<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended July 31, 1999
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 [ ].
CLASS
-----
Number of Shares
Common Stock, Par Value $.001 Outstanding as of
September 3, 1999
-----------------
6,437,000
<PAGE> 2
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
INDEX
-----
PAGE
----
PART I FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets,
July 31, 1999 (Unaudited) and
January 30, 1999............................................. 3
Consolidated Condensed Statements of Operations
Six-Month Period Ended
July 31, 1999 and August 1, 1998 (Unaudited) ................ 4
Consolidated Condensed Statement of Changes in
Stockholders' Equity, Six-Month Period Ended
July 31, 1999 (Unaudited).................................... 5
Consolidated Condensed Statements of Cash Flows,
Six-Month Period Ended
July 31, 1999 and August 1, 1998 (Unaudited)................. 6
Notes to Consolidated Condensed Financial
Statements..................................................... 7-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................................... 9-15
PART II OTHER INFORMATION:
Item 1 Through Item 6 ........................................... 16
Signature Page.................................................. 17
<PAGE> 3
<TABLE>
<CAPTION>
MICHAEL ANTHONY JEWELERS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
July 31, January 30,
1999 1999
-------- --------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 2,198 $ 961
Accounts receivable:
Trade (less allowances of $789 and $1,124, respectively) 21,548 29,194
Other 395 203
Inventories 17,371 14,212
Prepaid expenses and other current assets 1,551 1,397
Deferred taxes 1,203 1,203
-------- --------
Total current assets 44,266 47,170
PROPERTY, PLANT AND EQUIPMENT - net 19,047 16,916
INTANGIBLES - net 309 377
OTHER ASSETS 503 574
-------- --------
$ 64,125 $ 65,037
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable - trade $ 3,057 $ 2,808
Current portion of long-term debt and lease liability 776 227
Accrued expenses 4,088 4,964
-------- --------
Total current liabilities 7,921 7,999
-------- --------
LONG-TERM DEBT 12,727 12,498
-------- --------
CAPITAL LEASE LIABILITY -- 11
-------- --------
DEFERRED TAXES 1,231 1,231
-------- --------
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; 8,308,000
and 8,288,000 shares issued and outstanding
as of July 31, 1999 and January 30, 1999 8 8
Additional paid-in capital 31,826 31,762
Retained earnings 15,369 15,622
Treasury stock, 1,672,000 and 1,457,000 shares as of
July 31, 1999 and January 30, 1999, respectively (4,957) (4,094)
-------- --------
Total stockholders' equity 42,246 43,298
-------- --------
$ 64,125 $ 65,037
======== ========
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
-3-
<PAGE> 4
<TABLE>
<CAPTION>
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Three Months Ended Six Months Ended
------------------------- -------------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 25,331 $ 26,912 $ 54,313 $ 57,344
COST OF GOODS SOLD 19,187 21,163 41,358 45,088
-------- -------- -------- --------
GROSS PROFIT ON SALES 6,144 5,749 12,955 12,256
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,420 5,686 12,583 11,374
-------- -------- -------- --------
OPERATING (LOSS)/INCOME (276) 63 372 882
OTHER INCOME/(EXPENSE):
Gold consignment fee (277) (242) (501) (502)
Interest expense (239) (266) (472) (543)
Interest income 63 78 139 159
Other income 28 18 55 33
-------- -------- -------- --------
Total Other Expense (425) (412) (779) (853)
-------- -------- -------- --------
(LOSS)/INCOME BEFORE INCOME
TAXES (701) (349) (407) 29
INCOME TAX (BENEFIT)/PROVISION (265) (133) (154) 11
-------- -------- -------- --------
NET (LOSS)/INCOME $ (436) $ (216) $ (253) $ 18
======== ======== ======== ========
(LOSS)/EARNINGS PER SHARE
- BASIC AND DILUTED $ (.06) $ (.03) $ (.04) $ .00
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER
OF SHARES 6,739 7,148 6,784 7,292
======== ======== ======== ========
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
-4-
<PAGE> 5
<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 -
January 30, 1999 8,288 $ 8 $ 31,762 $ 15,622 (1,457) $ (4,094) $ 43,298
Purchase of treasury stock -- -- -- -- (215) (863) (863)
15 -- 44 -- -- -- 44
Proceeds from exercise of
stock options
5 -- 20 -- -- -- 20
Issuance of stock
Net loss -- -- -- (253) -- -- (253)
-------- -------- -------- -------- -------- -------- --------
Balance -
July 31, 1999 8,308 $ 8 $ 31,826 $ 15,369 (1,672) $ (4,957) $ 42,246
======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
-5-
<PAGE> 6
<TABLE>
<CAPTION>
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Six Months Ended
----------------------------
July 31, August 1,
1999 1998
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/income $ (253) $ 18
Adjustments to reconcile net (loss)/income
to net cash provided by operating activities:
Depreciation and amortization 1,978 1,812
Provision for accounts receivable 132 --
Provision for sales returns (398) --
Issuance of stock 20 --
(Increase)/decrease in operating assets:
