<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the quarterly period ended November 1, 1996.
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from to .
Commission File Number 0-21862
OROAMERICA, INC.
------------------
(Exact name of registrant as specified in its charter)
Delaware 94-2385342
--------------------- -------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
443 North Varney Street, Burbank, California 91502
--------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(818) 848-5555
-----------------
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
SHARES OUTSTANDING AS OF
CLASS December 6, 1996
----- ------------------------------
Common Stock 6,252,378
<PAGE>
OROAMERICA, INC.
REPORT ON FORM 10-Q FOR THE
QUARTER ENDED NOVEMBER 1, 1996
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets ................................1
Consolidated Statements of Income...........................2
Consolidated Statements of Cash Flows ......................3
Notes to Condensed Consolidated Financial Statements........4 - 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................7
PART II - OTHER INFORMATION
Items 1. through 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K ............................11
SIGNATURES................................................................12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OROAMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FEBRUARY 2, NOVEMBER 1,
1996 1996
----------- -----------
<S> <C> <C>
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 12,310 $ 2,290
Accounts receivable less allowance for returns
and doubtful accounts of $9,948 and $9,081 23,567 38,968
Other accounts and notes receivable 747 589
Inventories (Note 2) 11,007 12,686
Deferred income taxes 2,384 2,384
Prepaid income taxes 142 -
Prepaid items and other current assets 925 748
----------- -----------
Total current assets 51,082 57,665
Property and equipment, net 10,937 10,394
Excess of purchase price over net assets acquired, net 4,689 4,465
Patents, net 6,155 5,788
Investments in and advances to affiliates 642 642
Non-current note receivable (Note 3) - 807
Other assets 39 126
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$ 73,544 $ 79,887
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----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 737 $ 733
Notes payable (Note 4) - -
Accounts payable 5,874 9,983
Income taxes payable - 1,110
Accrued expenses 5,449 5,889
----------- -----------
Total current liabilities 12,060 17,715
Deferred income taxes payable 383 383
Long-term debt, less current portion 3,800 3,205
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Total liabilities 16,243 21,303
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Stockholders' equity:
Preferred stock, 500,000 shares authorized,
$.001 par value; none issued and outstanding
Common stock, 10,000,000 shares authorized, $.001 par
value; 6,248,378, and 6,252,378 shares issued and outstanding
at February 2, 1996 and November 1, 1996, respectively 6 6
Paid-in capital 42,951 42,970
Retained earnings 14,344 15,608
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Total stockholders' equity 57,301 58,584
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$ 73,544 $ 79,887
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----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
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OROAMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
PERIODS ENDED OCTOBER 27, 1995 AND NOVEMBER 1, 1996
(Unaudited)
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
FOR THE FOR THE
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THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
-------------------------- ---------------------------
OCTOBER 27, NOVEMBER 1, OCTOBER 27, NOVEMBER 1,
1995 1996 1995 1996
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net sales $ 72,799 $ 55,649 $ 148,179 $ 130,311
Cost of goods sold, exclusive of
depreciation 60,957 44,900 124,339 106,260
--------- --------- --------- ---------
Gross profit 11,842 10,749 23,840 24,051
Selling, general and administrative
expenses 8,592 7,101 21,026 19,373
--------- --------- --------- ---------
Operating income 3,250 3,648 2,814 4,678
Interest expense 889 685 2,248 2,118
--------- --------- --------- ---------
Income before income taxes 2,361 2,963 566 2,560
Provision for income taxes 992 1,341 238 1,296
--------- --------- --------- ---------
Net income $ 1,369 $ 1,622 $ 328 $1,264
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per share (Note 1) $ .22 $ .26 $ .05 $ .20
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average shares outstanding 6,248,378 6,274,709 6,248,378 6,271,153
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
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OROAMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
FOR THE
-------
THIRTY-NINE WEEKS ENDED
--------------------------
OCTOBER 27, NOVEMBER 1,
1995 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $328 $1,264
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,811 1,863
Provision for losses on accounts receivable 1,143 353
Provision for estimated returns 2,400 (750)
Provision for uncollectible vendor advances 108 (228)
Gain on sale of property - (20)
Gain on sale of marketable securities (34) -
Change in assets and liabilities:
Accounts receivable (21,370) (15,004)
Other accounts and notes receivable 151 158
Inventories (2,021) (1,451)
Prepaid income taxes and income taxes payable 133 1,252
Prepaid items and other current assets (56) 40
Long-term note receivable - (807)
Accounts payable, accrued expenses and deferred liabilities 8,627 4,549
-------- --------
Net cash used in operating activities (8,780) (8,781)
-------- --------
Cash flows from investing activities:
Capital expenditures (2,753) (691)
Proceeds from sale of property - 32
Proceeds from sale of marketable securities 1,565 -
-------- --------
Net cash used in investing activities (1,188) (659)
-------- --------
Cash flows from financing activities:
Gross borrowings under line-of-credit agreement 450,900 -
Repayment of borrowings under line-of-credit (442,000) -
Borrowings under long-term debt agreements 1,210 -
Principal repayments of long-term debt (307) (599)
Issuance of Common Stock - 19
-------- --------
Net cash provided by (used in) financing activities 9,803 (580)
-------- --------
Decrease in cash and cash equivalents (165) (10,020)
Cash and cash equivalents at beginning of period 676 12,310
-------- --------
Cash and cash equivalents at end of period $511 $2,290
-------- --------
-------- --------
Supplemental disclosure of cash flow information:
Interest paid $1,934 $2,286
Income taxes paid $96 $44
Supplemental disclosure of noncash investing and financing activity:
Capital lease obligation entered into $587 $ -
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
3
<PAGE>
OROAMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements included herein include all
adjustments, all of which are of a normal recurring nature, that, in the opinion
of management, are necessary for a fair presentation of financial information
for the thirteen and thirty-nine week periods ended October 27, 1995 and
November 1, 1996. Certain information and footnote disclosures normally
included in consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted. It is
suggested that these condensed consolidated statements be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's February 2, 1996 audited consolidated financial statements. The
results of operations for the thirteen and thirty-nine week periods ended
November 1, 1996 are not necessarily indicative of the results for a full year.
