<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 October 29, 1999.
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[ ] 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
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OROAMERICA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 94-2385342
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(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)
443 North Varney Street, Burbank, California 91502
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(Address of principal executive offices) (Zip Code)
(818) 848-5555
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(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
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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 8, 1999
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Common Stock, $.001 par value 5,858,048
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OROAMERICA, INC.
REPORT ON FORM 10-Q FOR THE
QUARTER ENDED OCTOBER 29, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets ............................................ 1
Consolidated Statements of Income ...................................... 2
Consolidated Statements of Cash Flows................................... 3
Notes to Consolidated Financial Statements ............................. 4-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................... 9-14
PART II - OTHER INFORMATION
Items 1 through 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K......................................... 15
SIGNATURES................................................................................ 16
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OROAMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
OCTOBER 29, JANUARY 29,
1999 1999
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ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,790 $ 30,263
Accounts receivable less allowance for returns
and doubtful accounts of $11,366 and $11,797 39,850 19,454
Other accounts and notes receivable 691 969
Inventories (Notes 2 and 3) 16,048 13,694
Deferred income taxes 3,205 3,205
Prepaid income taxes 730 -
Prepaid items and other current assets 898 788
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Total current assets 74,212 68,373
Property and equipment, net (Note 5) 14,335 11,342
Goodwill and other intangible assets, net 5,136 5,532
Patents, net 4,320 4,687
Other assets (Note 3) 1,865 169
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$ 99,868 $ 90,103
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 4) $ 5,700 $ -
Accounts payable 9,218 8,165
Income taxes payable 3,001 1,660
Accrued expenses 10,240 7,821
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Current and total liabilities 28,159 17,646
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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, $.001 par value;
6,368,878 and 6,366,378 shares issued at October 29, 1999
and January 29, 1999, respectively 6 6
Paid-in capital 43,564 43,551
Note receivable from stock sales (190) (190)
Treasury stock, 510,830 and 95,000 shares at October 29, 1999
and January 29, 1999, respectively (Note 6) (3,841) (576)
Retained earnings 32,170 29,666
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Total stockholders' equity 71,709 72,457
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$ 99,868 $ 90,103
============== ============
</TABLE>
See accompanying notes to consolidated financial statements.
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OROAMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
PERIODS ENDED OCTOBER 29, 1999 AND OCTOBER 30, 1998
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
FOR THE FOR THE
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
-------------------------- --------------------------
OCTOBER 29, OCTOBER 30, OCTOBER 29, OCTOBER 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 57,436 $ 54,561 $ 126,804 $ 126,470
Cost of goods sold, exclusive of depreciation 42,047 40,946 94,631 96,479
----------- ----------- ----------- -----------
Gross profit 15,389 13,615 32,173 29,991
Selling, general and administrative expenses 10,616 8,903 27,087 23,710
Other income (268) (485) (209) (1,532)
----------- ----------- ----------- -----------
Operating income 5,041 5,197 5,295 7,813
Interest expense 746 405 1,335 1,132
----------- ----------- ----------- -----------
Income before income taxes 4,295 4,792 3,960 6,681
Provision for income taxes 1,590 1,869 1,456 2,606
----------- ----------- ----------- -----------
Net income $ 2,705 $ 2,923 $ 2,504 $ 4,075
=========== =========== =========== ===========
Basic net income per share (Note 1) $ 0.46 $ 0.46 $ 0.41 $ 0.65
=========== =========== =========== ===========
Diluted net income per share (Note 1) $ 0.46 $ 0.46 $ 0.41 $ 0.64
=========== =========== =========== ===========
Weighted average shares outstanding 5,896,158 6,365,378 6,079,082 6,303,600
Dilutive effect of stock options 30,047 46,334 29,297 46,334
----------- ----------- ----------- -----------
Weighted average shares outstanding
assuming dilution 5,926,205 6,411,712 6,108,379 6,349,934
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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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
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OCTOBER 29, OCTOBER 30,
1999 1998
-------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,504 $ 4,075
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,232 1,804
Provision for losses on accounts receivable 137 170
Provision for estimated returns (152) 678
Loss (gain) on disposal of property 602 (40)
Change in assets and liabilities, net of effects from acquisition of a
business:
Accounts receivable (20,281) (21,644)
Other accounts and notes receivable 178 (3,529)
Inventories (3,780) (939)
Prepaid income taxes and income taxes payable 611 828
Prepaid items and other current assets (110) (180)
Accounts payable, accrued expenses and deferred liabilities 3,472 599
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Net cash used in operating activities (14,587) (18,178)
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Cash flows from investing activities:
Capital expenditures (5,087) (1,903)
Acquisitions, net of cash acquired - (2,241)
Purchase of an investment (270) -
Proceeds from sale of property 23 40
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Net cash used in investing activities (5,334) (4,104)
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Cash flows from financing activities:
Gross borrowings under line-of-credit agreement 5,700 400
Repayment of borrowings under line-of-credit - (400)
Principal repayments of long-term debt - (2,557)
Repurchase of treasury stock (3,265) (576)
Issuance of common stock 13 379
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Net cash provided by (used in) financing activities 2,448 (2,754)
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Decrease in cash and cash equivalents (17,473) (25,036)
Cash and cash equivalents at beginning of period 30,263 30,351
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Cash and cash equivalents at end of period $ 12,790 $ 5,315
============= ===============
</TABLE>
See accompanying notes to consolidated financial statements.
