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 27, 2000.
----------------
[ ] 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
------------------------- --------------
(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
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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
--- ---
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 4, 2000
----- ------------------------------
Common Stock, $.001 par value 5,294,598
<PAGE>
OROAMERICA, INC.
REPORT ON FORM 10-Q FOR THE
QUARTER ENDED October 27, 2000
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 Consolidated Financial Statements.............. 4 - 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 7 - 11
PART II - OTHER INFORMATION
Items 1. through 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K........................ 12
SIGNATURES ........................................................ 13
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
OROAMERICA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 27, January 28,
(DOLLARS IN THOUSANDS) 2000 2000
---------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,818 $ 26,923
Accounts receivable less allowance for returns
and doubtful accounts of $9,701 and $11,840 33,623 15,270
Other accounts and notes receivable 610 865
Inventories (Note 2) 15,991 15,846
Deferred income taxes 3,449 3,449
Prepaid items and other current assets 1,358 780
Assets available for sale 144 468
---------- ----------
Total current assets 65,993 63,601
Property and equipment, net 14,199 15,232
Goodwill and other intangible assets, net 4,083 4,428
Patents, net 3,831 4,198
Other assets 556 635
---------- ----------
$ 88,662 $ 88,094
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,459 $ 5,726
Income taxes payable 2,282 1,092
Accrued expenses 9,872 8,733
---------- ----------
Current and total liabilities 16,613 15,551
---------- ----------
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; 6,370,878 and 6,368,878 shares issued at October 27,
2000 and January 28, 2000, respectively 6 6
Paid-in capital 43,574 43,564
Accumulated other comprehensive loss (67) (34)
Note receivable from stock sale (190) (190)
Treasury stock, 906,480 shares and 510,830 shares at
October 27, 2000 and January 28, 2000, respectively
(Note 5) (6,561) (3,841)
Retained earnings 35,287 33,038
---------- ----------
Total stockholders' equity 72,049 72,543
---------- ----------
$ 88,662 $ 88,094
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
OROAMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
Periods Ended October 27, 2000 and October 29, 1999
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the For the
Thirteen Weeks Ended Thirty-nine Weeks Ended
October 27, October 29, October 27, October 29,
2000 1999 2000 1999
---------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
Net sales $ 48,214 $ 54,863 $ 112,322 $ 120,838
Cost of goods sold, exclusive of depreciation 38,979 44,144 91,766 99,520
---------- ------------ ------------- ----------
Gross profit 9,235 10,719 20,556 21,318
---------- ------------ ------------- ----------
Selling, general and administrative expenses 5,188 4,386 15,177 12,739
Depreciation and amortization expense 848 794 2,604 2,126
Interest expense 579 746 1,385 1,334
Other income (314) (181) (1,802) (688)
---------- ------------ ------------- ----------
Total expenses 6,301 5,745 17,364 15,511
---------- ------------ ------------- ----------
Income from continuing operations before
income taxes 2,934 4,974 3,192 5,807
Provision for income taxes 1,086 1,806 1,181 2,139
---------- ------------ ------------- ----------
Net income from continuing operations 1,848 3,168 2,011 3,668
Net income (loss) from discontinued operations 185 (463) 238 (1,164)
---------- ------------ ------------- ----------
Net income $ 2,033 $ 2,705 $ 2,249 $ 2,504
========== ============ ============= ==========
Basic net income (loss) per share:
Net income from continuing operations $ 0.33 $ 0.54 $ 0.35 $ 0.60
Net income (loss) from discontinued operations 0.04 (0.08) 0.04 (0.19)
--------- ------------ ------------- ----------
Net income per share $ 0.37 $ 0.46 $ 0.39 $ 0.41
========= ============ ============= ==========
Diluted net income (loss) per share:
Net income from continuing operations $ 0.33 $ 0.53 $ 0.35 $ 0.60
Net income (loss) from discontinued operations 0.04 (0.07) 0.04 (0.19)
--------- ------------ ------------- ----------
Net income per share $ 0.37 $ 0.46 $ 0.39 $ 0.41
========= ============ ============= ==========
Weighted average shares outstanding 5,519,731 5,896,158 5,687,642 6,079,082
Dilutive effect of stock options 34,296 30,047 33,864 29,297
---------- ------------ ------------- ----------
Weighted average shares outstanding
assuming dilution 5,554,027 5,926,205 5,721,506 6,108,379
========== ============ ============= ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
OROAMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Thirty-nine Weeks Ended
October 27, October 29,
(DOLLARS IN THOUSANDS) 2000 1999
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,249 $ 2,504
Less income (loss) from discontinued operations 238 (1,164)
------------- -------------
Net income from continuing operations 2,011 3,668
Adjustments to reconcile net income from continuing operations
to net cash provided by (used in) continuing operations:
Depreciation and amortization 2,604 2,126
Provision for losses on accounts receivable 141 99
Provision for estimated returns (2,004) (152)
(Gain) loss on sale of property (696) 20