NET INCOME PER SHARE
Net income per share is computed by dividing net income for all periods
presented by the weighted average number of shares outstanding during each
period, including dilutive shares issuable upon the exercise of stock options
granted, calculated using the treasury stock method.
NOTE 2 - INVENTORIES
Inventories consist of the following (in thousands, except per ounce data):
February 2, November 1,
1996 1996
----------- -----------
(Unaudited)
Gold and other raw materials $ 1,475 $ 2,691
Manufacturing costs and other 12,804 12,712
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14,279 15,403
LIFO cost less than FIFO cost (2,414) (2,087)
Allowance for vendor advances (858) (630)
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$ 11,007 $ 12,686
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Gold price per ounce $ 414.50 $ 377.60
---------- ----------
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The Company has several consignment agreements with gold consignors
providing for a maximum aggregate consignment of 315,000 fine troy ounces. In
accordance with the consignment agreements, title remains with the gold
consignors until the consigned gold is purchased by the Company.
At February 2, 1996 and November 1, 1996, the Company held approximately
181,800 and 189,400 fine troy ounces of gold under consignment agreements,
respectively. Consigned gold is not included in inventory and there is no
related liability recorded at quarter end. The purchase price per ounce is
based on the daily Second London Gold Fixing. Manufacturing costs included in
inventory represent costs incurred to process consigned and Company owned gold
into finished jewelry products.
4
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The gold consignors and the Company's revolving credit lender (Note 4) have
a security interest in substantially all the assets of the Company. The Company
pays to the gold consignors a consignment fee based on the dollar equivalent of
ounces outstanding, computed based on the Second London Gold Fixing, as defined
in the agreements. Each consignment agreement is terminable on 30 days notice
by the Company or the consignor.
The gold consignment agreements require the Company to comply with certain
covenants with respect to its working capital, current ratio and tangible net
worth and to maintain the aggregate of its accounts receivable and inventory of
gold at specified minimums. Additional provisions of the agreements (a)
prohibit the payment of dividends, (b) limit capital expenditures, (c) limit the
amount of debt the Company may incur, (d) prohibit the Company from engaging in
mergers and acquisitions, (e) require the Company to maintain and assign as
additional collateral key man life insurance on its chief executive officer in
the amount of $10.0 million, (f) prohibit termination of the chief executive
officer's employment for any reason other than death or disability and prohibit
any material amendment to his employment contract and (g) require notice if the
Company's principal stockholder (who is also its chief executive officer) ceases
to own at least 40% of the Company's outstanding common stock. At November 1,
1996, the Company was in compliance with all of the requirements of its
consignment agreements.
NOTE 3 - NON-CURRENT ACCOUNTS RECEIVABLE
In September 1996, Best Products Co., Inc., a customer owing $1,153,000, filed
for protection from creditors under Chapter 11 of the United States Bankruptcy
Code. The Company has discounted the face value of its receivable to what it
anticipates it would receive in an orderly liquidation of Best Products Co.,
Inc.'s assets. Accordingly, the Company wrote off $346,000 of the amount due
from Best Products Co., Inc. during the current quarter. Due to the early
status of the Chapter 11 proceeding, management does not expect to collect the
noncurrent receivable of $807,000 within one year.
NOTE 4 - NOTES PAYABLE
The Company has a revolving credit facility with Bank of America, NT & SA
which varies seasonally from $20.0 million to $35.0 million and may not exceed
the lesser of the credit line, as seasonally adjusted, or 80% of eligible
accounts receivable minus a reserve amount, as provided for under the credit
facility. Advances under the credit facility bear interest at the lender's
prime rate minus 0.25%, or, at the Company's option, at short-term fixed rates
or rates determined by reference to offshore interbank market rates plus 1.75%.
The revolving credit facility also provides for the issuance of banker's
acceptances, and for the issuance of letters of credit in an aggregate amount
not to exceed $2.5 million at any one time. Banker's acceptances bear an
interest rate based on the bank's prevailing discount rate at the time of
issuance plus 1.75%. No banker's acceptances were outstanding as of February 2,
1996 and November 1, 1996. No short-term advances were outstanding at February
2, 1996 and at November 1, 1996. Stand-by letters of credit outstanding at
February 2, 1996 and at November 1, 1996 totaled $700,000 and $1,183,000,
respectively. The revolving credit facility also provides for a separate $1
million reducing-revolving line of credit, whereby the amount of credit
available decreases $200,000 annually every June 30th until June 30, 1999, when
the then outstanding principal balance becomes payable in full. At February 2,
1996 and November 1, 1996, advances under the reducing-revolving credit facility
were $800,000 and $600,000, respectively, bearing interest at the Bank's prime
rate plus .75%. The advances under the reducing-revolving credit facility have
been classified as long-term at February 2, 1996 and November 1, 1996. The
revolving credit agreement has been extended to August 1, 1998.