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OROAMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The 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 29, 1999 and October
30, 1998. 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
consolidated statements be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's January 29, 1999 audited
consolidated financial statements. The results of operations for the thirteen
and thirty-nine week periods ended October 29, 1999 are not necessarily
indicative of the results for a full year.
Net income per share
Basic net income per share excludes all dilution and is computed by
dividing net income by the weighted-average number of common shares outstanding.
Diluted net income per share reflects the potential dilution that would occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. Diluted net income per share includes the dilutive effect of
stock options.
Statement of Cash Flows
For the purposes of reporting cash flows, cash and cash equivalents include
amounts held at financial institutions or highly liquid investments with
original maturities of ninety days or less when purchased. The fair value of
cash and cash equivalents approximates their carrying amount.
Supplemental cash flow information and non-cash investing and financing
activities are as follows:
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<TABLE>
<CAPTION>
For the Thirty-nine Weeks Ended
-------------------------------------
(in thousands) October 29, 1999 October 30, 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Cash paid during the year for:
Interest $ 1,017 $ 1,086
Income taxes 839 1,810
Non-cash investing and financing activities
Insurance claim (Note 3) $ 1,426 $ -
Note receivable from stock sales $ - $ 190
Acquisition of a business:
Fair value of assets acquired $ - $ 2,241
Liabilities assumed - -
--------------------------------
Cash paid $ - $ 2,241
================================
</TABLE>
NOTE 2 - INVENTORIES
Inventories consist of the following (in thousands, except per ounce data):
<TABLE>
<CAPTION>
October 29, January 29,
1999 1999
----------- ------------
(Unaudited)
<S> <C> <C>
Gold and other raw materials $ 1,068 $ 2,401
Manufacturing costs and other 14,984 10,304
---------- ----------
Jewelry inventories 16,052 12,705
Tobacco inventories 1,572 2,541
Other inventories - 116
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Subtotal 17,624 15,362
LIFO cost less than FIFO cost (896) (988)
Allowance for vendor advances (680) (680)
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$ 16,048 $ 13,694
========== ==========
Gold price per ounce $ 299.10 $ 285.40
========== ==========
</TABLE>
The Company values its jewelry inventories using the last-in, first-out
(LIFO) method. The Company values its tobacco and other inventories using the
first-in, first-out (FIFO) method.
The Company has several consignment agreements with gold consignors
providing for a maximum aggregate consignment of 335,000 fine troy ounces. In
accordance with the consignment agreements, title remains with the gold
consignors until purchased by the Company.
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<PAGE> 8
At October 29, 1999 and January 29, 1999, respectively, the Company held
approximately 288,500 and 191,100 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 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) limit the repurchase of treasury stock, (e)
prohibit the Company from engaging in mergers and acquisitions without prior
approval, (f) 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, (g) 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 (h) 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 October 29,
1999, the Company was in compliance with all of the requirements of its
consignment agreements.
NOTE 3 - INSURANCE RECEIVABLE
The Company has had a number of disputes with its former Indonesian partner
as a result of which the Company has been denied access to its Indonesian
tobacco inventories, which approximate $1.4 million at October 29, 1999. The
Company has been unable to resolve these disputes and regain control of these
inventories. The Company believes that this loss of inventory is fully covered
by insurance. As a result, the Company has filed a claim under its insurance
policy for recovery of the cost of the related inventories. Since the Company
does not expect payment from its insurance carrier during the next twelve
months, this insurance claim has been classified as a long-term receivable at
October 29, 1999.
