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 1, 1997
Commission file number: 015230
MICHAEL ANTHONY JEWELERS, INC.
(Exact name of registrant as specified in its charter)
Delaware No. 132910285
(State of Incorporation) (I.R.S. Employer Identification No.)
115 South MacQuesten Parkway
Mount Vernon, New York 105501724
(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
December 3, 1997
----------------
7,706,000
<PAGE>
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
INDEX
-----
PAGE
----
PART I FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets,
November 1, 1997 (Unaudited) and
January 27, 1997........................................... 3
Consolidated Condensed Statements of Operations
Nine-Month Period Ended
November 1, 1997 and October 26, 1996 (Unaudited) ......... 4
Consolidated Condensed Statement of Changes in
Stockholders' Equity, Nine-Month Period Ended
November 1, 1997 (Unaudited)............................... 5
Consolidated Condensed Statements of Cash Flows,
Nine-Month Period Ended
November 1, 1997 and October 26, 1996 (Unaudited).......... 6
Notes to Consolidated Condensed Financial
Statements................................................... 7-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................................. 10-15
PART II OTHER INFORMATION:
Item 1 Through Item 6 ......................................... 16
Signature Page................................................ 17
<PAGE>
MICHAEL ANTHONY JEWELERS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
- ------
(Unaudited)
November 1, February 1,
1997 1997
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ -- $ 10,430
Accounts receivable:
Trade (less allowances of $1,268 and $1,404, respectively) 36,946 21,500
Other 17 91
Inventories 19,875 18,903
Prepaid expenses and other current assets 1,215 885
Deferred taxes 578 578
-------- --------
Total current assets 58,631 52,387
PROPERTY, PLANT AND EQUIPMENT - net 19,339 18,621
INTANGIBLES - net 633 916
OTHER ASSETS 885 825
-------- --------
$ 79,488 $ 72,749
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 3,156 $ 3,141
Loans payable 8,900 --
Current portion of long-term debt
and lease liability 3,170 3,402
Accrued expenses 4,994 3,217
Taxes payable 58 585
-------- --------
Total current liabilities 20,278 10,345
-------- --------
LONG-TERM DEBT 12,647 13,946
-------- --------
CAPITAL LEASE LIABILITY 213 348
-------- --------
DEFERRED TAXES 1,068 1,068
-------- --------
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; 8,279,000 shares issued
and outstanding as of November 1, 1997 and
February 1, 1997, respectively 8 8
Additional paid-in capital 31,732 31,732
Retained earnings 15,392 16,096
Treasury stock, 578,000 and 250,000 shares as of
November 1, 1997 and February 1, 1997, respectively (1,850) (794)
-------- --------
Total stockholders' equity 45,282 47,042
-------- --------
$ 79,488 $ 72,749
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
-3-
<PAGE>
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ------------------------
November 1, October 26, November 1, October 26,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 41,753 $ 48,772 $ 91,977 $ 105,681
COST OF GOODS SOLD 33,193 39,800 74,704 87,691
--------- --------- --------- ---------
GROSS PROFIT ON SALES 8,560 8,972 17,273 17,990
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,233 6,019 17,330 14,836
--------- --------- --------- ---------
OPERATING INCOME/(LOSS) 2,327 2,953 (57) 3,154
OTHER INCOME/(EXPENSES):
Gold consignment fee (378) (349) (985) (1,012)
Interest expense (363) (426) (1,048) (1,265)
Interest income 31 94 269 379
Other income 19 34 686 54
--------- --------- --------- ---------
Total Other Income/(Expense) (691) (647) (1,078) (1,844)
--------- --------- --------- ---------
INCOME/(LOSS) BEFORE INCOME
TAXES 1,636 2,306 (1,135) 1,310
INCOME TAX PROVISION/(BENEFIT) 650 878 (431) 499
--------- --------- --------- ---------
NET INCOME/(LOSS) $ 986 $ 1,428 $ (704) $ 811
========= ========= ========= =========
EARNINGS/(LOSS) PER SHARE $ 0.13 $ 0.17 $ (.09) $ 0.10
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER
OF SHARES 7,706 8,254 7,758 8,261
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
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
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -
February 1, 1997 8,279 $ 8 $ 31,732 $ 16,096 (250) $ (794) $ 47,042
Purchase of treasury stock -- -- -- -- (328) (1,056) (1,056)
Net loss -- -- -- (704) -- -- (704)
-------- -------- -------- -------- -------- -------- --------
Balance -