5
<PAGE>
Amounts outstanding under the Bank of America credit agreement are secured
by substantially all of the Company's assets; the Company's gold consignors also
have security interests in these assets, and all of the consignors and Bank of
America are parties to a collateral sharing agreement. The revolving credit
agreement contains substantially the same covenants and other requirements as
are contained in the Company's gold consignment agreements (Note 2). At
November 1, 1996, the Company was in compliance with all of the requirements of
the revolving credit agreement.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read together with the
financial statements and notes thereto.
GENERAL
The Company's business, and the jewelry business in general, is highly
seasonal. The third and fourth quarters of the Company's fiscal year, which
include the Christmas shopping season, historically have accounted for
approximately 60% of the Company's annual net sales and a somewhat higher
percentage of the Company's income before taxes. While the third and fourth
quarters generally produce the strongest results, the relative strengths of the
third and fourth quarters are subject to variation from year to year based on a
number of factors, including the purchasing patterns of the Company's customers.
The seasonality of the Company's business places a significant demand on working
capital resources to provide for a buildup of inventory in the third quarter
(which is primarily satisfied by an increase in the amount of gold held under
consignment) and in turn has led to a seasonal buildup in customer receivables
in the fourth quarter that must be funded by increased borrowings.
Prices for the Company's products generally are determined by reference to
the current market price of gold. Consequently, the Company's sales could be
affected by significant increases, decreases or volatility in the price of gold.
The Company accounts for its inventories at the lower of cost or market,
using the last-in, first-out (LIFO) method to determine cost, less the allowance
for vendor advances. As a result, the Company's gross profit margin can be
affected by changes in LIFO reserves and the allowance for vendor advances, as
well as by changes in the amount of gold owned at each period end and
fluctuations in the price of gold.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items included in the consolidated
statements of income.
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
----------------------------
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
OCTOBER 27, NOVEMBER 1, OCTOBER 27, NOVEMBER 1,
1995 1996 1995 1996
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 83.7 80.7 83.9 81.5
----------- ---------- ----------- -----------
Gross profit 16.3 19.3 16.1 18.5
Selling, general and
administrative expenses 11.8 12.8 14.2 14.9
----------- ---------- ----------- -----------
Operating income 4.5 6.5 1.9 3.6
Interest expense 1.2 1.2 1.5 1.6
----------- ---------- ----------- -----------
Income before income taxes 3.3 5.3 .4 2.0
Provision for income taxes 1.4 2.4 .2 1.0
----------- ---------- ----------- -----------
Net income 1.9% 2.9% .2% 1.0%
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
7
<PAGE>
THIRTEEN WEEKS ENDED NOVEMBER 1, 1996 COMPARED TO THIRTEEN WEEKS ENDED
OCTOBER 27, 1995
Net sales for the thirteen weeks ended November 1, 1996 decreased by $17.2
million, or 23.6%, from the comparable period of the prior year. This decrease
was primarily attributable to a decrease in the amount of gold jewelry (by
weight) sold. The Company attributes this decrease to inventory reductions by
certain retail customers and to loss of a major customer, Best Products Co., due
to its bankruptcy filing.
Gross profit for the thirteen week period ended November 1, 1996
decreased by $1.1 million, or 9.2%, from the comparable period of the prior
year. As a percentage of net sales, gross profit increased from 16.3% for
the thirteen week period ended October 27, 1995 to 19.3% for the current
period. Excluding the effects of gold price fluctuations and LIFO reserve and
vendor allowance adjustments on cost of goods sold, the gross margin for the
thirteen week periods ended November 1, 1996 and October 27, 1995, would have
been 18.8% and 16.6% of sales, respectively. The increase on a comparable
basis was due to changes in sales product mix. The gold prices used to cost
inventory at November 1, 1996, August 2, 1996, October 27, 1995 and July 28,
1995 were $377.60, $386.35, $382.60 and $383.00, respectively.
Selling, general and administrative expenses for the thirteen weeks ended
November 1, 1996, decreased by $1.5 million or 17.4%, from the comparable
period of the prior year. As a percentage of net sales, these expenses
increased from 11.8% in the thirteen weeks ended October 27, 1995 to 12.8% in
the thirteen weeks ended November 1, 1996. The decrease in the dollar amount
of selling, general and administrative expenses is primarily attributable to
decreased provision for bad debts of $731,000, decreased selling and product
expenses of $892,000 and decreased personnel costs of $234,000. The provision
for bad debts has decreased due to a greater write-off of accounts receivable
in the third quarter of fiscal 1996 as compared to the current quarter.
Selling and product expenses declined due to a reduction in cooperative
advertising with certain customers. These decreases were offset by an
increase in professional, consulting and outside services of $461,000.
Professional, consulting and outside services expense increased due to a
higher utilization of temporary personnel in the Company's operations and to
an increase in legal and consulting fees resulting from merger discussions
with another jewelry manufacturer. Such merger discussions have been
terminated.
Interest expense for the thirteen weeks ended November 1, 1996 decreased by
approximately $204,000 or 22.9%, from the comparable period of the prior year.
Interest expense declined due to reduced borrowings under the line of credit
and gold consignment agreements.
The effective tax rate in the thirteen weeks ended November 1, 1996 was
45.3% as compared to 42.0% in the comparable period of the prior year.