Accounts receivable 7,720 4,085
Inventories (3,159) (1,320)
Prepaid expenses and other current assets (154) 244
Other assets 71 269
Increase/(decrease) in operating liabilities:
Accounts payable 249 (1,013)
Accrued expenses (876) (591)
------- -------
Net cash provided by operating activities 5,330 3,504
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment - net (4,041) (1,103)
------- -------
Net cash used in investing activities (4,041) (1,103)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt
and capital lease liabilities (134) (1,279)
Proceeds from long term debt 901 --
Proceeds from exercise of stock options 44 --
Purchase of treasury stock (863) (1,492)
------- -------
Net cash used in financing activities (52) (2,771)
------- -------
DECREASE IN CASH AND EQUIVALENTS -- (370)
INCREASE IN CASH AND EQUIVALENTS 1,237 --
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 961 6,747
------- -------
CASH AND EQUIVALENTS AT END OF PERIOD $ 2,198 $ 6,377
======= =======
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest and gold consignment fees $ 812 $ 1,079
Taxes $ 265 $ 185
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
-6-
<PAGE> 7
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED JULY 31, 1999
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JANUARY 30, 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The unaudited condensed consolidated financial statements as of July 31,
1999 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 1999 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.
New Accounting Pronouncement Not Yet Adopted
--------------------------------------------
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued and is effective for fiscal years beginning
March 1, 2001. SFAS No. 133 requires that all derivative instruments be
measured at fair value and recognized in the balance sheet as either assets
or liabilities. The Company is currently evaluating the impact of adopting
SFAS No. 133.
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.
-7-
<PAGE> 8
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED JULY 31, 1999
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JANUARY 30, 1999 IS UNAUDITED)
2. PRODUCT PRICING (Continued)
---------------------------
The average selling price of gold in the current quarter was $278 per ounce
compared to $300 per ounce for the quarter ended August 1, 1998.
3. INVENTORIES
-----------
Inventories consist of:
<TABLE>
<CAPTION>
July 31, January 30,
1999 1999
------- -------
(Unaudited)
(In thousands)
<S> <C> <C>
Finished goods $40,716 $31,349
Work in process 15,848 14,324
Raw materials 5,282 3,635
------- -------
61,846 49,308
Less:
Consigned gold 44,475 35,096
------- -------
$17,371 $14,212
======= =======
</TABLE>
Inventories as of July 31, 1999 and January 30, 1999 excluded approximately
172,800 and 156,900 ounces of gold on consignment, respectively.
4. 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. On May 26, 1998, the Board of
Directors authorized an increase of up to an additional 1,000,000 shares of
common stock that the Company may repurchase under the Stock Repurchase
Plan.
As of September 3, 1999, the Company had purchased a total of 1,932,000
shares on the open market for an aggregate cost of approximately
$6,005,000, of which 60,000 shares have been retired.
- -8-
<PAGE> 9
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO JANUARY 30, 1999 IS UNAUDITED)
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
- ------------------------------------------------
JULY 31, 1999 AND AUGUST 1, 1998
- --------------------------------
Net sales for the three months ended July 31, 1999 were $25,331,000, a decrease
of 5.9% from net sales of $26,912,000 for the comparable period last year. Had
it not been for the decrease in the average gold price, $278 versus last year's
$300 an ounce, net sales would have decreased $500,000, or 1.9%, primarily due
to lower units shipped.
Gross profit margin increased to 24.3% of net sales for the three months ended
July 31, 1999, compared to 21.4% for the comparable period last year, primarily
due to a change in the product and customer mix as well as the lower average
gold price.
Selling, general and administrative expenses for the three months ended July 31,
1999 were $6,420,000, an increase of $734,000 or 12.9% from $5,686,000 for the
comparable period last year. As a percentage of net sales, adjusted for the gold
price difference, selling, general and administrative expenses increased to
24.3% for the three months ended July 31, 1999 from 21.1% for the comparable
period of the prior year. The increase is primarily attributable to increases in
(i) advertising related expenses and (ii) payroll and payroll related expenses.
Other income/(expense) for the three months ended July 31, 1999 was $425,000, an
increase of $13,000 or 3.1% compared to $412,000 for the comparable period last
year. Gold consignment fees increased $35,000 primarily due to the company's
higher consignment levels and higher consignment rates. Interest expense
decreased $27,000 due to the Company's refinance of its long term debt at lower
rates in February 1999.