November 1, 1997 8,279 $ 8 $ 31,732 $ 15,392 (578) $ (1,850) $ 45,282
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
-5-
<PAGE>
<TABLE>
<CAPTION>
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Nine Months Ended
November 1, October 26,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/income $ (704) $ 811
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 2,896 2,974
Provision for accounts receivable 132 210
Provision for sales returns (268) (187)
Asset write-off 259 --
(Increase)/decrease in operating assets:
Accounts receivable (15,236) (7,496)
Inventories (972) (1,748)
Prepaid expenses and other current assets (330) 297
Other assets (160) (312)
Intangibles 179 (119)
Increase/(decrease) in operating liabilities:
Accounts payable 15 4,006
Accrued expenses 1,777 232
Taxes payable (527) 499
-------- --------
Net cash used in operating activities (12,939) (833)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment - net (3,669) (2,643)
-------- --------
Net cash used in investing activities (3,669) (2,643)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt
and capital lease liabilities (1,666) (3,111)
Purchase of treasury stock (1,056) (80)
Proceeds from line of credit 8,900 --
-------- --------
Net cash provided by/(used in) financing activities 6,178 (3,191)
-------- --------
DECREASE IN CASH AND EQUIVALENTS 10,430 (6,667)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 10,430 6,673
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 0 $ 6
======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest and gold consignment fees $ 1,956 $ 2,498
Taxes $ 67 $ 0
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
-6-
<PAGE>
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED NOVEMBER 1, 1997
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The unaudited interim consolidated condensed balance sheet as of November
1, 1997 and the unaudited consolidated condensed statements of operations
for the nine months ended November 1, 1997 and October 26, 1996, and the
unaudited consolidated condensed statements of cash flows for the nine
months ended November 1, 1997 and October 26, 1996, 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 1997 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.
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.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share, which
established new standards for computing and presenting net income per
common share and replaced the standards previously found in Accounting
Principles Board Opinion No. 15, Earnings Per Share. The Company will begin
reporting net income per common share and net income per common share
assuming dilution according to this new standard in the fourth quarter of
fiscal year ending 1998. Net income per common share amounts, for the third
quarter of 1998 and all prior periods, computed under the new standard
approximate the net income per common share amounts reported under the
previous standard.
-7-
<PAGE>
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED NOVEMBER 1, 1997
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 1997 IS UNAUDITED)
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 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.
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 $330 per ounce as
compared to $391 per ounce for the quarter ended October 26, 1996.
3. INVENTORIES
-----------
Inventories consist of:
November 1, February 1,
1997 1997
----------- -----------
(Unaudited)
(In thousands)
Finished goods $40,729 $37,020
Work in process 22,691 14,597
Raw materials 9,875 7,568
------- -------
73,295 59,185
Less:
Consigned gold 53,420 40,282
------- -------
$19,875 $18,903
======= =======
Inventories as of November 1, 1997 and February 1, 1997 excluded 171,500
and 116,600 ounces of gold on consignment, respectively.
-8-
<PAGE>
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED NOVEMBER 1, 1997
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO FEBRUARY 1, 1997 IS UNAUDITED)
5. STOCK REPURCHASE PROGRAM
------------------------
In December 1995, the Company announced a Common Stock repurchase program
pursuant to which the Company may repurchase up to 750,000 shares of Common
Stock. On April 4, 1997, the Board of Directors authorized an increase of
an additional 500,000 shares of Common Stock that the Company may
repurchase under the Stock Repurchase Plan. As of November 1, 1997, the
Company had repurchased a total of 638,000 shares on the open market for an
aggregate price of approximately $1,978,000, of which 60,000 shares have
been retired.