8
<PAGE>
THIRTY-NINE WEEKS ENDED NOVEMBER 1, 1996 COMPARED TO THIRTY-NINE WEEKS ENDED
OCTOBER 27, 1995
Net sales for the thirty-nine weeks ended November 1, 1996 decreased by
$17.9 million, or 12.1%, from the comparable period of the prior year. This
decrease was primarily attributable to a decrease in the amount of gold jewelry
(by weight) sold by the Company. The Company attributes this decrease to
inventory reductions by certain retail customers and to loss of a major
customer, Best Products Co., due to its bankruptcy filing.
Gross profit for the thirty-nine week period ended November 1, 1996
increased by $211,000, or 0.9% from the comparable period of the prior year.
As a percentage of net sales, gross profit increased from 16.1% for the
thirty-nine weeks ended October 27, 1995 to 18.5% for the current period.
Excluding the effects of gold price fluctuations and LIFO reserve and vendor
allowance adjustments on cost of goods sold, the gross margin for the
thirty-nine week periods ended November 1, 1996 and October 27, 1995 would
have been 18.10% and 16.5% of sales, respectively. The increase on a
comparable basis was due to changes in sales product mix. The gold prices
used to cost inventory at November 1, 1996, February 2, 1996, October 27,
1995 and January 27, 1995 were $377.60, $414.50, $382.60 and $378.40 per
ounce, respectively.
Selling, general and administrative expenses for the thirty-nine weeks
ended November 1, 1996 decreased by $1,653,000 or 7.9% from the comparable
period of the prior year. As a percentage of net sales, these expenses
increased from 14.2% in the thirty-nine weeks ended October 27, 1995 to 14.9%
in the current period. The decrease in the amount of selling general and
administrative expenses is primarily attributable to decreased selling and
product expenses of $1.6 million, decreased provision for bad debts of
$790,000, decreased personnel costs of $571,000 and an increase in other
income of $555,000 due to the investment of excess cash. Selling and product
expenses have decreased primarily due to a reduction in cooperative
advertising with certain customers. The provision for bad debts has
decreased primarily due to a greater write-off of certain accounts receivable
in fiscal 1996 as compared to fiscal 1997. These decreases were offset by
increased consulting, professional and outside services of $2.1 million.
Consulting, professional and outside services have increased primarily due to
legal fees resulting from defending the Company against various lawsuits and
merger negotiations, and from a higher utilization of temporary personnel in
the Company's operations.
Interest expense for the thirty-nine weeks ended November 1, 1996 decreased
by approximately $130,000 or 5.8% from the comparable period of the prior year.
Interest expense declined due to reduced borrowings under the line of credit
and gold consignment agreements.
The effective tax rate in the thirty-nine weeks ended November 1, 1996 was
50.6% as compared to 42.0% in the comparable period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has satisfied its working capital requirements through
internally generated funds, a gold consignment program and borrowings under its
revolving credit facilities. A substantial portion of the Company's gold supply
needs have been satisfied through gold consignment arrangements with various
banks and bullion dealers. Under the consignment arrangements, the Company may
defer the purchase of gold used in the manufacturing process and held in
inventory until the time of sale of finished goods to customers. Financing
costs under the consignment arrangements currently are approximately 3% per
annum of the market value of the gold held under consignment, computed daily.
The gold consignment agreements contain covenants restricting the amount of
consigned gold the Company may reconsign or otherwise have outside its
possession at any one time. The aggregate amount of gold that the Company may
acquire under its consignment arrangements was approximately 315,000 ounces at
November 1, 1996 and is subject to fluctuations based on changes in the market
value of gold. At November 1, 1996, the Company held approximately 189,400
ounces of gold on consignment.
9
<PAGE>
The Company extended its revolving credit facility with Bank of America NT
& SA to August 1, 1998. The credit facility provides for borrowings which vary
seasonally from $20.0 million to $35.0 million and are limited to the lesser of
the credit line, as seasonally adjusted, or 80% of eligible accounts receivable
minus a reserve amount as provided for under the credit facility.
For further information regarding the Company's gold consignment agreements
and revolving credit facilities, see Notes to Condensed Consolidated Financial
Statements.
Net accounts receivable increased from $23.6 million at February 2, 1996 to
$39.0 million at November 1, 1996. The increase in net accounts receivable
results primarily from seasonal fluctuations in sales. The allowance for
returns and doubtful accounts decreased from $9.9 million at February 2, 1996 to
$9.1 million at November 1, 1996. The decrease in the amount of the allowance
at November 1, 1996 is primarily attributable to seasonal adjustments in the
reserve for returns. As a percentage of gross accounts receivable, the reserve
for returns has decreased from 25.4% at February 2, 1996 to 16.1% at November 1,
1996. This decrease results from reserving for returns at a rate more
indicative of current period results.
Inventories increased from $11.0 million at February 2, 1996 to $12.7
million at November 1, 1996. The increase is primarily attributable to an
increase in the amount of gold owned by the Company. At November 1, 1996, a
substantial portion of the gold included in the Company's finished goods and
work in process consisted of gold acquired pursuant to the Company's consignment
program. Consigned gold is not included in inventory.
Accounts payable increased from $5.9 million at February 2, 1996 to $10.0
million at November 1, 1996. This increase is primarily attributable to
seasonal gold purchases and the timing of payments. Accrued expenses increased
from $5.4 million at February 2, 1996 to $5.9 million at November 1, 1996. This
increase results from increased amounts accrued for payroll and selling
expense.
The Company expects to incur capital expenditures of approximately $300,000
during the balance of fiscal 1997, principally for improvement of manufacturing
facilities and the purchase of manufacturing and computer equipment. The
Company believes that funds generated from operations, the gold consignment
program and the borrowing capacity under its revolving credit facility will be
sufficient to finance its working capital and capital expenditure requirements
for at least the next 12 months.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Amendment No. Six to Sixth Amended and Restated Credit Agreement
dated November 1, 1996.
