<PAGE> 1
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 May 2, 1997.
[ ] 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
(Registrant's 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:
<TABLE>
<CAPTION>
SHARES OUTSTANDING AS OF
CLASS June 11, 1997
----- ------------------------
<S> <C>
Common Stock, $.001 par value 6,254,378
</TABLE>
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OROAMERICA, INC.
REPORT ON FORM 10-Q FOR THE
QUARTER ENDED MAY 2, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
PART I - FINANCIAL INFORMATION
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
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OROAMERICA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, May 2,
(Dollars in thousands, except share amounts) 1997 1997
- ---------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $22,381 $19,601
Accounts receivable less allowance for returns
and doubtful accounts of $10,222 and $6,144 17,837 14,999
Other accounts and notes receivable 521 517
Inventories (Note 2) 9,411 11,053
Deferred income taxes 2,712 2,712
Prepaid income taxes -- 162
Prepaid items and other current assets 582 1,054
- ---------------------------------------------------------------------------------------------
Total current assets 53,444 50,098
Property and equipment, net 10,219 10,469
Excess of purchase price over net assets acquired, net 4,395 4,322
Patents, net 5,666 5,544
Investments in and advances to affiliates 642 642
Non-current note receivable 768 768
Other assets 127 141
- ---------------------------------------------------------------------------------------------
$75,261 $71,984
=============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 514 $ 450
Notes payable (Note 3) -- --
Accounts payable 6,094 3,609
Income taxes payable 443 522
Accrued expenses 5,730 4,866
- ---------------------------------------------------------------------------------------------
Total current liabilities 12,781 9,447
Deferred income taxes payable 285 285
Long-term debt, less current portion 2,685 2,590
- ---------------------------------------------------------------------------------------------
Total liabilities 15,751 12,322
- ---------------------------------------------------------------------------------------------
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;
6,252,378, and 6,254,378 shares issued and outstanding
at January 31, 1997 and May 2, 1997, respectively 6 6
Paid-in capital 42,970 42,979
Retained earnings 16,534 16,677
- ---------------------------------------------------------------------------------------------
Total stockholders' equity 59,510 59,662
- ---------------------------------------------------------------------------------------------
$75,261 $71,984
=============================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE> 4
OROAMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
THIRTEEN WEEKS ENDED MAY 3, 1996 AND MAY 2, 1997
(Unaudited)
<TABLE>
<CAPTION>
May 3, May 2,
(Dollars in thousands, except per share amounts) 1996 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 44,915 $ 32,650
Cost of goods sold, exclusive of depreciation 36,669 26,439
- ------------------------------------------------------------------------------
Gross profit 8,246 6,211
Selling, general and administrative expenses 6,918 5,524
- ------------------------------------------------------------------------------
Operating income 1,328 687
Interest expense 788 426
- ------------------------------------------------------------------------------
Income before income taxes 540 261
Provision for income taxes 253 118
- ------------------------------------------------------------------------------
Net income $ 287 $ 143
- ------------------------------------------------------------------------------
Net income per share (Note 1) $ .05 $ .02
- ------------------------------------------------------------------------------
Weighted average shares outstanding 6,249,415 6,258,725
==============================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 5
OROAMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Thirteen Weeks Ended
May 3, May 2,
(Dollars in thousands) 1996 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 287 $ 143
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 646 563
Provision for losses on accounts receivable 165 41
Provision for estimated returns (2,812) (4,040)
Gain on sale of fixed assets (21) --
Change in assets and liabilities:
Accounts receivable 7,340 6,687
Other accounts and notes receivable 70 4
Inventories 3,972 (1,642)
Prepaid income taxes and income taxes payable 142 (83)
Prepaid items and other current assets (312) (502)
Accounts payable, accrued expenses and deferred liabilities 2,275 (3,199)
- ---------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 11,752 (2,028)
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (533) (602)
Proceeds from sale of fixed assets 26 --
- ---------------------------------------------------------------------------------------------
Net cash used in investing activities (507) (602)
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments of long-term debt (131) (159)
Issuance of common stock -- 9
- ---------------------------------------------------------------------------------------------
Net cash used in financing activities (131) (150)
- ---------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,114 (2,780)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,310 22,381
- ---------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 23,424 $ 19,601
=============================================================================================
Supplemental disclosure of cash flow information:
Interest paid $ 722 $ 477
Income taxes paid $ 1 $ 201
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 6
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 week periods ended May 3, 1996 and May 2, 1997.
