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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 May 3, 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
Outstanding as of
Common Stock, Par Value $.001 June 12, 2003
-----------------
6,244,898
-1-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets,
May 3, 2003 (Unaudited) and
February 1, 2003......................................... 3
Consolidated Condensed Statements of Operations,
Three-Month Period Ended
May 3, 2003 and May 4, 2002 (Unaudited) ................. 4
Consolidated Condensed Statement of Changes in
Stockholders' Equity, Three-Month Period Ended
May 3, 2003 (Unaudited).................................. 5
Consolidated Condensed Statements of Cash Flows,
Three-Month Period Ended
May 3, 2003 and May 4, 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............................................... 15-19
PART II OTHER INFORMATION:
Item 1 Through Item 6 ....................................... 20
Signature Page............................................... 21
-2-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS May 3, February 1,
- ------ 2003 2003
--------- ---------
(Unaudited)
CURRENT ASSETS:
Cash and equivalents $ 100 $ 1,124
Accounts receivable:
Trade (less allowances of $3,251 and $3,400, respectively) 14,332 14,173
Other 751 649
Inventories 25,678 25,952
Prepaid expenses and other current assets 3,959 3,095
Assets held for sale 2,579 2,579
Deferred taxes 578 578
--------- ---------
Total current assets 47,977 48,150
PROPERTY, PLANT AND EQUIPMENT - net 12,940 13,100
INTANGIBLES - net 369 419
OTHER ASSETS 354 356
DEFERRED TAXES 140 140
--------- ---------
$ 61,780 $ 62,165
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 4,975 $ 2,912
Line of credit 6,500 7,000
Current portion of long-term debt 1,727 1,697
Debt on buildings held for sale 119 183
Taxes payable 100 100
Accrued expenses 2,961 3,373
--------- ---------
Total current liabilities 16,382 15,265
--------- ---------
LONG-TERM DEBT 6,862 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;
8,385,747 shares issued and outstanding as of
May 3, 2003 and February 1, 2003, respectively 8 8
Additional paid-in capital 32,391 32,391
Retained earnings 12,574 13,579
Accumulated comprehensive (loss)/gain (8) 46
Treasury stock, 2,140,849 shares as of
May 3, 2003 and February 1, 2003, respectively (6,429) (6,429)
--------- ---------
Total stockholders' equity 38,536 39,595
--------- ---------
$ 61,780 $ 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
-----------------------------
May 3, May 4,
2003 2002
-------- --------
NET SALES $ 20,619 $ 30,135
COST OF GOODS SOLD 17,010 24,270
-------- --------
GROSS PROFIT ON SALES 3,609 5,865
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 4,767 5,685
NON-CASH STOCK COMPENSATION -- 150
-------- --------
OPERATING (LOSS)/INCOME (1,158) 30
OTHER INCOME/(EXPENSE):
Gold consignment fee (264) (311)
Interest expense (208) (200)
Interest income 3 6
Other income 6 11
-------- --------
Total Other Expense (463) (494)
-------- --------
LOSS BEFORE INCOME TAXES (1,621) (464)
INCOME TAX BENEFIT (616) (176)
-------- --------
NET LOSS $ (1,005) $ (288)
======== ========
LOSS PER SHARE - BASIC AND DILUTED ($ .16) ($ .05)
======== ========
WEIGHTED AVERAGE NUMBER
OF SHARES - BASIC AND DILUTED 6,245 6,237
======== ========
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
Comprehensive Loss:
Change in fair value of
Cash flow hedges -- -- -- -- (54) -- -- (54)
Net loss -- -- -- (1,005) -- -- -- (1,005)
-------- -------- -------- -------- -------- -------- -------- --------
Total comprehensive
Loss -- -- -- (1,005) (54) -- -- (1,059)
-------- -------- -------- -------- -------- -------- -------- --------
Balance - May 3, 2003 8,386 $ 8 $ 32,391 $ 12,574 $ (8) (2,141) $ (6,429) $ 38,536
======== ======== ======== ======== ======== ======== ======== ========
See accompanying notes to the consolidated
condensed financial statements.
-5-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Three Months Ended
-----------------------
May 3, May 4,
2003 2002
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,005) $ (288)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 421 809
Provision for doubtful accounts (67) (25)
Credit for sales returns -- (2,951)
Non-cash stock compensation -- 150
(Increase)/decrease in operating assets:
Accounts receivable (194) (3,193)
Inventories 274 693
Prepaid expenses and other current assets (864) (149)
Other assets 2 (4)
Increase/(decrease) in operating liabilities:
Accounts payable 2,063 2,452
Taxes payable -- (1,127)
Accrued expenses (466) (1,695)
------- -------
Net cash provided by/(used in)
operating activities 164 (5,278)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (211) (206)
------- -------
Net cash used in investing activities (211) (206)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt
and capital lease liabilities (477) (444)
(Payment)/proceeds from line of credit (500) 3,900
------- -------
Net cash (used in)/provided by
financing activities (977) 3,456
------- -------
DECREASE IN CASH EQUIVALENTS (1,024) (2,028)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 1,124 2,129
------- -------
CASH AND EQUIVALENTS AT END OF PERIOD $ 100 $ 101
======= =======
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest and gold consignment fees $ 569 $ 628
Taxes -- $ 581
See accompanying notes to the consolidated
condensed financial statements.