27.0 Financial Data Schedule
(b) Reports on Form 8-K:
On October 23, 1996, OroAmerica, Inc. filed a report on Form 8-K
disclosing, under Item 5, that discussions regarding a potential merger
with Michael Anthony, Inc., a jewelry manufacturer, were taking place. On
November 18, 1996, a second report was filed on Form 8-K disclosing,
under Item 5, that discussions regarding a potential merger with Michael
Anthony, Inc. were terminated.
11
<PAGE>
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.
OROAMERICA, INC.
Date: December 11, 1996 By: SHIU SHAO
----------------- ------------------------------
SHIU SHAO, Vice President and
Chief Financial Officer
Date: December 11, 1996 By: BETTY SOU
----------------- ------------------------------
BETTY SOU, Controller
12
<PAGE>
AMENDMENT NO. SIX TO SIXTH AMENDED AND RESTATED
CREDIT AGREEMENT
This Amendment No. Six (the "Amendment") dated as of November 1, 1996, is
between Bank of America National Trust and Savings Association (the "Bank") and
OroAmerica, Inc. (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Sixth Amended and
Restated Credit Agreement dated as of July 22, 1994, as amended December 2, June
30, 1995, July 28, 1995, August 30, 1995, October 6, 1995, March 15, 1996, and
August 30, 1996, (the "Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
1. DEFINITIONS. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is amended as follows:
2.1 Subparagraph (m)(1) in the definition of "Acceptable Receivable" in
paragraph 1.1 of the Agreement is amended to read in full as follows:
"(1) that, if it carries dating terms in excess of thirty (30)
days, is not paid within the sixty (60) day period starting on its due
date, provided, however, that the due date shall be no later than one
hundred fifty (150) days from the invoice date;"'
<PAGE>
2.2 The following is added as new subparagraph (m)(2) in the definition
of "Acceptable Receivable" in paragraph 1.1 of the Agreement, and
subparagraph (m)(2) and (m)(3) are re-numbered (m)(3) and (m)(4),
respectively:
"(2) that, if it does not carry dating terms in excess of thirty
(30) days, is not paid within the ninety (90) day period starting on
its invoice date;"
2.3 The definition of "Availability Period" in paragraph 1.1 of the
Agreement is hereby amended to read in full as follows:
"'Availability Period' means the period commencing on the date of
this Agreement and ending on August 1, 1998."
2.4 The words "and accounts payable" are added to subparagraph 7.5(e)(b)
of the Agreement, immediately following the word "Receivables."
2.5 The following is added to paragraph 7.5 of the Agreement as new
subparagraph 7.5(i):
"(i) At Borrower's option, either (a) within ten (10) days after
the end of each calendar month, or (b) within the period commencing on
the eleventh day after the end of each month and concluding on the
thirtieth day, a collateral certificate prepared by Borrower in form
approved by Consignor (each a "Collateral Certificate"). Collateral
Certificates submitted within the period described in subsection (a)
need not contain a calculation of Receivables that are not Acceptable,
but must contain an accounts receivable roll forward report. Such
Certificates submitted within the period described in subsection (b)
must contain a calculation by Borrower of the calculation of Acceptable
Receivables for the period ending on the date of such Certificate. If
Bank calculates the Borrowing Base, Bank will provide a borrowing base
certificate to Borrower setting forth its
<PAGE>
determination of the Borrowing Base, which certificate will be
conclusive and binding in the absence of manifest error. Acceptable
Receivables as determined by Bank will become effective upon
calculation by Bank and will remain in effect until a new calculation
is made by Bank in accordance with this Agreement. At Borrower's
option, Borrower may also submit weekly Collateral Certificates from
September 1 through December 31 of each year. All weekly Collateral
Certificates must be accompanied by updating sales and collection
journals. The amount of Receivables that are not Acceptable
Receivables will be adjusted only on a monthly basis, even if weekly
Collateral Certificates are submitted in accordance with the
foregoing."
2.6 The following is added to paragraph 7.5 of the Agreement, at the
conclusion thereof:
"All of the foregoing financial statements and reports provided to
the Bank, as well as the computations of the financial covenants
contained within paragraphs 7.10 through 7.13, inclusive, 7.16, 7.20,
7.21, and 8.10, shall be on a consolidated basis."
2.7 The following is added to the Agreement as new paragraph 8.22:
"8.22 FUTURES CONTRACTS. Enter into any forward purchase
contracts for any Precious Metal except in quantities required by
Consignee to fill fixed price orders from Consignee's customers."
2.8 Exhibits A-3, A-4, C-1, and C-2 of the Agreement are hereby amended
in their entirety to read as set forth on the copies of such Exhibits
attached hereto.
3. REPRESENTATIONS AND WARRANTIES. When the Borrower signs this Amendment,
the Borrower represents and warrants to the Bank that: (a) there is no event
which is, or with notice or lapse of time or both would be, a default under the
Agreement, (b) the representations and warranties in the Agreement are true as
of the date of this Amendment as if made on the date of this
<PAGE>
Amendment, (c) this Amendment is within the Borrower's powers, has been duly
authorized, and does not conflict with any of the Borrower's organizational
papers, and (d) this Amendment does not conflict with any law, agreement, or
obligation by which the Borrower is bound.
4. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the
terms and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of this
Amendment.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By Rick Pankow
---------------------------------
Title Vice President
------------------------------
OROAMERICA, INC.