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 January 31, 1997 audited
consolidated financial statements. The results of operations for the thirteen
week period ended May 2, 1997 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 each period
presented by the weighted average number of shares outstanding during such
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):
<TABLE>
<CAPTION>
January 31, May 2,
1997 1997
------------ --------
(Unaudited)
<S> <C> <C>
Gold and other raw materials $ 2,880 $ 2,940
Manufacturing costs and other 9,041 8,911
-------- --------
Jewelry inventories 11,921 11,851
Tobacco inventories -- 1,608
Perfume inventories -- 66
-------- --------
Subtotal 11,921 13,525
LIFO cost less than FIFO cost (1,880) (1,842)
Allowance for vendor advances (630) (630)
-------- --------
$ 9,411 $ 11,053
======== ========
Gold price per ounce $ 345.50 $ 339.65
======== ========
</TABLE>
The Company values its jewelry inventories using the last-in, first-out
(LIFO) method. The Company values its tobacco and perfume inventories using the
first-in, first-out (FIFO) method.
4
<PAGE> 7
The Company has several consignment agreements with gold consignors
providing for a maximum aggregate consignment of 270,000 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 January 31, 1997 and May 2, 1997, the Company held approximately
147,500 and 147,100 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.
The gold consignors and the Company's revolving credit lender (Note 3)
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 gold consignment 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 $5.0 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 May 2, 1997,
the Company was in compliance with all of the requirements of its consignment
agreements.
NOTE 3 - 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 75% 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 January 31, 1997 or May 2, 1997. No
short-term advances were outstanding at January 31, 1997 or at May 2, 1997.
Stand-by letters of credit outstanding at January 31, 1997 and at May 2, 1997
totaled $1,583,000 and $1,500,000, respectively. The revolving credit facility
also provides for a separate $1 million reducing-revolving line of credit,
5
<PAGE> 8
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. Advances under the reducing-revolving credit facility bear
interest at the bank's prime rate plus .75%. No advances under the
reducing-revolving credit facility were outstanding at January 31, 1997 or May
2, 1997. The revolving credit agreement expires August 1, 1998.
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 May 2, 1997, the Company was in compliance with all of the
requirements of the revolving credit agreement.
6
<PAGE> 9
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. Historically, the third and fourth quarters of the Company's fiscal
year, which include the Christmas shopping season, 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. Consequently,
the results of first quarter operations are not necessarily indicative of the
Company's performance for an entire year.
Prices for the Company's jewelry products generally are determined by
reference to the current market price of gold. Consequently, the Company's sales
could be affected by increases, decreases or volatility in the price of gold.
The Company accounts for its jewelry 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.
On February 27, 1997, the Company announced its entry into the premium
cigar business. In its Form 10-K for the fiscal year ended January 31, 1997, the
Company disclosed its intent to market perfume under an exclusive license
agreement with a French manufacturer. As of May 2, 1997, no cigar or perfume
revenues have been recognized.
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.
7
<PAGE> 10
<TABLE>
<CAPTION>
As a Percentage of Net Sales
----------------------------
Thirteen Weeks Ended
May 3, May 2,
1996 1997
------- ------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 81.6 81.0
----- -----
Gross profit 18.4 19.0
Selling, general and administrative expenses 15.4 16.9
----- -----
Operating income 3.0 2.1
Interest expense 1.8 1.3
----- -----
Income before income taxes 1.2 .8
Provision for income taxes .6 .4
----- -----
Net income .6% .4%
===== =====
</TABLE>
THIRTEEN WEEKS ENDED MAY 2, 1997 COMPARED TO THIRTEEN WEEKS ENDED MAY 3, 1996
Net sales for the thirteen weeks ended May 2, 1997 decreased by $12.3
million, or 27.3%, 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 and to a decrease in sales prices due to a reduction in the average
market price of gold. The Company attributes this decrease to inventory
reductions by certain retail customers.
Gross profit for the thirteen week period ended May 2, 1997 decreased
by $2.0 million, or 24.7%, from the comparable period of the prior year. As a
percentage of net sales, gross profit increased from 18.4% for the thirteen week
period ended May 3, 1996 to 19.0% for the current period. Excluding the effects
of gold price fluctuations and LIFO reserve adjustments on the cost of goods
sold, the gross margin for the thirteen week periods ended May 2, 1997 and May
3, 1996, would have been 19.0% and 18.4% of sales, respectively. The increase
was due to changes in sales product mix. The gold prices used to cost inventory
at February 2, 1996, May 3, 1996, January 31, 1997 and May 2, 1997, were
$414.50, $394.00, $345.50 and $339.65, respectively.
