<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 October 30, 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
November 22, 1999
-----------------
6,358,000
-1-
<PAGE> 2
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets,
October 30, 1999 (Unaudited) and
January 30, 1999............................................ 3
Consolidated Condensed Statements of Operations
Nine-Month Periods Ended
October 30, 1999 and October 31, 1998 (Unaudited) .......... 4
Consolidated Condensed Statement of Changes in
Stockholders' Equity, Nine-Month Period Ended
October 30, 1999 (Unaudited)................................ 5
Consolidated Condensed Statements of Cash Flows,
Nine-Month Periods Ended
October 30, 1999 and October 31, 1998 (Unaudited)........... 6
Notes to Consolidated Condensed Financial
Statements.................................................... 7-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................................. 10-16
PART II OTHER INFORMATION:
Item 1 Through Item 6 .......................................... 16
Signature Page................................................. 17
-2-
<PAGE> 3
MICHAEL ANTHONY JEWELERS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
October 30, January 30,
1999 1999
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and equivalents $ 253 $ 961
Accounts receivable:
Trade (less allowances of $1,355 and $1,124, respectively) 44,299 29,194
Other 187 203
Inventories 17,143 14,212
Prepaid expenses and other current assets 1,660 1,397
Deferred taxes 1,203 1,203
-------- --------
Total current assets 64,745 47,170
PROPERTY, PLANT AND EQUIPMENT - net 20,757 16,916
INTANGIBLES - net 257 377
OTHER ASSETS 436 574
-------- --------
$ 86,195 $ 65,037
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable - trade $ 7,732 $ 2,808
Note payable 13,300 -
Current portion of long-term debt and lease liability 1,387 227
Accrued expenses 5,870 4,152
Taxes payable 826 812
-------- --------
Total current liabilities 29,115 7,999
-------- --------
LONG-TERM DEBT 13,090 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 October 30, 1999 and January 30, 1999 8 8
Additional paid-in capital 31,826 31,762
Retained earnings 16,957 15,622
Treasury stock, 1,951,000 and 1,457,000 shares as of
October 30, 1999 and January 30, 1999, respectively (6,032) (4,094)
-------- --------
Total stockholders' equity 42,759 43,298
-------- --------
$ 86,195 $ 65,037
======== ========
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
-3-
<PAGE> 4
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
--------------------------- ---------------------------
October 30, October 31, October 30, October 31,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 49,935 $ 43,758 $ 104,248 $ 101,102
COST OF GOODS SOLD 38,418 34,373 79,776 79,461
--------- --------- --------- ---------
GROSS PROFIT ON SALES 11,517 9,385 24,472 21,641
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 8,265 6,949 20,848 18,323
--------- --------- --------- ---------
OPERATING INCOME 3,252 2,436 3,624 3,318
OTHER INCOME/(EXPENSE):
Gold consignment fee (581) (344) (1,082) (846)
Interest expense (270) (283) (742) (826)
Interest income 18 52 157 211
Other income 141 31 196 64
--------- --------- --------- ---------
Total Other Expense (692) (544) (1,471) (1,397)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 2,560 1,892 2,153 1,921
INCOME TAX PROVISION 972 719 818 730
--------- --------- --------- ---------
NET INCOME $ 1,588 $ 1,173 $ 1,335 $ 1,191
========= ========= ========= =========
EARNINGS PER SHARE
- BASIC AND DILUTED $ .25 $ .17 $ .20 $ .17
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER
OF SHARES 6,442 6,984 6,670 7,190
========= ========= ========= =========
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
-4-
<PAGE> 5
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- Paid-In Retained Treasury Stock
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 - - - - (494) (1,938) (1,938)
Proceeds from exercise of
Stock options 15 - 44 - - - 44
Issuance of stock 5 - 20 - - - 20
Net income - - - 1,335 - - 1,335
-------- -------- -------- -------- -------- -------- --------
Balance - October 30, 1999 8,308 $ 8 $ 31,826 $ 16,957 (1,951) $ (6,032) $ 42,759
======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
-5-
<PAGE> 6
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------
October 30, October 31,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,335 $ 1,191
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization 3,027 2,674
Provision for accounts receivable 249 111
Provision for sales returns (18) -
Stock compensation 20 -
Gain on sale of property 44 -
(Increase)/decrease in operating assets:
Accounts receivable (15,320) (16,337)
Inventories (2,931) (2,822)
Prepaid expenses and other current assets (263) 1,132
Other assets 138 400
Increase in operating liabilities:
Accounts payable 4,924 1,742
Accrued expenses and taxes payable 1,732 1,843
-------- --------
Net cash used in operating activities (7,153) (10,066)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment - net (5,769) (1,608)
Proceeds from sale of property 175 -
-------- --------
Net cash used in investing activities (5,594) (1,608)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt
and capital lease liabilities (269) (1,364)
Proceeds from long-term debt 901 -
Proceeds from exercise of stock options 45 -
Purchase of treasury stock (1,938) (1,960)
Proceeds from line of credit 13,300 8,500
-------- --------
Net cash provided by financing activities 12,039 5,176
-------- --------
DECREASE IN CASH AND EQUIVALAENTS (708) (6,498)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 961 6,747
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 253 $ 249
======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest and gold consignment fees 2,050 $ 1,758
Taxes 804 $ 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 OCTOBER 30, 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 October 30,
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
February 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
-7-
<PAGE> 8
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED OCTOBER 30, 1999
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JANUARY 30, 1999 IS UNAUDITED)
2. PRODUCT PRICING (Continued)
---------------
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 $272 per ounce
compared to $298 per ounce for the quarter ended October 31, 1998.