By Colm Plunkett
---------------------------------
Title Treasurer
------------------------------
<PAGE>
EXHIBIT A-3
FOREIGN VENDORS
AFFILIATE FOREIGN VENDORS
Exportadores Bolivianos S.R.L.
Calle David Garzon #285
La Paz, Bolivia
L.A. Estilos-LinkZona Franca Industrial
San Pedro de Marcoris
Santo Domingo
Dominican Republic
Oroamerica Italia S.R.L.
Largo Parolini, No. 31
36061 Bassano Del Grappa
Vincenza
Italy
P.T. Nikijoyo/Oroindo
P.T. Nikijoyo
Jl. Cikurai #10
Malnag-Jatim
Indonesia
S.I.C.O.R.
Via Torino 7
Romano D'Ezzelino
Vincenza
Italy, 36060
Star Exports S.A. - Links
General Velarde 708
Suquillo
Lima, Peru
<PAGE>
EXHIBIT A-3
NON-AFFILIATE FOREIGN VENDORS
Adipaz Ltd. Bassano Gold Products SRL
20 Pierre Koenig St. Via Leonardo da Vinci 17
Talpiot 36066 Sandrigo
Jerusalem, Israel Italy
Alangold Creazioni Beffi Daniel Factory
Via Pavane, 7 Via Villafranca 18
36065 Mussolente 17030 Carlenda (SV)
Vicenza, Italy Italy
Allessandro Rancan Bellanda E. Boratto
Via G. Carducci, 2/4 Via G. Durando, 30
36070 Trissino (VI) 36100 Vicenza
Italy Italy
Alessi Domenico Chiangmai Chain & Jewelry
Via Dei Tulipani, 3/5 Chiangmai University
36061 Bassano Del Grappa Chiangmai 50002
Vicenza Thailand
Italy
ARPAS International Christie's Jewelers
Ahmet Kutsi Tecer Cad, Gol Edif. Abaroa Plaza Abaroa
No. 26 Merter Belisandro Salinas
Istanbul, Turkey Castilla 8585
La Paz, Bolivia
Aurex Chile LTDA
Decima Avenida 1244 Ciemmeo SRL
San Miguel Via Pavane 5
Santiago, Chile 36060 Mussolente
Vicenza, Italy
Aurindustria Del Peru S.A.
Pasaje Jorge Chavez #120 Claudio Fuccin
Urb. Miramar, San Miguel International Gold &
Lima, Peru Fine Jewelry
Piazza Garibaldi, 10-36100
Aux S.A. Vicenza
Urb. Industrial Grimaneza Italy
Calle 2 Lote 8-19 Callao
Lima, Peru
<PAGE>
EXHIBIT A-3
NON-AFFILIATE FOREIGN VENDORS
Co. Ar. Finesse
Strada E N 32 S. Urb. La Villa
Zend P.O. Box 09-0207
52040 Arezzo Chorrillos
Italy Lima, Peru
Alberto Dal Fante G.B. Catene SNC
Via Boidrin, 719 Via Edison, 14
36100 Vicenza 52100 Arezzo
Italy Italy
David Rozenvasser Ltd. Gold G.D.C.
3 Hasadna Street Via De Basserone, 51
P.O. Box 3590 52041 Badia al Pino
Petah Tikwa Arezzo, Italy
Israel 49130
Gold Masters
De Oro Strada Asolana, 93/A
De Oro S.A. 36060 Romano D'Ezzelino
Jr. Cantuarias 275 Vincenza, Italy
Miraflores
Lima, Peru Goldeks Alyin Ve Douz
Tic. A.S.
Eurosilber S.N.C. Piyerloti Cad No. 26-28
Via Umberro Giordano 6/A Cerbearlitas, Istanbul
36100 Vincenza Turkey
Italy
Goldline, SNC.
Evan S.R.L. Via Toniolo, 15/2
Via S. Antonio 2/A 52100 Arezzo
36060 Casoni Di Mussolente Italy
Vicenza
Italy Goldstar
Via Fontanelle, 1
Fasti 36100 Vicenza
Via Pollsen, 24 Italy
10016 Montalto Dora (TO)
Italy Itam
Zona Indust. Manciano, 48/E
52043 Catiglion Fiorent.
Arrezzo
Italy
<PAGE>
EXHIBIT A-3
NON-AFFILIATE FOREIGN VENDORS
L.A.C. Minero Metalugico Andina
Via Spin. 142 Minero Metalugico Andino S.A.
Romano Di Ezzelino Larraburre Y Unanue 299
Italy Of.704
Lima 11, Peru
Lacchetti
F.LLI Lacchetti Di Gianfranco Momjian
& Gianpaolo SNC The Jerusalem Jewelry Mfg. Co.
Via Dell'Industria Atarot Industrial Zone
36070 Trissino P.O. Box 19379
Vincenza 91193 Jerusalem Israel
Italy
Nardi & Falsini
Locam Loc. Castelnuovo, 208
Via Cal Baroncello, 38 52100 Subbiano
36061 Bassano Del Grappa Arezzo
Vicenza Italy
Italy
Nuovo Catena
Lucchetta Armando Via Lugana, 1
Via Travettore, 202 36065 Mussolente
36061 Bassano Del Grappa Vincenza
Vincenza Italy
Italy
Organizacion de Exportacion
Massimiliano Scuccato Arreddondo S.A.