Change in assets and liabilities:
Accounts receivable (16,073) (20,383)
Other accounts and notes receivable 150 5
Inventories (145) (3,323)
Prepaid income taxes and income taxes payable 785 611
Prepaid items and other current assets (77) (341)
Accounts payable, accrued expenses and deferred liabilities 240 3,042
------------- -------------
Net cash used in operating activities of
continuing operations (13,064) (14,628)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (952) (5,054)
Proceeds from sale of property 772 10
Purchase of available for sale securities - (270)
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Net cash used in investing activities of
continuing operations (180) (5,314)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Gross borrowings under line-of-credit agreement - 5,700
Purchase of treasury stock (2,720) (3,265)
Issuance of common stock 10 13
------------- -------------
Net cash (used in) provided by financing activities of
continuing operations (2,710) 2,448
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CASH (USED IN) PROVIDED BY DISCONTINUED OPERATIONS (151) 21
------------- -------------
DECREASE IN CASH AND CASH EQUIVALENTS (16,105) (17,473)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 26,923 30,263
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,818 $ 12,790
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
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 27, 2000 and
October 29, 1999. 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 28,
2000 audited consolidated financial statements. The results of operations for
the thirteen and thirty-nine week periods ended October 27, 2000 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.
Reclassifications
In fiscal 2000, the Company elected to reclassify certain expenses in
its Consolidated Statements of Income. As a result, net sales, cost of sales,
and selling, general and administrative expenses have been restated for all
periods presented to reflect these new classifications. The effect of this
reclassification was to decrease net sales, increase cost of sales and decrease
selling, general and administrative expenses for all periods presented. This
change in classification has no effect on previously reported net income or
earnings per share.
In January 2000, the Company decided to discontinue its cigar operating
segment. As a result, the Company's cigar operations have been classified as
discontinued operations for all periods presented.
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:
<TABLE>
<CAPTION>
For the Thirty-nine weeks ended
-----------------------------------------------
(in thousands) October 27, 2000 October 29,1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash paid during the year for:
Interest $1,308 $986
Taxes $480 $839
Non-cash investing and financing activities
Insurance claim (Note 3) $ - $1,426
</TABLE>
4
<PAGE>
NOTE 2 - INVENTORIES
Inventories consist of the following (in thousands, except per ounce
data):
<TABLE>
<CAPTION>
October 27, January 28,
2000 2000
------------- -------------
(Unaudited)
<S> <C> <C>
Gold and other raw materials $ 3,090 $ 3,264
Manufacturing costs and other 13,620 13,478
------------- -------------
Jewelry inventories 16,710 16,742
LIFO cost less than FIFO cost (39) (216)
Allowance for vendor advances (680) (680)
------------- -------------
$ 15,991 $ 15,846
============= =============
Gold price per ounce $ 263.80 $ 286.75
============= =============
</TABLE>
The Company values its jewelry inventories using the last-in,
first-out (LIFO) method.
The Company has several consignment agreements with gold consignors
providing for a maximum aggregate consignment of 365,000 fine troy ounces. In
accordance with the consignment agreements, title remains with the gold
consignors until purchased by the Company.
At October 27, 2000 and January 28, 2000, the Company held
approximately 234,700 and 227,600 fine troy ounces of gold under consignment
agreements, respectively. Consigned gold is not included in inventory and no
related liability is recorded on the Company's balance sheet. 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, as defined under the agreements. At October 27, 2000, the
Company was in compliance with all of the requirements of its consignment
agreements.
NOTE 3 -INSURANCE CLAIM
In fiscal 2000, the Company had a number of disputes with its former
Indonesian partner. In connection with this, the Company was prevented access to
its Indonesian tobacco inventories, which approximated $1.4 million at October
29, 1999. As a result, the Company filed a claim under its insurance policy for
the recovery of cost of the related inventories. The Company's insurance carrier
paid the claim in full in January 2000.
NOTE 4 - NOTES PAYABLE
The Company has a $20 million revolving credit facility with Bank of
America, N.A., which expires February 1, 2001. Available borrowings must not
exceed the lesser of $20 million 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
5
<PAGE>
reference to offshore interbank market rates plus 1.75%. No short-term advances
were outstanding at October 27, 2000 or January 28, 2000. 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 27, 2000 or January 28, 2000.
Stand-by letters of credit outstanding at October 27, 2000 and at January 28,
2000 totaled $1,000,000 and $1,000,000, 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. At October 27, 2000, the Company was in compliance with all of the
requirements of the revolving credit agreement.