3. INVENTORIES
Inventories consist of:
October 30, January 30,
1999 1999
------- --------
(Unaudited)
(In thousands)
Finished goods $37,516 $31,349
Work in process 26,014 14,324
Raw materials 7,549 3,635
------- --------
71,079 49,308
Less:
Consigned gold 53,936 35,096
------- -------
$17,143 $14,212
======= =======
Inventories as of October 30, 1999 and January 30, 1999 excluded
approximately 180,000 and 123,000 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 November 22, 1999, the Company had purchased a total of 2,011,000
shares on the open market for an aggregate cost of approximately
$6,246,000, of which 60,000 shares have been retired.
-8-
<PAGE> 9
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED OCTOBER 30, 1999
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JANUARY 30, 1999 IS UNAUDITED)
5. PROPERTY, PLANT AND EQUIPMENT
-----------------------------
On September 16, 1999, the Company acquired two buildings housing
manufacturing facilities from MacQuesten Realty Company for a purchase
price of $2,450,000. The Company assumed a note of $929,000 and funded
the balance with cash from its operations.
-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 THREE MONTHS ENDED
- ------------------------------------------------
OCTOBER 30, 1999 AND OCTOBER 31, 1998
- -------------------------------------
Net sales for the three months ended October 30, 1999 were $49,935,000, an
increase of 14.1% from net sales of $43,758,000 for the comparable period last
year. Had it not been for the decrease in the average gold price, $272 versus
last year's $298 an ounce, net sales would have increased $7,480,000, or 17.1%.
The sales increase was due to an increase in the units shipped.
Gross profit margin increased to 23.1% of net sales for the three months ended
October 30, 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 October
30, 1999 were $8,265,000, an increase of $1,316,000 or 18.9% from $6,949,000 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
16.1% for the three months ended October 30, 1999 from 15.9% for the comparable
period of the prior year. The increase is primarily attributable to increases in
(i) advertising expenses and (ii) payroll and payroll related expenses.
Other expense for the three months ended October 30, 1999 was $692,000, an
increase of $148,000 or 27.2% compared to $544,000 for the comparable period
last year. Gold consignment fees increased $237,000 primarily due to the
company's higher consignment rates and higher consignment levels.
As a result of the above factors the Company had net income for the three months
ended October 30, 1999 of $1,588,000 or $.25 per share on 6,442,000 weighted
average shares outstanding, compared to net income of $1,173,000 or $.17 per
share on 6,984,000 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)
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
- -----------------------------------------------
OCTOBER 30, 1999 AND OCTOBER 31, 1998
- -------------------------------------
Net sales for the nine months ended October 30, 1999 were $104,248,000, an
increase of 3.1% from net sales of $101,102,000 for the comparable period last
year. Had it not been for the decrease in the average gold price, $279 versus
last year's $301 an ounce, net sales would have increased $7,578,000 or 7.5%.
The sales increase was due to an increase in the units shipped.
Gross profit margin increased to 23.5% of net sales for the nine months ended
October 30, 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 nine months ended October
30, 1999 were $20,848,000, an increase of $2,525,000 or 13.8% from $18,323,000
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 19.2% for the nine months ended October 30, 1999 from 18.1% for the
comparable period of the prior year. The increase is primarily attributable to
increases in (i) advertising expenses and (ii) payroll and payroll related
expenses. These increases were partially offset by decreases in royalty and
licensing fees.