Via S. Benedetto, 19 Calle Loayza No. 167-173
36050 Bressanvido La Paz, Boliva
Vincenza
Italy Oroisrael Jewelry Industies
45 Kibbutz Galuyot St.
Creazioni Michelangel Tel-Aviv 66550
Via Manzi, 182/A Israel
52033 Capresse, Michelangelo
Arezzo B. Quattro
Italy Via Louara, 1B
36070 Trissino
Vincenza
Italy
<PAGE>
EXHIBIT A-3
NON-AFFILIATE FOREIGN VENDORS
Rigo Fratelli Tecnigold SPA
Oreficeria F.LLI Rico Via Molini, B/A
Di Rigo G. & R. S.N.C. 31030 Bassano Del Grappa
Via Dell 'Industria, 73/B Vicenza
36070 Trissing Italy
Vincenza
Italy I. Toscanini
Via Fievan Landi, 38
Royal Chain Canada, Inc. 52100 Arezzo
451 Millway Avenue Italy
Unit #4
Concord, Ontario L4K3V6 Triade 1992
Canada 29 Contra Santa Caterina
36100 Vicenza
S.I.L.O. Italy
Via Vecchia Aretina
2/R - Castiglion Fibocchi Trulla del Ben
Italy, 52029 (AR) Via Vecchia Ferreira, 50
Vicenza
Sartori Franco SRL Italy
Via Marasca, 22
36100 Vicenza Uno-A-Erre
Italy Via Fiorentina, 550
52100 Arezzo
Sun-Ray Setting Italy
San Juan Foreign Trade Zone 61
Building 1
Bay 1-A
Road #165, Km 2.4
Pueblo Viejo, Guaynabo
Puerto Rico 00657
Tecchio Gabriella
Via Oltreagno, 6
36070 Trissino
Vincenza
Italy
<PAGE>
EXHIBIT A-4
CUSTOMER RECONSIGNMENT PROGRAMS
SECURED
Abraham & Strauss Diamond Parks Fine Jewelry
580 5th Ave. 901 W. Walnut Hill Lane
New York, NY 10036 Irving, TX 75038
Barry's
111 W. Lemon Ave.
Monrovia, CA 91016
Crescent Jewelers
Victor R. Graber Co.
315 11th St.
Oakland, CA 94607
Fedco Inc.
9300 Santa Fe Springs Road
Santa Fe Springs, CA 90670
Finlay
500 8th Ave.
New York, NY 10018
Kohl's Dept. Stores
North 54 W. 13600 Woodale Dr.
Menomonee Falls, WI 53051
Q.V.C./Beverly Hills Co.
Goshen Corporate Park
1365 Enterprise Blvd.
Westchester, PA 19380
Sears
4849 Greenville Ave., Suite 1000
Dallas, TX 75206-9998
Sterling
375 Ghent Rd.
Akron, OH 44333
Zales Corp.
901 W. Walnut Hill Lane
Irving, TX 75038
<PAGE>
EXHIBIT A-4
CUSTOMER RECONSIGNMENT PROGRAMS
UNSECURED
Elangy
Three Ethel Rd.
Edison, NJ 08818
Fred Meyer Jewelers
3800 S.E. 22nd Ave.
Portland, Oregon 97202
Friedman & Co.
4 W. State Street
Savannah, Georgia 31401
Max Club
5432 Bolsa Ave.
Huntington Beach, CA 92649
R.J. Associates
2525 South 17th St.
Wilmington, NC 28401
<PAGE>
EXHIBIT C
MONTHLY REPORTS
EXHIBIT C-1
PRECIOUS METALS BORROWING BASE REPORT
Month/Year: ______________
Gold Price: $____________ / ounce
Silver Price: $____________ / ounce
A. CONSIGNED OUNCES:
GOLD:
ABN: ____________________ oz. $____________________
Banque Paribas: ____________________ oz. $____________________
Credit Suisse: ____________________ oz. $____________________
Deutsche Bank: ____________________ oz. $____________________
Fleet: ____________________ oz. $____________________
Republic: ____________________ oz. $____________________
UBS: ____________________ oz. $____________________
UBS/Chemical: ____________________ oz. $____________________
Other: ____________________ oz. $____________________
TOTAL CONSIGNED
GOLD OUNCES: ____________________ oz. $____________________
SILVER:
ABN: ____________________ oz. $____________________
Banque Paribas: ____________________ oz. $____________________
Credit Suisse: ____________________ oz. $____________________
Deutsche Bank: ____________________ oz. $____________________
Fleet: ____________________ oz. $____________________
Republic: ____________________ oz. $____________________
UBS: ____________________ oz. $____________________
UBS/Chemical: ____________________ oz. $____________________
Other: ____________________ oz. $____________________
TOTAL CONSIGNED
SILVER OUNCES: ____________________ oz. $____________________
B. ADJUSTED ELIGIBLE A/R (AS DEFINED): $____________________
<PAGE>
C. EQUITY GOLD: ____________________ oz. $____________________
EQUITY SILVER: ____________________ oz. $____________________
Greater of:
B + C GREATER THAN OR EQUAL TO $12MM
B + C GREATER THAN OR EQUAL TO Fifteen (15%) of FMV of Consigned
Precious Metal
B + C GREATER THAN OR EQUAL TO FMV of Gold in Foreign Locations with
Affiliate Foreign Vendors and
Non-Affiliate Foreign Vendors PLUS
FMV of 1,500 oz. of Gold on Unsecured
Memorandum
GOLD IN BURBANK: ____________________ oz.
SILVER IN BURBANK: ____________________ oz.
GOLD AT OTHER U.S.
CORPORATE LOCATIONS
(Ex. A-1) ____________________ oz.