NOTE 5 - 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. Since the inception
of the stock repurchase program, the Board of Directors has authorized the
Company to repurchase an additional 900,000 shares for a total of 1.2 million
shares authorized for repurchase. During the thirty-nine weeks ended October 27,
2000, the Company repurchased 395,650 shares for an aggregate price of
approximately $2.7 million. At October 27, 2000, the Company has repurchased a
total of 906,480 shares at an approximate cost of $6.6 million under the
program.
NOTE 6 - NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivatives and Hedging Activities" ("SFAS 133"), which
the Company is required to adopt 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 is currently assessing the impact SFAS 133 will have on its
consolidated financial statements.
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. 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 may 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.
7
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<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
----------------------------
Thirteen Weeks Ended Thirty-nine Weeks Ended
October 27, October 29, October 27, October 29,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 80.8 80.5 81.7 82.4
------- -------- ----------- ------------
Gross profit 19.2 19.5 18.3 17.6
------- -------- ----------- ------------
Selling, general and
administrative expenses 10.8 8.0 13.5 10.5
Depreciation and amortization 1.8 1.4 2.3 1.8
Interest expense 1.2 1.4 1.2 1.1
Other income (0.7) (0.3) (1.6) (0.6)
------- -------- ----------- ------------
Total expense 13.1 10.5 15.4 12.8
------- -------- ----------- ------------
Income before income taxes 6.1 9.0 2.9 4.8
Provision for income taxes 2.3 3.3 1.1 1.8
------- -------- ----------- ------------
Net income from continuing
operations 3.8 5.7 1.8 3.0
Net income (loss) from
discontinued operations 0.4 (0.8) 0.2 (1.0)
------- -------- ----------- ------------
Net income 4.2% 4.9% 2.0% 2.0%
======= ======== =========== ============
</TABLE>
THIRTEEN WEEKS ENDED OCTOBER 27, 2000 COMPARED TO THIRTEEN WEEKS ENDED OCTOBER
29, 1999.
Net sales for the thirteen weeks ended October 27, 2000 decreased by
$6.6 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. The Company attributes this decrease to certain major
retailers managing inventories at reduced levels.
Gross profit for the thirteen weeks ended October 27, 2000 decreased by
$1.5 million, or 13.8%, from the comparable period of the prior year. As a
percentage of net sales, gross profit was 19.2% for the current quarter compared
to 19.5% for the third quarter of fiscal 2000. Excluding the effects of LIFO
reserve adjustments on cost of goods sold, the gross margin for the
thirteen-week periods ended October 27, 2000 and October 29, 1999 would have
been 19.2% and 21.1%, respectively. The decrease on a comparable basis was due
to changes in customer and sales product mix. The gold prices used to cost
inventory at October 27, 2000, July 28, 2000, October 29, 1999, and July 30,
1999 were $263.80, $278.10, $299.10, and $255.60, respectively.
Selling, general and administrative expenses for the thirteen weeks
ended October 27, 2000 increased by $802,000, or 18.3%, from the comparable
period of the prior year. This increase is primarily attributable to increased
personnel costs of $237,000, and increased consulting and professional services
expense of $286,000. Personnel costs have risen due to increased head count from
expanded product development activities. Consulting services have increased
primarily due to expanded use of computer consultants.
Depreciation and amortization expense for the thirteen weeks ended
October 27, 2000 increased $54,000, or 6.8%, from the comparable period of the
prior year. This increase is due to additional depreciation expense from fiscal
2000 capital expenditures, which totaled approximately $6.9 million.
Interest expense for the thirteen weeks ended October 27, 2000
decreased approximately $167,000, or 22.4%, from the comparable period of the
prior year. This decrease results from reduced borrowings under the gold
consignment agreements, offset by an increase in gold forward purchase contracts
outstanding and an increase in the rates charged thereon.
8
<PAGE>
Other income for the thirteen weeks ended October 27, 2000 increased by
$133,000, or 73.5%, from the comparable period of the prior year. This increase
results from increased interest income on invested funds.
The effective tax rate in the thirteen week periods ended October 27,
2000 and October 29, 1999 was 37%.
Net income from discontinued operations for the thirteen weeks ended
October 27, 2000 was $185,000 compared to a net loss of $463,000 for the same
period of the prior year. The increase on a comparable basis was due to legal
fees incurred in connection with the Company's insurance claim related to its
Indonesian tobacco inventories which were recorded in October 1999 and which
were not repeated in the current quarter. During the quarter ended October 27,
2000, the remaining finished cigar inventories were sold.
THIRTY-NINE WEEKS ENDED OCTOBER 27, 2000 COMPARED TO THIRTY-NINE WEEKS ENDED
OCTOBER 29, 1999.
Net sales for the thirty-nine weeks ended October 27, 2000 decreased by
$8.5 million, or 7.0%, 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 certain major
retailers managing inventories at reduced levels.
