
Inventory $ 300
Molds and Models 360
Intangibles - covenant
not to compete 520
------
Total assets acquired $1,180
======
The acquired intangible asset of $520 will be amortized over 5 years, of
which the net amount is included in other assets.
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 was
held on October 2, 2002. The employees of Michael Anthony Jewelers, Inc.
voted not to be represented. The Company incurred approximately $134,000
in legal fees for the three months ended November 2, 2002 in relation to
the union. Labor dispute objections have been filed with the National
Labor Relations Board. The Company is in the process of responding to the
objections.
6. COVENANT COMPLIANCE
At November 2, 2002, the Company was not in compliance with one of the
financial covenants in its Gold Lender consignment agreements, but
received a waiver. The Company also does not expect to be in compliance at
the end of fiscal 2003 but expects the covenant to be amended for that
period.
-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
NOVEMBER 2, 2002 AND NOVEMBER 3, 2001
Net sales for the three months ended November 2, 2002 were approximately
$39,593,000, a decrease of 22.3% from net sales of approximately $50,981,000 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 by
increases in the sales prices due to an increase in the average market price of
gold.
Gross profit margin decreased to approximately 19.2% of net sales for the three
months ended November 2, 2002 compared to approximately 21.5% 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 20.7% for the three
months ended November 2, 2002. The decrease in the gross profit margin is
primarily due to the Company's more aggressive disposition of returns,
competitive market pressures, and a change in the product and customer mix.
Selling, general and administrative expenses for the three months ended November
2, 2002 were approximately $7,894,000, an increase of $263,000 or 3.4% from
approximately $7,631,000 for the comparable period last year. The increase is
primarily attributable to increases in advertising and legal fees related to the
labor dispute which were offset in part by decreases in packaging and packaging
related expenses, royalty and licensing expenses.
Other expenses which consist primarily of interest expense and gold consignment
fees for the three months ended November 2, 2002 were approximately $627,000, a
decrease of $248,000 or 28.3% compared to approximately $875,000 for the
comparable period last year. The decrease was primarily due to the Company's
lower consignment levels and the decreased interest rate on the borrowings under
the Company's Line of Credit.
The effective income tax rate was approximately 38.1% for the three months ended
November 2, 2002 and 38.0% for the three months ended November 3, 2001.
As a result of the above factors, the Company had a net loss for the three
months ended November 2, 2002 of $580,000 compared to net income of $1,518,000
for the comparable period last year.
Diluted loss per share for the three months ended November 2, 2002 were $.09
compared to income per share of $.24 for the comparable period last year on a
..2% 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 NINE MONTHS ENDED
NOVEMBER 2, 2002 AND NOVEMBER 3, 2001
Net sales for the nine months ended November 2, 2002 were approximately
$90,023,000, a decrease of 16.9% from net sales of approximately $108,367,000
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 by
increases in the sales prices due to an increase in the average market price of
gold.
Gross profit margin decreased to approximately 18.5% of net sales for the nine
months ended November 2, 2002 compared to approximately 20.1% 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 19.8% for the nine months
ended November 2, 2002. The decrease in the gross profit margin is primarily due
to the Company's more aggressive disposition of returns, competitive market
pressures, and a change in the product and customer mix.
Selling, general and administrative expenses for the nine months ended November
2, 2002 were approximately $19,196,000, an increase of $915,000 or 5.0% from
approximately $18,281,000 for the comparable period last year. The increase is
primarily attributable to increases in advertising expenses, payroll and payroll
related expenses, and legal fees related to the labor dispute, which were offset
in part by decreases in packaging and packaging related expenses, royalty and
licensing expenses.
Other expenses which consist primarily of interest expense and gold consignment
fees for the nine months ended November 2, 2002 were approximately $1,644,000, a
decrease of $333,000 or 16.8% compared to approximately $1,977,000 for the
comparable period last year. The decrease was primarily due to the Company's
lower consignment levels and the decreased interest rate on the borrowings under
the Company's Line of Credit.
The effective income tax rate was approximately 38.0% for the nine months ended
November 2, 2002 and 38.0% for the nine months ended November 3, 2001.
As a result of the above factors, the Company had a net loss for the nine months
ended November 2, 2002 of $2,622,000 compared to net income of $949,000 for the
comparable period last year.
Diluted loss per share for the nine months ended November 2, 2002 were $.42
compared to income per share of $.15 for the comparable period last year on a
..4% 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 228,000 ounces of fine gold or (ii)
consigned gold with an aggregate value equal to $79,150,000.
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 November 2, 2002, the Company held
approximately 173,000 ounces of gold on consignment with a market value of
approximately $55,414,000.
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 November 2, 2002, the Company was not compliance with one of the
financial covenants in its consignment agreements, but received a waiver. The
Company also does not expect to be in compliance at the end of Fiscal 2003, but
expects the covenant to be amended for that period. Based upon the Company's
changing business model with regard to manufacturing and outsourcing as well as
the Company's sales performance, the Company has begun the process of discussing
changes in the structure of its gold consignment arrangements with the Gold
Lenders. One of the Company's Gold Lenders has reduced their gold ounce line by
30,000 ounces. The Company believes that the revised arrangements will be
sufficient for the Company to continue to execute on its new business model. The
Company's owned gold inventory was valued at approximately $5,816,000.
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.
-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)
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.
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 November 2, 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.
The Company has a line of credit arrangement with a commercial bank which varies
seasonally from $10,000,000 to $24,000,000 (the "Line of Credit"). The Line of
Credit is secured by certain assets of the Company, including accounts
receivable and inventory. As of November 2, 2002 $19,200,000 was outstanding
under the Line of Credit.
During the nine months ended November 2, 2002, cash used in operating activities
was $14,622,000. During the comparable period of the prior year, the Company
used $22,155,000 of cash in operating activities, primarily due to the decrease
in accounts receivable and inventories.
Cash of $1,429,000 was used in investing activities as compared to $1,045,000
used during the comparable nine-month period last year. The increase is due to
the Company's purchase of the gold jewelry division of A&A Jewelers, Inc.
Cash of $14,546,000 was provided by financing activities during the nine-month
period, compared to $22,658,000 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 nine months ended November 2, 2002.
-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)
For the balance of fiscal 2003, the Company projects capital expenditures of
approximately $150,000.
The Company believes that its long-term debt and existing lines of credit
provide sufficient funding for the Company's operations.
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.
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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 FEBRUARY 2, 2002 IS UNAUDITED)
Forward Looking Statements (Continued)
Effect of Recently Issued Accounting Standards.
In July 2001, the FASB 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, currently, the new standard does not have any effect on its
financial statements.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment of
Disposal of Long-Lived Assets. SFAS No. 144 requires that those long-lived
assets be measured at the lower of carrying amount of fair value less cost to
sell, whether reported in continuing operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured at net realizable
value or include amounts for operating losses that have not occurred. SFAS No.
144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001 and, generally, is to be applied prospectively. The
Company 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.
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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.
-17-
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: December 13, 2002 By: /s/ Allan Corn
-------------------------------
Allan Corn
Senior Vice President and
Chief Financial Officer
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SARBANES-OXLEY SECTION 302(A) CERTIFICATIONS
I, Michael W. Paolercio, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Michael Anthony
Jewelers, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent valuation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could
-19-
significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: December 13, 2002
/s/ Michael W. Paolercio
Chief Executive Officer
-20-
SARBANES-OXLEY SECTION 302(A) CERTIFICATIONS
I, Allan Corn, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Michael Anthony
Jewelers, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent valuation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
-21-
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could
significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: December 13, 2002
/s/ Allan Corn
Chief Financial Officer
-22-