Selling, general and administrative expenses for the thirteen weeks
ended May 2, 1997, decreased by $1.4 million or 20.2%, from the comparable
period of the prior year. As a percentage of net sales, these expenses increased
from 15.4% in the thirteen weeks ended May 3, 1996 to 16.9% in the thirteen
weeks ended May 2, 1997. The decrease in the dollar amount of selling, general
and administrative expenses is primarily attributable to decreased consulting,
professional and outside services of $1.0 million. Consulting, professional and
outside services have decreased primarily due to the resolution of certain
litigation in the second quarter of fiscal 1997.
Interest expense for the thirteen weeks ended May 2, 1997 decreased by
approximately $362,000, or 45.9%, from the comparable period of the prior year.
Interest expense declined due to reduced borrowings under the gold consignment
agreements.
8
<PAGE> 11
The effective tax rate in the thirteen weeks ended May 2, 1997 was
45.2% as compared to 46.9% 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 270,000 ounces at May 2, 1997 and is
subject to fluctuations based on changes in the market value of gold. As of May
2, 1997, the Company held approximately 147,100 ounces of gold on consignment.
The Company's revolving credit facility with Bank of America NT & SA
expires 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 75% 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 decreased from $17.8 million at January 31,
1997 to $15.0 million at May 2, 1997. The decrease in net accounts receivable
results primarily from seasonal fluctuations in sales. The allowance for returns
and doubtful accounts decreased from $10.2 million at January 31, 1997 to $6.1
million at May 2, 1997. The decrease in the amount of the allowance at May 2,
1997 is primarily attributable to seasonal adjustments in the reserve for
returns.
Total inventories increased from $9.4 million at January 31, 1997 to
$11.0 million at May 2, 1997. The increase is primarily attributable to the
build up of tobacco and perfume inventories of approximately $1.7 million. At
May 2, 1997, 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 decreased from $6.1 million at January 31, 1997 to
$3.6 million at May 2, 1997. This decrease is primarily attributable to seasonal
gold purchases and the timing of payments. Accrued expenses decreased from $5.7
million at January 31, 1997 to $4.9 million at May 2, 1997. This decrease
results from decreased amounts accrued for cooperative advertising, sales tax,
and legal fees, offset by increases in amounts accrued for payroll and fringe
benefits.
9
<PAGE> 12
During the thirteen weeks ended May 2, 1997, the Company has expended
approximately $2.0 million for its cigar and perfume operations, principally for
the purchase of tobacco and perfume inventories. The Company also estimates that
its working capital and capital expenditure requirements for its cigar
operations for the balance of fiscal 1998 will approximate $2.5 million. The
Company expects to incur capital expenditures related to its jewelry business of
approximately $1.2 million during the balance of fiscal 1998, 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> 13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
On February 27, 1997, OroAmerica, Inc. filed a report on Form 8-K
disclosing, under Item 5, that the Company was entering the premium cigar
business.
11
<PAGE> 14
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: June 13, 1997 By: SHIU SHAO
------------- -------------------------------
SHIU SHAO, Vice President and
Chief Financial Officer
Date: June 13, 1997 By: BETTY SOU
------------- -------------------------------
BETTY SOU, Controller
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OROAMERICA,
INC.'S CONSOLIDATED BALANCE SHEET AT MAY 2,1997 (UNAUDITED) AND CONSOLIDATED
STATEMENT OF INCOME FOR THE THIRTEEN WEEKS ENDED MAY 2, 1997 (UNAUDITED) AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1998
<PERIOD-END> MAY-02-1997
<CASH> 19,601
<SECURITIES> 0
<RECEIVABLES> 21,143
<ALLOWANCES> 6,144
<INVENTORY> 11,053
<CURRENT-ASSETS> 50,091
<PP&E> 21,353
<DEPRECIATION> 10,884
<TOTAL-ASSETS> 71,984
<CURRENT-LIABILITIES> 9,447
<BONDS> 2,590
0
0
<COMMON> 6
<OTHER-SE> 59,656
<TOTAL-LIABILITY-AND-EQUITY> 71,984
<SALES> 32,650
<TOTAL-REVENUES> 32,650
<CGS> 26,439
<TOTAL-COSTS> 26,439
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 41
<INTEREST-EXPENSE> 426
<INCOME-PRETAX> 261
<INCOME-TAX> 118
<INCOME-CONTINUING> 143
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 143
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