Other expense for the nine months ended October 30, 1999 were $1,471,000, an
increase of $74,000 or 5.3% compared to $1,397,000 for the comparable period
last year. Gold consignment fees increased $236,000 due to the Company's higher
consignment rates and higher consignment levels. This was partially offset by a
decrease in interest expense of $84,000 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 net income for the nine months
ended October 30, 1999 of $1,335,000 or $.20 per share on 6,670,000 weighted
average shares outstanding, compared to net income of $1,191,000 or $.17 per
share on 7,190,000 weighted average shares outstanding for the comparable period
last year.
-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
- -------------------------------
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 October 30, 1999, the
Company held 180,000 ounces of gold on consignment with a market value of
$53,936,000.
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 October 30, 1999, the Company was in compliance with the covenants in
its consignment agreements and the Company's owned gold inventory was valued at
approximately $3,813,000. 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.
-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)
- -------------------------------------------
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 October 30, 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 $324 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, the Company 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 October 30, 1999, $913,000 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 October 30, 1999,
the Company was in compliance with the covenants and $2,084,000 of principal
remained outstanding under the mortgage.
On September 16, 1999, the Company acquired two buildings which house two
manufacturing facilities, located at 70 and 60 South MacQuesten Parkway, Mount
Vernon, NY from MacQuesten Realty Company for a price of $2,450,000. The Company
incurred $929,000 of long term debt, which has a four term and accrues interest
at an annual rate of 7.05%, and paid the balance with cash from its operations.
At October 30, 1999, $913,000 of principal remained outstanding under the loan.
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 October 30, 1999, $13,300,000 was outstanding
under the Line of Credit.
-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)
Liquidity and Capital Resources (Continued)
- -------------------------------
During the nine months ended October 30, 1999, cash used in operating activities
was $7,153,000 compared to $10,066,000 used during the comparable period last
year. The decrease is primarily due to the increase in accounts payable.
Cash of $5,594,000 was used in investing activities as compared to $1,608,000
used during the comparable nine-month period last year. The increase is
primarily due to the Company's purchase of certain assets, primarily molds,
machinery and equipment, Town & Country Fine Jewelry Group and two manufacturing
facilities.
Cash of $12,039,000 was provided by financing activities during the nine-month
period, compared to $5,176,000 provided for the comparable period of the prior
year. The increase was primarily due to the Company's increased borrowings on
its line of credit.
For the balance of fiscal 2000, the Company projects capital expenditures of
approximately $300,000.
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, the Company 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 its 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 the Company's
software vendors.
The Company maintained its business application system hardware platform
(primarily IBM AS/400's) but replaced or upgraded all affected software. The
Company completed its 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 the Company's
results of operations, liquidity or capital resources.
-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)
Year 2000 Compliance (Continued)
- --------------------
Although the Company does not expect any significant software failures
internally, there could be computer related failures in a number of areas
including the failure of its telecommunications, financial, manufacturing or
distribution systems which are integrated with the systems of suppliers,
customers or other third parties. The Company does not expect any material
impact to operations or financial result from any minor delay.
The Company 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 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, the Company expects to use
voice, facsimile, e-mail, or traditional mail communications in order to receive
customer orders and process customer invoices. In addition, the Company has
implemented a program to determine the Year 2000 compliance status of its
material vendors, suppliers, service providers and customers. Based on currently
available information, The Company does 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 the Company. The systems of other companies on which the Company's
systems rely may not be converted in a timely fashion and any failure by those
systems may have an adverse effect on its 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:
-15-
<PAGE> 16
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 February 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.
-16-
<PAGE> 17
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 and 2
Not applicable.
Item 3.
Quantitative and Qualitative Disclosures 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 amounts 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 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.
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
--------
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
A report on Form 8-K was filed by the Company on September 21, 1999
with respect to Item 4 therein, a change in accounting firms.
-17-
<PAGE> 18
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: November 29, 1999 By: /s/ Allan Corn
---------------------------------
Allan Corn
Senior Vice President and
Chief Financial Officer
-18-
<PAGE> 19
EXHIBIT INDEX
TO
FORM 10-Q FOR QUARTER ENDED OCTOBER 30, 1999
Exhibit No. Page No.