-9-
<PAGE>
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, 1997 IS UNAUDITED)
SUMMARY OF RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED NOVEMBER 1, 1997 AND OCTOBER 26, 1996
- -----------------------------------------------------
Net sales for the three months ended November 1, 1997, were approximately
$41,753,000, a decrease of approximately 14% from net sales of approximately
$48,772,000 for the comparable period last year. The decrease in sales was
primarily due to the lower average gold price this year, $330 an ounce versus
last year's $391 an ounce. Of the $7,020,000 decrease in sales or 14.4%,
$4,617,000 or 9.5% was a result of lower gold prices and $2,403,000 or 5% was
due to fewer grams sold.
Gross profit margin increased to approximately 20.5% of net sales for the three
months ended November 1, 1997, compared to approximately 18.4% for the
comparable period last year, due to the lower average gold price.
Selling, general and administrative expenses for the three months ended November
1, 1997, were approximately $6,233,000, an increase of 3.5% from approximately
$6,019,000 for the comparable period last year. As a percentage of net sales,
adjusted for the gold price difference of $4,617,000 discussed above, selling,
general and administrative increased to 13.4% for the three months ended
November 1, 1997, from 12.3% for the comparable period of the prior year.
Included in selling, general and administrative for the three months ended
November 1, 1997 was an expense of approximately $450,000 which was the result
of an unfavorable decision in a case between M.L. Logo and the Company. The
Company has filed a Notice of Appeal in the Case and management believes it has
several meritorious grounds on which to appeal the decision of the trial court.
There can be no assurance, however, as to the outcome of the Case on appeal. The
remaining increase is primarily attributable to increases in (i) payroll
expenses, (ii) advertising expenses, and (iii) product software development
costs. These increases were offset in part by a decrease in the provision for
bad debts and costs related to a termination of merger negotiations.
Interest expense and gold consignment fees for the three months ended November
1, 1997, were approximately $741,000, an increase of $34,000 or 4% compared to
approximately $775,000, for the comparable period last year. The increase was
primarily due an increase in gold consignment rates.
As a result of the above factors the Company had net income for the three months
ended November 1, 1997 of approximately $986,000 or $.13 per share on 7,706,000
weighted average shares outstanding, compared to $1,428,000 or $.17 per share on
8,261,000 weighted average shares outstanding for the comparable period last
year.
-10-
<PAGE>
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, 1997 IS UNAUDITED)
SUMMARY OF RESULTS OF OPERATIONS FOR THE NINE MONTHS
ENDED NOVEMBER 1, 1997 AND OCTOBER 26, 1996
- ----------------------------------------------------
Net sales for the nine months ended November 1, 1997, were approximately
$91,977,000, a decrease of 13% from net sales of approximately $105,681,000 for
the comparable period last year. The decrease in sales was primarily due to the
lower average gold price this year, $341 an ounce versus last year's $396 an
ounce. Of the $13,704,000 decrease in sales or 13%, $9,032,000 or 8.5% was a
result of lower gold prices and $4,672,000 or 4.5% was due to fewer grams sold.
Gross profit margin increased to approximately 18.8% of net sales for the nine
months ended November 1, 1997, compared to approximately 17.0% for the
comparable period last year, due to the lower average gold price.
Selling, general and administrative expenses for the nine months ended November
1, 1997, were approximately $17,330,000, an increase of $2,494,000 or 16.8% from
approximately $14,836,000 for the comparable period last year. As a percentage
of net sales, adjusted for the gold price difference of $9,032,000 discussed
above, selling and shipping expenses increased to 17.2% for the nine months
ended November 1, 1997, from 14.0% for the comparable period of the prior year.
Included in selling, general and administrative for the nine months ended
November 1, 1997 was an expense of approximately $450,000 which was the result
of an unfavorable decision in a case between M.L. Logo and the Company. The
Company has filed a Notice of Appeal in the Case and management believes it has
several meritorious grounds on which to appeal the decision of the trial court.
The remaining increase is primarily attributable to increases in (i) payroll and
payroll related expenses, (ii) product software development costs, (iii)
advertising expenses, and (iv) product and packaging supplies.
Other income for the nine months ended November 1, 1997, was approximately
$686,000, an increase of $632,000 from approximately $54,000 for the comparable
period last year. The increase was primarily due a gain of $625,000 from the
Company's sale of an asset.