Gross profit for the thirty-nine weeks ended October 27, 2000 decreased
by $762,000, or 3.6%, from the comparable period of the prior year. As a
percentage of net sales, gross profit increased from 17.6% for the thirty-nine
weeks ended October 29, 1999, to 18.3% for the current period. Excluding the
effects of LIFO reserve adjustments on cost of goods sold, the gross margin for
the thirty-nine week periods ended October 27, 2000 and October 29, 1999 would
have been 18.1% and 17.6%, respectively. The increase on a comparable basis was
due to reduced material costs. The gold prices used to cost inventory at October
27, 2000, January 28, 2000, October 29, 1999, and January 29, 1999 were $263.80,
$286.75, $299.10, and $285.40, respectively.
Selling, general and administrative expenses for the thirty-nine weeks
ended October 27, 2000 increased by $2,438,000, or 19.1%, from the comparable
period of the prior year. The increase in the amount of selling, general and
administrative expenses is primarily attributable to increased personnel costs
of $1.1 million, increased consulting and professional services expense of
$814,000, and increased selling and product expense of $326,000. Personnel costs
have risen due to expanded product development activities. Selling and product
expenses have increased due to expanded sales efforts at trade shows and
expanded magazine and catalog advertising of the Company's products, including
the new PushlockTM clasp, offset by decreased sales commissions. Consulting and
professional service expense has risen due to increased use of computer
consultants and increased legal fees related to certain ongoing litigation.
Depreciation and amortization expense for the thirty-nine weeks ended
October 27, 2000 has increased $478,000, or 22.5%, from the comparable period of
the prior year. This increase is due to additional depreciation expense from
fiscal 2000 capital expenditures, which totaled approximately $6.9 million.
Interest expense for the thirty-nine weeks ended October 27, 2000
increased approximately $51,000, or 3.8%, from the comparable period of the
prior year. This increase results from an increase in gold forward purchase
contracts outstanding and an increase in the rates charged thereon, offset by
reduced borrowings under the gold consignment agreements.
Other income for the thirty-nine weeks ended October 27, 2000 increased
by $1.1 million or 161.9%, from the comparable period of the prior year. This
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<PAGE>
increase is primarily due to the gain resulting from the sale of certain jewelry
machinery and from increased interest income on invested funds.
The effective tax rate in the thirty-nine week periods ended October
27, 2000 and October 29, 1999 was 37%.
Net income from discontinued operations for the thirty-nine weeks ended
October 27, 2000 was $238,000 compared to a net loss of $1,164,000 for the
comparable period of the prior year. The increase on a comparable basis was due
to the write-off of assets related to the Company's Beverly Hills cigar store,
which was closed in June 1999, and increased legal fees related to the Company's
insurance claim related to its Indonesian inventories. No similar write-off of
assets or legal expense took place in the current period.
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. 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 365,000 ounces at October 27, 2000 and is subject to fluctuations
based on changes in the market value of gold. At October 27, 2000, the Company
held approximately 234,700 ounces of gold on consignment.
The Company has a $20 million revolving credit facility with Bank of
America, N.A., which expires February 1, 2001. Available borrowings may not
exceed the lessor of $20 million 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 Consolidated Financial
Statements and the Company's January 28, 2000 audited Consolidated Financial
Statements.
Net accounts receivable increased from $15.3 million at January 28,
2000 to $33.6 million at October 27, 2000. 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 28,
2000 to $9.7 million at October 27, 2000. The decrease in the amount of the
allowance at October 27, 2000 is primarily attributable to seasonal adjustments
in the reserve for returns.
Inventories increased from $15.8 million at January 28, 2000 to $16.0
million at October 27, 2000. At October 27, 2000, 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 $5.7 million at January 28, 2000 to
$4.5 million at October 27, 2000. This decrease is primarily attributable to
seasonal gold purchases and the timing of payments thereon. Accrued expenses
increased from $8.7 million at January 28, 2000 to $9.9 million at October 27,
2000. This increase is primarily due to increased payroll liabilities and
increased cooperative advertising accruals.
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<PAGE>
The Company incurred capital expenditures of approximately $952,000 for
the thirty-nine weeks ended October 27, 2000, principally related to computer
equipment and facility improvements. The Company expects to incur capital
expenditures of $700,000 during the balance of fiscal 2001, principally for the
acquisition of manufacturing facilities and equipment, 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.
11
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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
12
<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 4, 2000 By: /s/ SHIU SHAO
---------------- ---------------------------
SHIU SHAO,
Director,
Chief Operating Officer,
Chief Financial Officer,
and Vice President
Date: DECEMBER 4, 2000 By: BETTY SOU
---------------- ---------------------------
BETTY SOU, Controller
13