As a result of the above factors the Company had a net loss for the three months
ended July 31, 1999 of $436,000 or $.06 per share on 6,739,000 weighted average
shares outstanding, compared to a net loss of $216,000 or $.03 per share on
7,148,000 weighted average shares outstanding for the comparable period last
year.
-9-
<PAGE> 10
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO JANUARY 30, 1999 IS UNAUDITED)
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
- ----------------------------------------------
JULY 31, 1999 AND AUGUST 1, 1998
- --------------------------------
Net sales for the six months ended July 31, 1999 were $54,313,000, a decrease of
5.3% from net sales of $57,344,000 for the comparable period last year. Had it
not been for the decrease in the average gold price, $286 versus last year's
$303 an ounce, net sales would have decreased $1,300,000 or 2.3%.
Gross profit margin increased to 23.9% of net sales for the six months ended
July 31, 1999, compared to 21.4% for the comparable period last year, primarily
due to a change in the product and customer mix as well as the lower average
gold price.
Selling, general and administrative expenses for the six months ended July 31,
1999 were $12,583,000, an increase of $1,209,000 or 10.6% from $11,374,000 for
the comparable period last year. As a percentage of net sales, adjusted for the
gold price difference, selling, general and administrative expenses increased to
22.4% for the six months ended July 31, 1999 from 19.8% for the comparable
period of the prior year. The increase is primarily attributable to increases in
(i) advertising related expenses and (ii) payroll and payroll related expenses.
These increases were partially offset by decreases in (i) royalty and licensing
fees and (ii) product and packaging supplies.
Other income/(expense) for the six months ended July 31, 1999 were $779,000, a
decrease of $74,000 or 8.7% compared to $853,000 for the comparable period last
year. Interest expense decreased $71,000 due to the Company's refinancing of its
long term debt at lower rates in February 1999.
As a result of the above factors the Company had a net loss for the six months
ended July 31, 1999 of $253,000 or $.04 per share on 6,784,000 weighted average
shares outstanding, compared to net income of $18,000 or $.00 per share on
7,292,000 weighted average shares outstanding for the comparable period last
year.
-10-
<PAGE> 11
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO JANUARY 30, 1999 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 245,000 ounces of fine gold or (ii)
consigned gold with an aggregate value equal to $86,250,000.
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 July 31, 1999, the Company
held 172,800 ounces of gold on consignment with a market value of $44,475,000.
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 July 31, 1999, the Company was in compliance with the covenants in its
consignment agreements and the Company's owned gold inventory was valued at
approximately $3,476,000. 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.
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.
-11-
<PAGE> 12
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO JANUARY 30, 1999 IS UNAUDITED)
Liquidity and Capital Resources (Continued)
- -------------------------------
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 January 30, 1999 until July 31, 1999, the
closing price of gold according to the Second London Gold Fix ranged from a low
of $253 per ounce to a high of nearly $294 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.
On January 27, 1999, the Company repaid its long-term debt with the insurance
companies by obtaining a loan from a new lender in the amount of $10,444,444. As
collateral for the loan, the Company granted the lender a lien on the Company's
machinery and equipment. The loan has an eight-year term and will accrue
interest at 6.85%. The loan does not contain any restrictive financial
covenants.
On February 10, 1999, Michael Anthony obtained a loan in the amount of $937,500.
As collateral for the loan, the Company granted the lender a first mortgage on
one of its manufacturing facilities. The mortgage has a fifteen-year term and
accrues interest at an annual rate of 7.05%. At July 31, 1999, $922,600 of
principal remained outstanding under the loan.
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 July 31, 1999, the
Company was in compliance with the covenants and $2,113,000 of principal
remained outstanding under the mortgage.
The Company has a line of credit arrangement with a commercial bank which varies
seasonally from $10,000,000 to $18,350,000 (the "Line of Credit"). The Line of
Credit is secured by certain assets of the Company, including accounts
receivable and inventory. As of July 31, 1999 no amount was outstanding under
the Line of Credit.
During the six months ended July 31, 1999, cash provided from operating
activities was $5,330,000. The increase is primarily due to the decreased levels
of accounts receivable which were partially offset by an increase in inventory.
During the comparable period of the prior year, the Company provided $3,504,000
of cash in operating activities, primarily due to the increased accounts
receivable.
-12-
<PAGE> 13
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO JANUARY 30, 1999 IS UNAUDITED)
Liquidity and Capital Resources (Continued)
- -------------------------------------------
Cash of $4,041,000 was used in investing activities as compared to $1,103,000
used during the comparable six-month period last year. The increase is primarily
due to the Company's purchase of certain assets, primarily molds, machinery and
equipment, and inventory of Town & Country Fine Jewelry Group.