Interest expense and gold consignment fees for the nine months ended November 1,
1997, were approximately $2,033,000, a decrease of $244,000 or 11% compared to
approximately $2,277,000, for the comparable period last year. The decrease was
primarily due to the reduction of the Company's long term debt.
As a result of the above factors the Company had a net loss for the nine months
ended November 1, 1997 of approximately $704,000 or a loss of $.09 per share on
7,758,000 weighted average shares outstanding, compared to net income of
$811,000 or $.10 per share on 8,261,000 weighted average shares outstanding for
the comparable period last year.
-11-
<PAGE>
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, 1997 IS UNAUDITED)
SUMMARY OF RESULTS OF OPERATIONS FOR THE NINE MONTHS
ENDED NOVEMBER 1, 1997 AND OCTOBER 26, 1996 (Continued)
- -------------------------------------------
The decrease in the gold price has had a negative impact on the Company's gross
sales and it appears that the gold price may continue to trend lower. The
Company is also facing increased competition from imported products that benefit
from the stronger dollar and lower labor costs. In order to more effectively
complete in the marketplace, the Company is reviewing its manufacturing
processing and reviewing ways to further reduce its inventory levels to support
its retail customer base.
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 250,000 ounces of fine gold or (ii)
consigned gold with an aggregate value equal to $106,695,000. 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 1, 1997, the Company held 171,500 ounces of gold on
consignment with a market value of $53,420,000.
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 1, 1997, the Company was in compliance with the covenants in
its consignment agreements and the Company's owned gold inventory was valued at
approximately $4,298,000. 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.
-12-
<PAGE>
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, 1997 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 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 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 1, 1997 until November 1, 1997, the
closing price of gold according to the Second London Gold Fix ranged from a low
of $311 per ounce to a high of nearly $362 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.
In each of 1987 and 1992, the Company issued $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 7.31% per annum. The
various insurance company lenders are collectively referred to as the "Senior
Note Holders". 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 November 1, 1997,
the Company was in compliance with the covenants and $13,306,000 of principal
remained outstanding under the notes issued in 1987, 1992 and 1995.
In October 1995, the Company obtained a loan from a bank in the amount of
$2,500,000. As collateral for the loan, the Company granted the bank a first
mortgage on the Company's corporate headquarters. The mortgage has a ten-year
term and interest on the mortgage accrues at 8% per annum. In addition, the
mortgage contains certain restrictive financial covenants. At November 1, 1997,
the Company was in compliance with the covenants and $2,308,000 of principal
remained outstanding under the mortgage.
-13-
<PAGE>
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, 1997 IS UNAUDITED)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
The Company has 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 November 1, 1997, there was $8,900,000
outstanding under the Line of Credit, due to seasonal borrowings. The Line of
Credit currently expires on July 31, 1998, subject to annual renewal.
Cash and cash equivalents decreased $10,430,000 during the nine months ended
November 1, 1997. This decrease was primarily due to the Company's seasonal
increases in accounts receivable and inventory, purchase of a building and
equipment, and repurchases of stock and debt payments.
During the nine months ended November 1, 1997, the Company used $12,939,000 of
cash from operations. The increase is primarily due to the increased accounts
receivable levels which was partially offset by depreciation. The increase in
accounts receivable is primarily related to the seasonal nature of the business.
During the comparable period of the prior year, the Company used $833,000 of
cash from operations, primarily due to the increased accounts receivable level
which was offset in part by depreciation and accounts payable.
Cash of $3,669,000 was used for investing activities as compared to $2,643,000
used during the comparable nine-month period last year. The increase is
primarily due to the purchase of one of the Company's manufacturing facility
buildings.
Cash of $6,178,000 was provided from financing activities during the nine-month
period, compared to $3,191,000 used for the comparable period of the prior year.
The change is primarily from the Company's use of its line of credit which was
offset in part by debt repayments and the repurchsse of stock.
As part of its long-term strategic planning, in May 1997 the Company acquired
one of its manufacturing facilities from MacQuesten Realty Company, a general
partnership owned by Michael and Anthony Paolercio ("MRC") for a purchase price
of $1,150,000. As part of the transaction, the Company obtained an exclusive,
two-year option to acquire from MRC the two remaining manufacturing and
distribution facilities that are currently being leased from MRC (the "Leased
Properties"). In the event the Company acquires any of such properties, the
Company may incur or assume additional long-term indebtedness in order to
finance their purchase.