NOTE 4 - NOTES PAYABLE
The Company has a revolving credit facility with Bank of America, NT & SA,
which varies seasonally from $10.0 million to $20.0 million and expires August
1, 2000. Available borrowings may not exceed the lesser of the credit line, as
seasonally adjusted, or 80% of eligible accounts
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<PAGE> 9
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 interest at a 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 October 29, 1999 or January 29,
1999. Short-term advances outstanding at October 29, 1999 and January 29, 1999
totaled $5.7 million and $0, respectively. Stand-by letters of credit
outstanding at October 29, 1999 and at January 29, 1999 totaled $1.0 million and
1.5 million, respectively.
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 October
29, 1999, the Company was in compliance with all of the requirements of the
revolving credit agreement.
NOTE 5 - SEGMENT INFORMATION
The Company's operating structure includes two reportable operating
segments: Jewelry and Cigar. The segments were determined based upon the types
of products produced and markets served by each segment. The Jewelry segment
manufactures and distributes gold jewelry products to large retailers, including
mass merchandisers, department stores and national jewelry chains. The Cigar
segment manufactures and distributes premium cigars to medium-to-small cigar
retailers. Financial information regarding the Company's operating segments is
shown below (dollars in thousands):
<TABLE>
<CAPTION>
Thirty-nine weeks ended October 29, 1999 Jewelry Cigar Consolidated
- ----------------------------------------- --------- -------- ------------
<S> <C> <C> <C>
Net sales $ 125,450 $ 1,354 $ 126,804
Operating income (loss) 7,141 (1,846) 5,295
Interest expense 1,334 1 1,335
Depreciation and amortization expense 2,126 106 2,232
Income (loss) before taxes 5,807 (1,847) 3,960
Provision (benefit) for income taxes 2,139 (683) 1,456
Net income (loss) 3,668 (1,164) 2,504
Identifiable operating assets 96,232 3,636 99,868
</TABLE>
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<PAGE> 10
<TABLE>
<CAPTION>
Thirty-nine weeks ended October 30, 1998 Jewelry Cigar Consolidated
- ----------------------------------------- ---------- --------- ------------
<S> <C> <C> <C>
Net sales $ 125,925 $ 545 $ 126,470
Operating income (loss) 9,026 (1,213) 7,813
Interest expense 1,131 1 1,132
Depreciation and amortization expense 1,804 - 1,804
Income (loss) before taxes 7,895 (1,214) 6,681
Provision (benefit) for income taxes 3,079 (473) 2,606
Net income (loss) 4,816 (741) 4,075
Identifiable operating assets 84,384 6,097 90,481
</TABLE>
In June 1999 the Cigar segment closed it flagship Cigar store located in Beverly
Hills, California. The Company wrote off approximately $585,000 of leasehold
improvements and other property in connection with this closure.
NOTE 6 - STOCK REPURCHASE PROGRAM
In fiscal 1999, the Company's Board of Directors approved a stock
repurchase program pursuant to which the Company is authorized to purchase up to
300,000 shares of its outstanding common stock in the open market at prevailing
market prices or off the market in negotiated transactions. In June 1999, the
Company's Board of Directors authorized the repurchase of an additional 300,000
shares of the Company's common stock. During the thirty-nine weeks ended October
29, 1999, the Company repurchased 415,830 shares for an aggregate price of
approximately $3.3 million. Future repurchases of the Company's stock will
require approval from the Company's Board of Directors, gold consignors and
revolving credit lender.
NOTE 7 - NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivatives and Hedging Activities" ("SFAS 133"), which is
required to be adopted in fiscal years beginning after June 15, 2000. SFAS 133
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. Additionally, SFAS 133 defines the accounting for changes in the
fair value of the derivatives depending on the intended use of the derivative.
The impact of SFAS 133 on the Company's financial statements will depend on a
variety of factors, including, the extent of the Company's hedging activities,
the types of hedging instruments used and the effectiveness of such instruments.
The Company has not yet determined what the effect of adoption of SFAS 133 will
be on the earnings and financial position of the Company.