-6-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED MAY 3, 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 May 3,
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 MAY 3, 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 MAY 3, 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 MAY 3, 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 MAY 3, 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
-----------------------
May 3, May 4,
2003 2002
------- -------
Net loss:
As reported $(1,005) $ (288)
Deduct: Total stock-based
employee compensation expense
determined under fair value
based methods for all awards,
net of related tax effects (47) (46)
------- -------
Proforma Net Loss $(1,052) $ (334)
======= =======
Basic and diluted net loss per share:
As reported $ (.16) $ (.05)
Proforma SFAS 123 $ (.17) $ (.05)
-11-
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED MAY 3, 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:
Three Months Ended
------------------
May 3, May 4,
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 MAY 3, 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 MAY 3, 2003
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 2003 IS UNAUDITED)
2. PRODUCT PRICING (Continued)
The Company has recorded a $54,000 loss as a component of accumulated other
comprehensive (loss)/income for the three months ended May 3, 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 $351 per ounce
compared to $292 per ounce for the quarter ended May 4, 2002.
3. INVENTORIES
Inventories consist of:
May 3, February 1,
2003 2003
---------- ----------
(Unaudited)
(In thousands)
Finished goods $46,148 $47,236
Work in process 16,629 19,027
Raw materials 5,302 9,590
------- -------
68,079 75,853
Less:
Consigned gold 42,401 49,901
------- -------
$25,678 $25,952
======= =======
Inventories as of May 3, 2003 and February 1, 2003 excluded approximately
125,000 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
MAY 3, 2003 AND MAY 4, 2002
Net sales for the three months ended May 3, 2003 were approximately $20,619,000,
a decrease of 31.6% from net sales of approximately $30,135,000 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 were 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 17.5% of net sales for the three months ended
May 3, 2003 compared to 19.5% 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 19.5% for the three months ended May 3, 2003.
Selling, general and administrative expenses for the three months ended May 3,
2003 were approximately $4,767,000, a decrease of $918,000 or 16.1% from
approximately $5,685,000 for the comparable period last year. The decrease is
primarily attributable to decreases in payroll and payroll related expenses.
Interest expense and gold consignment fees for the three months ended May 3,
2003, were approximately $472,000, a decrease of $39,000 or 7.6% compared to
approximately $511,000 for the comparable period last year. The decrease was
primarily due to the Company's lower average level of consigned inventory.
The effective income tax rate was approximately 38.0% for the three months ended
May 3, 2003, and 37.9% for the three months ended May 4, 2002.
As a result of the above factors, the Company had a net loss for the three
months ended May 3, 2003 of $1,005,000 compared to a net loss of $288,000 for
the comparable period last year.
Basic and diluted loss per share for the three months ended May 3, 2003 was $.16
compared to $.05 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)
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 May 3, 2003,
Michael Anthony held approximately 125,000 ounces of gold on consignment with a
market value of $42,401,000.
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 May
3, 2003, Michael Anthony's owned gold inventory was valued at approximately
$6,543,000. 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 May 3, 2003 there were
15,000 ounces on forward contracts and no options on futures outstanding.
-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 (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 May 3, 2003, the closing price of gold
according to the Second London Gold Fix ranged from a low of $320 per ounce to a
high of nearly $383 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 for the sale of one of its
buildings. The Company expects to complete this transaction in the fourth
quarter of Fiscal 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 and inventory. 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 May 3, 2003, there was $6,500,000 outstanding under the line of
credit.
During the three months ended May 3, 2003, cash provided by operating activities
was $164,000. During the comparable period of the prior year, the Company used
$5,278,000 of cash in operating activities.
Cash of $211,000 was used in investing activities as compared to $206,000 used
during the comparable three-month period last year.
Cash of $977,000 was used by financing activities during the three-month period,
compared to $3,456,000 provided in the comparable period of the prior year. The
decrease was primarily due to the Company's drawings on its line of credit in
the comparable period of the prior year.
For the balance of fiscal 2004, the Company projects capital expenditures of
approximately $1,289,000.
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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 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.
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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 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.
-19-
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
Press Release.
-20-
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 12, 2003 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
-22-
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: June 12, 2003
/s/ Michael W. Paolercio
Chief Executive Officer
-23-
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
-24-
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: June 12, 2003
/s/ Allan Corn
Chief Financial Officer
-25-