For the balance of fiscal 1998, the Company projects capital expenditures of
approximately $500,000, which includes certain improvements on its leased and
owned properties, but does not include any other costs related to the possible
acquisition of the Leased Properties.
-14-
<PAGE>
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, 1997 IS UNAUDITED)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
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 1998, 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.
NEW ACCOUNTING STANDARD
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an
Enterprise and Related Information, which will be effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 redefines how operating segments
are determined and requires expanded quantitative and qualitative disclosures
relating to a company's operating segments. The Company anticipates that the
adoption of SFAS No. 131 will not have a material impact on current disclosures.
-15-
<PAGE>
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 through Item 4
Not applicable.
Item 5.
Effective October 13, 1997, Fredric R. Wasserspring resigned as an officer
and director of the Company. Anthony Paolercio, Jr. assumed the title of
President and Michelle Light Paolercio was promoted to Executive Vice President.
Mark Hanna joined the Company as a Senior Vice President of Sales on October 22,
1997.
On October 29, 1997, a decision was entered in the case of M.L. LOGO V.
MICHAEL ANTHONY JEWELERS, New York State Supreme Court, County of New York,
Index No.: 106327/93 (the "Case"), pursuant to which the Company was ordered to
pay M.L. Logo according to the terms of an agreement entered into on May 16,
1986. The Company has filed a Notice of Appeal in the Case and management
believes it has several meritorious grounds on which to appeal the decision of
the trial court. There can be no assurance, however, as to the outcome of the
Case on appeal. The Company estimates that if it is not successful with its
appeal of the Case it will have to pay M.L. Logo, as of November 1, 1997,
approximately $450,000.
Item 6.
(a) EXHIBITS
--------
10 Severance and Termination Agreement between the Company and
Mark Hanna dated October 22, 1997
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
-------------------
Not applicable.
-16-
<PAGE>
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 15, 1997 By: /s/ Allan Corn
--------------------------------
Allan Corn
Senior Vice President and
Chief Financial Officer
-17-
<PAGE>
EXHIBIT INDEX
TO
FORM 10-Q FOR QUARTER ENDED NOVEMBER 1, 1997
EXHIBIT NO. PAGE NO.
----------- --------
10 Severance and Termination Agreement between the
Company and Mark Hanna dated October 22, 1997 19
27 Financial Data Schedule 23
-18-
SEVERANCE AND TERMINATION AGREEMENT
AGREEMENT, dated as of October 22, 1997, by and between MICHAEL ANTHONY
JEWELERS, INC., a Delaware corporation (the "Corporation") and MARK HANNA (the
"Executive").
* * * * *
WHEREAS, the Corporation considers the establishment and maintenance of
a sound and vital management to be essential to protecting and enhancing the
best interests of the Corporation's stockholders;
WHEREAS, the Corporation desires to induce the Executive to provide
services to the Corporation, and the Executive desires to furnish such services
to the Corporation;
NOW THEREFORE, in consideration of the Executive's agreement to provide
services to the Corporation, the parties hereto agree as follows:
1. EMPLOYMENT AT WILL; TERMINATION. Executive shall be an employee at
will of the Corporation, and the Corporation may terminate the Executive's
employment at any time, but only after the Corporation provides compensation for
the benefits hereinafter specified in accordance with the terms hereof.
2. TERMINATION WITHOUT CAUSE.
(a) If the Corporation shall terminate the employment of the
Executive without Cause, then the Executive shall be entitled to the benefits
provided in Paragraph 3 hereof.
(b) "Cause" shall mean:
(i) the conviction of Executive of a crime involving
moral turpitude or any act(s) or omission(s) on
the part of the Executive of fraud, dishonesty
or willful misconduct in connection with the
performance of his duties and responsibilities
as an officer and employee of Corporation, which
-1-
<PAGE>
act or acts would, if prosecuted, constitute a
crime; or
(ii) the willful engaging by Executive in gross
misconduct materially injurious to the
Corporation.