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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, are 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 fourth quarter
generally produces 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 build up 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 build up in customer receivables
in the fourth quarter that must be funded by increased borrowings. Consequently,
the results of third quarter operations are not necessarily indicative of the
Company's performance for an entire year.
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 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.
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.
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<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
----------------------------
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
OCTOBER 29, OCTOBER 30, OCTOBER 29, OCTOBER 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 73.2 75.0 74.6 76.3
----- ----- ----- -----
Gross profit 26.8 25.0 25.4 23.7
Selling, general and administrative expenses 18.5 16.3 21.4 18.7
Other income (0.5) (0.9) (0.2) (1.2)
----- ----- ----- -----
Operating income 8.8 9.6 4.2 6.2
Interest expense 1.3 0.8 1.1 0.9
----- ----- ----- -----
Income before income taxes 7.5 8.8 3.1 5.3
Provision for income taxes 2.8 3.4 1.1 2.1
----- ----- ----- -----
Net income 4.7% 5.4% 2.0% 3.2%
===== ===== ===== =====
</TABLE>
THIRTEEN WEEKS ENDED OCTOBER 29, 1999 COMPARED TO THIRTEEN WEEKS ENDED OCTOBER
30, 1998.
Net sales for the thirteen weeks ended October 29, 1999 increased by $2.9
million, or 5.3%, from the comparable period of the prior year. This increase
was primarily attributable to an increase in the amount of gold jewelry (by
weight) sold.
Gross profit for the thirteen weeks ended October 29, 1999 increased by
$1.8 million, or 13.0%, from the comparable period of the prior year. As a
percentage of net sales, gross profit increased from 25.0% for the thirteen
weeks ended October 30, 1998, to 26.8% for the current period. Excluding the
effects of gold price fluctuations and LIFO reserve adjustments on cost of goods
sold, the gross profit margin in the thirteen weeks ended October 29, 1999 and
October 30, 1998 would have been 28.3% and 25.5%, respectively. The increase on
a comparable basis was due to reduced internal production costs and reduced
costs for purchased finished and semi-finished products. The gold prices used to
cost inventory at October 29, 1999, July 30, 1999, October 30, 1998, and July
31, 1998 were $299.10, $255.60, $292.30, and $288.85, respectively.
Selling, general and administrative expenses for the thirteen weeks ended
October 29, 1999 increased by $1.7 million, or 19.2%, from the comparable period
of the prior year. The increase in the amount of selling, general and
administrative expenses is attributable to increased selling and
product expense of $841,000, increased personnel costs of $392,000 and increased
consulting, professional and outside service expenses of $433,000. The increase
in selling and product expenses results primarily from expanded cooperative
advertising agreements with certain customers. Personnel costs have risen due to
increased headcount. Personnel and advertising expenses have increased due to
expanded sales efforts related to existing customers and to increased product
development activities. Consulting, professional and outside service expenses
have increased due to legal expenses incurred in connection with the Company's
insurance claim related to its Indonesian tobacco inventories. Selling, general
and administrative
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<PAGE> 13
expenses for the Company's Cigar operations were $887,000 and $509,000 for the
quarters ended October 29, 1999 and October 30, 1998, respectively.
Interest expense for the thirteen weeks ended October 29, 1999 increased
approximately $341,000, or 84.2%, from the comparable period of the prior year.
Interest expense increased due to increased consignment rates and expanded
borrowings under the gold consignment agreements.
The effective tax rate in the thirteen weeks ended October 29, 1999 was
37.0% as compared to 39.0% in the comparable period of the prior year.
THIRTY-NINE WEEKS ENDED OCTOBER 29, 1999 COMPARED TO THIRTY-NINE WEEKS ENDED
OCTOBER 30, 1998.
Net sales for the thirty-nine weeks ended October 29, 1999 increased by
$334,000, or 0.26%, from the comparable period of the prior year.
Gross profit for the thirty-nine weeks ended October 29, 1999 increased by
$2.2 million, or 7.3%, from the comparable period of the prior year. As a
percentage of net sales, gross profit increased from 23.7% for the thirty-nine
weeks ended October 30, 1998, to 25.4% for the current period. Excluding the
effects of gold price fluctuations and LIFO reserve adjustments on cost of goods
sold, the gross profit margin in the thirty-nine week periods ended October 29,
1999 and October 30, 1998 would have been 25.3% and 23.4%, respectively. The
increase on a comparable basis was due to reduced internal production costs,
reduced costs for purchased finished and semi-finished products, and changes in
sales product mix. The gold prices used to cost inventory at October 29, 1999,
January 29, 1999, October 30, 1998, and January 30, 1998 were $299.10, $285.40,
$292.30, and $304.85, respectively.