----------- --------
27 Financial Data Schedule 19
-19-
<PAGE> 20
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
September 16, 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 105501724
(Address of principal executive offices)
Registrant's telephone number, including area code:
(914) 699-0000
<PAGE> 21
ITEM 4. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANTS
---------------------------------------------
Michael Anthony Jewelers, Inc. (the "Company") is filing this report on Form 8-K
to report a change in certifying accountants with the firm of Deloitte & Touche
LLP being replaced by BDO Seidman LLP effective September 15, 1999.
(a) The following sets forth the information required by item
304(a)(1) of Regulation S-K:
(i) On September 15, 1999, Deloitte & Touche LLP was
dismissed as the Company's principal accountant.
(ii) Deloitte & Touche LLP reports on the financial
statements for the past two fiscal years did not
contain an adverse opinion or a disclaimer of
opinion, and were not qualified or modified as to
uncertainty, audit scope or accounting principles.
(iii) The decision to change accountants was approved by
the Company's Board of Directors.
(iv) During the Company's two most recent fiscal years and
subsequent interim principles periods, there were no
disagreements with Deloitte & Touche LLP on any
matter of accounting or practices, financial
statement disclosures or auditing scope or procedure.
(v) During the Company's two most recent fiscal years and
subsequent interim periods, there have occurred none
of the "reportable events" listed in Item
304(a)(1)(v)(A-D) of Regulation S-K.
(b) The Company has requested and received from Deloitte & Touche
LLP the letter required by Item 304(a)(3) of Regulation S-K.
Such letter is filed as Exhibit 16.1 to this report, and
states that Deloitte & Touche LLP agrees with the statements
made by the Company in this report in response to Item
304(a)(1) of Regulation S-K.
(c) The following sets forth the information required by Item
304(a)(2) of Regulation S-K:
<PAGE> 22
The Company has retained BDO Seidman LLP as its principal
accountants effective September 15, 1999.
ITEM 7. FINANCIAL STATEMENT AND EXHIBITS
--------------------------------
The following exhibit is filed with this report.
Exhibit No. Description
----------- -----------
16.1 Letter regarding Change in Certifying Accountants
<PAGE> 23
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.
By:\s\ Michael A. Paolercio
-----------------------
Michael A. Paolercio
Senior Vice President and
Treasurer
<PAGE> 24
Exhibit 16.1
September 17, 1999
Mr. Alan Corn
Senior Vice President/Chief Financial Officer
Michael Anthony Jewelers, Inc.
115 South MacQuesten Parkway
Mount Vernon, New York 10550-1724
Dear Mr. Corn:
This is to confirm that the client-auditor relationship between Michael Anthony
Jewelers, Inc. (Commission File No. 015230) and Deloitte & Touche LLP has
ceased.
Yours truly,
cc: Office of the Chief Accountant
SECPS Letter File
Securities and Exchange Commission
Mail Stop 11-3
450 5th Street, N.W.
Washington, D.C. 20549
Mr. Michael W. Paolercio, Co-Chairman/Chief Executive Officer
Mr. David S. Harris, Chairman of the Audit Committee
<PAGE> 25
September 17, 1999
Securities and Exchange Commission
Mail Stop 11-3
450 5th Street, N.W.
Washington, D.C. 20549
Dear Sirs/Madams:
We have read and agree with the comments in Item 4 of Form 8-K of Michael
Anthony Jewelers, Inc. dated September 16, 1999.
Yours truly,
<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>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> JAN-31-1999
<PERIOD-END> OCT-30-1999
<CASH> 253
<SECURITIES> 0
<RECEIVABLES> 45,841
<ALLOWANCES> (1,355)
<INVENTORY> 17,143
<CURRENT-ASSETS> 64,745
<PP&E> 51,338
<DEPRECIATION> 30,581
<TOTAL-ASSETS> 86,195
<CURRENT-LIABILITIES> 29,114
<BONDS> 13,090
0
0
<COMMON> 8
<OTHER-SE> 42,752
<TOTAL-LIABILITY-AND-EQUITY> 86,195
<SALES> 104,248
<TOTAL-REVENUES> 104,248
<CGS> 79,776
<TOTAL-COSTS> 79,776
<OTHER-EXPENSES> 20,246
<LOSS-PROVISION> 249
<INTEREST-EXPENSE> 1,824
<INCOME-PRETAX> 2,153
<INCOME-TAX> 818
<INCOME-CONTINUING> 1,335
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,335
<EPS-BASIC> .20
<EPS-DILUTED> 0
</TABLE>