For purposes of this Paragraph 2(b), no act, or failure to act, on the part of
the Executive shall be considered "willful" unless done, or omitted to be done,
by the Executive not in good faith and without reasonable belief by the
Executive that such action or omission was in the best interest of the
Corporation.
(c) Notwithstanding anything to the contrary, Executive's
employment with the Corporation will be terminated as a result of his death or
Permanent Disability. For the purpose of this Paragraph 2(c), "Permanent
Disability" shall be deemed to occur after 180 days in the aggregate during any
consecutive twelve-month period, or 135 consecutive days, during which 180 or
135 days, as the case may be, the Executive, by reason of his physical or mental
disability or illness, shall have been unable to perform his essential duties
and responsibilities as an officer and employee of the Corporation in any
material respects.
3. SEVERANCE EVENTS; CERTAIN BENEFITS UPON TERMINATION. If on or before
October 22, 2000, the Corporation shall terminate the employment of the
Executive without Cause (such event hereafter referred to as a "Severance
Event"), the Executive shall be entitled to the following payments or benefits:
(i) Payment by the Corporation of the Executive's base salary
through the effective date of the Severance Event
("Severance Event Effective Date") and for three months
thereafter; and
-2-
<PAGE>
(ii) The Corporation shall maintain in full force and effect
for the Executive at the Corporation's expense for a
three-month period after the Severance Event Effect Date,
all employee benefit plans and programs or arrangements in
which Executive had been entitled to participate
immediately prior to the Severance Effective Date,
provided that the Executive's continued participation is
possible under the general terms and provisions of such
plans and programs. In event that the Executive's
participation in any such plan or program is not possible,
the Corporation shall arrange shall provide the Executive
with benefits substantially similar to those which
Executive was entitled to receive under such plans and
programs.
Executive agrees to sign a General Release of the Company as a condition of
receiving such severance payments and benefits.
5. TERM OF AGREEMENT. This Agreement shall expire three years after the
date hereof. Following the expiration of this Agreement, the Executive, upon the
termination of his employment by the Corporation, shall be entitled to such
severance payment, if any, made available to similarly situated executives of
the Corporation, for their termination under substantially similar
circumstances.
6. NOTICES. Any notice to be given under this Agreement shall be
personally delivered in writing or shall have been duly given on the fifth day
after it has been posted in the United States mails, postage pre-paid,
registered or certified, return receipt requested, and if mailed to the
Corporation shall be addressed to:
Michael Anthony Jewelers, Inc.
115 South MacQuesten Parkway
Mount Vernon, New York 10550
Attn: Chief Executive Officer
-3-
<PAGE>
and, if mailed to the Executive, shall be addressed to:
Mark Hanna
27 Knapton Street
Barrington, Rhode Island 02806
7. MODIFICATION. This Agreement, taken together with that certain
letter dated October 15, 1997 to Executive from Michael Paolercio, sets forth
the entire understanding of the parties with respect to the subject matter
hereof, supersedes all existing agreements among and concerning such subject
matter and may be modified by a written instrument duly executed by such parties
hereto.
8. BINDING EFFECT; ASSIGNMENT. The provisions of this Agreement shall
be binding upon and inure to the benefit of the Corporation and the Executive
and their respective successors and permitted assigns. Neither this Agreement
nor any of the rights or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other party, and any
purported assignment without such consent shall be void.
9. GOVERNING LAW. This Agreement is being executed in and shall be
governed by and construed in accordance with the laws of the state of New York,
without giving effect to conflict of laws.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MICHAEL ANTHONY JEWELERS, INC.
By: /s/ MICHAEL PAOLERCIO
-----------------------------------
Michael Paolercio
Chief Executive Officer
/s/ MARK HANNA
-----------------------------------
Mark Hanna
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the financial
statements for Michael Anthony Jewelers, Inc. and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 0000799515
<NAME> MICHAEL ANTHONY JEWELERS
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> NOV-01-1997
<EXCHANGE-RATE> 1
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<RECEIVABLES> 38,214
<ALLOWANCES> (1,268)
<INVENTORY> 19,875
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<PP&E> 42,211
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<TOTAL-ASSETS> 79,488
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0
0
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<INCOME-PRETAX> (1,135)
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<NET-INCOME> (704)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> 0
</TABLE>