Selling, general and administrative expenses for the thirty-nine weeks
ended October 29, 1999 increased by $3.4 million, or 14.2%, from the comparable
period of the prior year. The increase in the amount of selling, general and
administrative expenses is primarily attributable to increased selling and
product expense of $1.7 million, increased personnel costs of $870,000, and
increased consulting, professional and outside services expense of $413,000. The
increase in selling and product expenses results primarily from expanded
cooperative advertising agreements with certain customers. Personnel costs have
risen due to increased headcount. Personnel and advertising expenses have
increased due to expanded sales efforts related to existing customers, and to
increased product development activities. Consulting, professional and outside
service expenses have increased due to legal expenses incurred in connection
with the Company's insurance claim related to its Indonesian tobacco
inventories. Selling, general and administrative expenses for the Company's
Cigar operations were $1.9 million and $1.1 million for the thirty-nine weeks
ended October 29, 1999 and October 30, 1998, respectively.
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<PAGE> 14
Other income for the thirty-nine weeks ended October 29, 1999 decreased by
$1.3 million or 86.4% from the prior year. This decrease is primarily
attributable to the $585,000 write-off of net assets related to the Company's
Cigar store and to the absence in the current period of non-recurring
miscellaneous income.
Interest expense for the thirty-nine weeks ended October 29, 1999 increased
approximately $203,000, or 17.9%, from the comparable period of the prior year.
Interest expense increased due to increased consignment rates and expanded
borrowings under the gold consignment agreements.
The effective tax rate in the thirty-nine weeks ended October 29, 1999 was
37.0% compared to 39.0% 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 has 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 range from approximately 2% to 5% 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 335,000 ounces at October 29, 1999 and is subject
to fluctuations based on changes in the market value of gold. At October 29,
1999, the Company held approximately 288,500 ounces of gold on consignment.
The Company has a revolving credit facility with Bank of America, NT & SA,
which varies seasonally from $10.0 million to $20.0 million and expires August
1, 2000. Available borrowings 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.
For further information regarding the Company's gold consignment agreements
and revolving credit facilities, see Notes to Consolidated Financial Statements
and the Company's January 29, 1999, audited consolidated financial statements.
Net accounts receivable increased from $19.5 million at January 29, 1999 to
$39.9 million at October 29, 1999. The increase in net accounts receivable
results primarily from seasonal fluctuations in sales. The allowance for returns
and doubtful accounts decreased from $11.8 million at January 29, 1999 to $11.4
million at October 29, 1999.
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<PAGE> 15
Inventories increased from $13.7 million at January 29, 1999 to $16.0
million at October 29, 1999. This increase is primarily attributable to the
build up of jewelry inventories of approximately $3.3 million offset by the
decline in tobacco inventories of $970,000. At October 29, 1999, 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 $8.2 million at January 29, 1999 to $9.2
million at October 29, 1999. This increase is primarily attributable to seasonal
gold purchases and the timing of payments. Accrued expenses increased from $7.8
million at January 29, 1999 to $10.2 million at October 29, 1999. This increase
is primarily due to an increase in accruals for advertising, warehouse
allowances, interest and legal fees. These increases result from the related
increased expense and the timing of payments thereon.
The Company expects to incur capital expenditures of $2.0 million during
the balance of fiscal 2000, principally for the acquisition of facilities, and
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.
YEAR 2000
The Year 2000 issue is the result of computer programs having been written
using two digits, rather than four, to define the applicable year. When the
millennium date change occurs, date-sensitive systems may recognize the year
2000 as the year 1900, or not at all. This inability to recognize or properly
treat the Year 2000 may result in system failures or cause systems to process
critical financial and operational information incorrectly.