TOTAL: ____________________ oz.
GOLD AT DOMESTIC VENDORS (Ex. A-2): ____________________ oz.
GOLD AT NON-AFFILIATE FOREIGN VENDORS (Ex. A-3):
Bolivia: ____________________ oz.
Canada: ____________________ oz.
Chile: ____________________ oz.
Israel: ____________________ oz.
Italy: ____________________ oz.
Peru: ____________________ oz.
Puerto Rico: ____________________ oz.
Thailand: ____________________ oz.
Turkey: ____________________ oz.
Other: ____________________ oz.
TOTAL: ____________________ oz.
<PAGE>
GOLD AT AFFILIATE FOREIGN VENDORS (Ex. A-3):
Bolivia: ____________________ oz.
Dominican Republic: ____________________ oz.
Indonesia: ____________________ oz.
Italy: ____________________ oz.
Peru: ____________________ oz.
Other: ____________________ oz.
TOTAL: ____________________ oz.
SECURED MEMORANDUM/RECONSIGNMENT
PROGRAMS (Ex. A-4) ("SM/RPs"): ____________________ oz.
UNSECURED MEMORANDUM/RECONSIGNMENT
PROGRAMS (LESS THAN OR EQUAL TO 1,500 oz.) (Ex. A-4)
("UM/RPs"): ____________________ oz.
SM/RPs + UM/RPs
(LESS THAN OR EQUAL TO 40,000 oz.): YES/NO
SAMPLE/SALESPERSON LINES
LESS THAN OR EQUAL TO 2,700 oz. all salespersons: ____________________ oz.
LESS THAN OR EQUAL TO 150 oz. per salesperson: ____________________ oz.
VALUE ADDED/TANGIBLE NET WORTH
(LESS THAN OR EQUAL TO 15%): YES/NO
GOLD ABROAD WITH ANY ONE NON-AFFILIATE
FOREIGN VENDOR (LESS THAN OR EQUAL TO 4,000 oz.): YES/NO
AGGREGATE GOLD ABROAD WITH ALL
AFFILIATE FOREIGN VENDORS AND
NON-AFFILIATE FOREIGN VENDORS
(LESS THAN OR EQUAL TO 40,000 oz. 4/1-11/30; LESS THAN OR EQUAL TO 25,000 oz.
all other times): YES/NO
AGGREGATE OUNCES ON RECONSIGNMENT/
MEMORANDUM (LESS THAN OR EQUAL TO 30% of Consignee's
Tangible Net Worth): YES/NO
RECONSIGNMENT MEMORANDUM OUNCES TO
ANY SINGLE CUSTOMER (LESS THAN OR EQUAL TO 10% of
Consignee's Tangible Net Worth): YES/NO
<PAGE>
TOTAL PRECIOUS METAL CONSIGNED LESS THAN OR EQUAL TO 170%
(160% 2/1-7/31) Precious Metal at
Principal Office and New York YES/NO
TOTAL CONSIGNMENT OUNCE
AVAILABILITY ____________________ oz. $____________________
<PAGE>
EXHIBIT C-2
COVENANT COMPLIANCE CERTIFICATE
MONTH/YEAR: _________________________________
<TABLE>
<CAPTION>
REQUIRED ACTUAL
<S> <C> <C>
Current Ratio (perpetual test): GREATER THAN OR EQUAL TO 2:1 (1/1-9/30)
GREATER THAN 1.5:1 (10/1-12/31) ________________
Working Capital (perpetual test): GREATER THAN OR EQUAL TO $32MM ________________
Minimum Tangible Net
Worth (perpetual test): GREATER THAN OR EQUAL TO $38MM (FYE 1995)
GREATER THAN OR EQUAL TO $42MM + 75% x NOI
of previous quarter ________________
Total Liabilities (GAAP)/TNW
(perpetual test): LESS THAN OR EQUAL TO 1.25:1 ________________
Total Liabilities (including
consignments, excluding
Subordinated Indebtedness)/
TNW (perpetual test): LESS THAN OR EQUAL TO 2.75:1 (1/1-6/30);
LESS THAN OR EQUAL TO 2.95:1 (7/1-8/31)
LESS THAN OR EQUAL TO 3.25:1 (9/1-12/31) ________________
Interest Coverage
(as defined; annual test): GREATER THAN OR EQUAL TO 1.15:1 ________________
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OROAMERICA,
INC.'S CONSOLIDATED BALANCE SHEET AT NOVEMBER 1, 1996 (UNAUDITED) AND
CONSOLIDATED STATEMENT OF INCOME FOR THE THIRTY-NINE WEEKS ENDED NOVEMBER 1,
1996 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> NOV-01-1996
<CASH> 2,290
<SECURITIES> 0
<RECEIVABLES> 48,049
<ALLOWANCES> 9,081
<INVENTORY> 12,686
<CURRENT-ASSETS> 57,665
<PP&E> 20,577
<DEPRECIATION> 10,183
<TOTAL-ASSETS> 79,887
<CURRENT-LIABILITIES> 17,715
<BONDS> 3,205
0
0
<COMMON> 6
<OTHER-SE> 58,578
<TOTAL-LIABILITY-AND-EQUITY> 79,887
<SALES> 130,311
<TOTAL-REVENUES> 130,311
<CGS> 106,260
<TOTAL-COSTS> 106,260
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 353
<INTEREST-EXPENSE> 2,118
<INCOME-PRETAX> 2,560
<INCOME-TAX> 1,296
<INCOME-CONTINUING> 1,264
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,264
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