Cash of $52,000 was used in financing activities during the six-month period,
compared to $2,771,000 used for the comparable period of the prior year. The
cash from financing activities primarily came from a mortgage loan on one of the
Company's buildings.
For the balance of fiscal 2000, the Company projects capital expenditures of
approximately $600,000.
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 2000, 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.
Year 2000 Compliance
- --------------------
In 1997, Michael Anthony developed, as a strategic corporate goal, a project
plan to address the Year 2000 issue. Monthly progress reports on the Year 2000
issue were given to our Executive Management Committee. Members of the
Information Systems (IS) Department primarily staffed the project, with outside
consultants being used on an as-needed basis. Most Year 2000 efforts were made
through the use of internal resources or routine software upgrades provided by
our software vendors.
We maintained our business application system hardware platform (primarily IBM
AS/400's) but replaced or upgraded all affected software. We completed our
internal Year 2000 project in March 1999. Total expenditures related to
remediation, testing, conversion and updating system applications were
approximately $308,000. The cost of the Year 2000 project was expensed as
incurred and did not have a material adverse affect on Michael Anthony's results
of operations, liquidity or capital resources.
-13-
<PAGE> 14
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO JANUARY 30, 1999 IS UNAUDITED)
Year 2000 Compliance (Continued)
- --------------------
Although Michael Anthony does not expect any significant software failures
internally, there could be computer related failures in a number of areas
including the failure of our telecommunications, financial, manufacturing or
distribution systems which are integrated with the systems of suppliers,
customers or other third parties. We do not expect any material impact to
operations or financial result from any minor delay.
Michael Anthony is examining its relationship with certain key customers and
suppliers to determine whether they are Year 2000 compliant, and if not,
ascertain their plans to attain Year 2000 readiness. To the extent our key
customers are not Year 2000 compliant before the end of 1999, those customers
may lose electronic data interchange capabilities in January 2000. If electronic
data interchange communications are no longer possible, we expect to use voice,
facsimile, e-mail, or traditional mail communications in order to receive
customer orders and process customer invoices. In addition, Michael Anthony has
implemented a program to determine the Year 2000 compliance status of our
material vendors, suppliers, service providers and customers. Based on currently
available information, we do not anticipate suffering any material impact from
the failure of these third parties to be Year 2000 compliant. However, the
process of evaluating the Year 2000 compliance status of material third parties
is continually ongoing and, therefore, no guaranty or warranty can be made as to
those third parties' future compliance status and its potential effect on
Michael Anthony. The systems of other companies on which our systems rely may
not be converted in a timely fashion and any failure by those systems may have
an adverse effect on our operations.
The predictions are based on our reasonable expectations but these estimates may
not be achieved. External Year 2000 readiness estimates are subject to more
uncertainty, since this is outside the direct control of management.
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," and "Year 2000 Compliance" as a result of any of the following
factors:
-14-
<PAGE> 15
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO JANUARY 30, 1999 IS UNAUDITED)
Forward Looking Statements (Continued)
- --------------------------
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 retain and attract 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.
New Accounting Standards
- ------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" which will be
effective for fiscal years beginning after March 1, 2001. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging periods. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company is currently evaluating the impact
of adopting SFAS No. 133.
-15-
<PAGE> 16
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 through Item 5
Not applicable.
Item 6.
(a) Exhibits
--------
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
Not applicable.
-16-
<PAGE> 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: September 7, 1999 By: /s/ Allan Corn
----------------------------------
Allan Corn
Senior Vice President and
Chief Financial Officer
-17-
<PAGE> 18
EXHIBIT INDEX
TO
FORM 10-Q FOR QUARTER ENDED JULY 31, 1999
Exhibit No. Page No.
----------- --------
27 Financial Data Schedule 19
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS 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>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> JAN-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 2,198
<SECURITIES> 0
<RECEIVABLES> 22,732
<ALLOWANCES> (789)
<INVENTORY> 17,371
<CURRENT-ASSETS> 44,266
<PP&E> 48,631
<DEPRECIATION> 29,584
<TOTAL-ASSETS> 64,125
<CURRENT-LIABILITIES> 7,921
<BONDS> 12,727
0
0
<COMMON> 8
<OTHER-SE> 42,238
<TOTAL-LIABILITY-AND-EQUITY> 64,125
<SALES> 54,313
<TOTAL-REVENUES> 54,313
<CGS> 41,358
<TOTAL-COSTS> 41,358
<OTHER-EXPENSES> 12,257
<LOSS-PROVISION> 132
<INTEREST-EXPENSE> 973
<INCOME-PRETAX> (407)
<INCOME-TAX> (154)
<INCOME-CONTINUING> (253)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (253)
<EPS-BASIC> (.04)
<EPS-DILUTED> 0
</TABLE>