During fiscal 1999, the Company completed its assessment of the potential
impact of the Year 2000 issue on the Company's internal computerized information
systems. The Company believes that it has identified substantially all of the
major computers, software applications, and related equipment used in connection
with its internal operations that must be modified, upgraded or replaced to
become Year 2000 compliant. In fiscal 1999, the Company began upgrading its
primary business application software to the latest version, which is Year 2000
compliant. The Company completed this conversion during August 1999. The
Company's distribution and electronic data interchange software applications and
equipment are Year 2000 compliant. All remaining business applications were
upgraded or replaced by the end of the second quarter of fiscal 2000. In
addition, the Company's non-information technology systems and equipment, such
as its security and communications systems, are already Year 2000 compliant or
have been upgraded or replaced.
The total estimated cost of the Company's Year 2000 compliance is $300,000,
of which $175,000 was expended through October 29, 1999. The cost of the Year
2000 project is being
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<PAGE> 16
expensed as incurred and is not expected to have a material adverse effect on
the Company's results of operations, liquidity or capital resources. The cost of
implementing the Company's primary business software upgrade totals $2.5 million
and is not included in the Year 2000 project cost estimate. The software upgrade
was initiated to meet future business and industry requirements and the related
cost will be capitalized in accordance with generally accepted accounting
principles. The costs associated with the Company's Year 2000 compliance efforts
and software upgrade were funded with cash flows from operations.
The Company is examining its relationships with certain key customers and
suppliers to determine the extent to which the Company is vulnerable to failure
of those third parties to address their own Year 2000 issues. Year 2000
interruptions in customers' operations could result in reduced sales, increased
inventory or receivable levels and cash flow reductions. The Company does not
currently have any formal information concerning the Year 2000 compliance of its
customers but has received indications that its larger customers are working on
Year 2000 compliance. If a significant portion of the Company's customers do not
successfully and timely achieve Year 2000 compliance, the Company's business
operations could be adversely affected. Management does not believe that the
Company's relationship with any individual inventory supplier is material to the
Company's operations and therefore, does not believe that the failure of any
inventory vendor to be Year 2000 compliant would have a material adverse effect
on the Company.
The Company's Year 2000 contingency plan is being developed to assure that
key personnel including managerial, technical and support staff will be
available to identify and rectify, as promptly as possible, any disruptions
which may result from the date change on January 1, 2000 and subsequent
processing of information. Based upon its current level of preparedness,
including related contingency planning, the Company believes that it has
minimized the possibility of significant disruption to its operations. However,
there can be no guarantee that the Company will not be adversely impacted by the
failure of the computer systems, products, services or other systems, especially
third party systems, upon which the Company depends.
The discussion of the Company's efforts, and management expectations,
relating to Year 2000 compliance are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. The cost of the project
and the date by which the Company plans to complete its Year 2000 compliance
efforts are based on management's estimates, which were derived utilizing
numerous assumptions of future events, including the continued availability of
personnel trained in this area, third party modification plans, and other
factors, each of which is subject to uncertainty. There can be no guarantee that
these estimates will be achieved, and actual results could differ materially
from these estimates.
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<PAGE> 17
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:
None
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<PAGE> 18
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 8, 1999 By: SHIU SHAO
---------------- ------------------------------------
SHIU SHAO,
Director,
Chief Operating Officer,
Chief Financial Officer,
and Vice President
Date: December 8, 1999 By: BETTY SOU
---------------- ------------------------------------
BETTY SOU, Controller
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OROAMERCIA,
INC.'S CONSOLIDATED BALANCE SHEET AT OCTOBER 29, 1999 (UNAUDITED) AND
CONSOLIDATED STATEMENT OF INCOME FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 29,
1999 (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-28-2000
<PERIOD-END> OCT-29-1999
<CASH> 12,790
<SECURITIES> 0
<RECEIVABLES> 51,216
<ALLOWANCES> 11,366
<INVENTORY> 16,048
<CURRENT-ASSETS> 74,212
<PP&E> 29,213
<DEPRECIATION> 14,878
<TOTAL-ASSETS> 99,868
<CURRENT-LIABILITIES> 28,159
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 71,703
<TOTAL-LIABILITY-AND-EQUITY> 99,868
<SALES> 126,804
<TOTAL-REVENUES> 126,804
<CGS> 94,631
<TOTAL-COSTS> 94,631
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 137
<INTEREST-EXPENSE> 1,335
<INCOME-PRETAX> 3,960
<INCOME-TAX> 1,456
<INCOME-CONTINUING> 2,504
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,504
<EPS-BASIC> 0.41
<EPS-DILUTED> 0.41
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