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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-457
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BULOVA CORPORATION
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(Exact name of registrant as specified in its charter)
New York 11-1719409
- - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
ONE BULOVA AVENUE, WOODSIDE, N.Y. 11377-7874
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(Address of principal executive offices) (Zip Code)
(718) 204-3300
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
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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Class Outstanding at August 5, 1994
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Common stock, $5 par value 4,599,249 shares
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Page 1
INDEX
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets-
June 30, 1994 and December 31, 1993 ...................... 3
Consolidated Condensed Statements of Operations-
Three and six months ended June 30, 1994 and 1993 ........ 4
Consolidated Condensed Statements of Cash Flows-
Six months ended June 30, 1994 and 1993 .................. 5
Notes to Consolidated Condensed Financial Statements ....... 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 8 - 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K ..................... 11
Page 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
- - ----------------------------
<TABLE>
Bulova Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(Amounts in thousands)
<CAPTION>
June 30, December 31,
1994 1993
--------------------------
<S> <C> <C>
Assets
------
Current assets:
Cash ......................................................... $ 1,851 $ 5,880
Accounts and notes receivable-net ............................ 45,470 54,674
Inventories .................................................. 53,450 52,109
Prepaid expenses ............................................. 965 1,131
Deferred income taxes ........................................ 10,105 10,616
--------------------------
Total current assets ...................................... 111,841 124,410
--------------------------
Property, plant and equipment-net .............................. 21,114 21,467
--------------------------
Other assets:
Deferred income taxes ........................................ 16,528 16,171
Other ........................................................ 396 393
--------------------------
Total other assets ........................................ 16,924 16,564
--------------------------
Total assets .............................................. $149,879 $ 162,441
==========================
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt ....................... $ 868 $ 1,016
Accounts payable ............................................. 6,820 8,517
Accrued expenses ............................................. 15,624 18,361
Accrued federal and foreign income taxes ..................... 367 1,736
--------------------------
Total current liabilities ................................. 23,679 29,630
--------------------------
Long-term debt, less current installments ...................... 2,862 3,266
--------------------------
Other liabilities and credits:
Postretirement benefits payable .............................. 44,801 43,135
Pension benefits payable ..................................... 3,105 3,348
Other ........................................................ 2,800 2,961
--------------------------
Total other liabilities and credits ....................... 50,706 49,444
--------------------------
Debt to affiliate .............................................. 9,000 16,000
--------------------------
Shareholders' equity:
Common stock ................................................. 22,999 22,999
Additional paid-in capital ................................... 23,197 23,197
Retained earnings ............................................ 17,286 17,311
Cumulative translation adjustment ............................ 155 599
--------------------------
Total ..................................................... 63,637 64,106
Less treasury stock, at cost ................................. 5 5
--------------------------
Total shareholders' equity ................................ 63,632 64,101
--------------------------
Total liabilities and shareholders' equity ................ $149,879 $ 162,441
==========================
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
Page 3
<TABLE>
Bulova Corporation and Subsidiaries
Consolidated Condensed Statements of Operations
(Amounts in thousands, except per share data)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Net Sales:
Consumer products ....................... $19,969 $18,479 $39,705 $40,982
Industrial and defense products ......... 14,520 9,834 26,040 21,137
Interest, royalties and other ............. 1,027 1,000 2,361 2,141
------------------------------------------
Total revenues ......................... 35,516 29,313 68,106 64,260
------------------------------------------
Expenses:
Cost of sales ............................. 24,882 21,493 47,652 44,951
Selling, general and administrative ....... 10,164 10,105 19,799 20,680
Interest:
Affiliates .............................. 249 513 576 1,085
Others .................................. 70 101 148 206
------------------------------------------
Total expenses ......................... 35,365 32,212 68,175 66,922
------------------------------------------
Income (loss) from operations ............... 151 (2,899) (69) (2,662)
Gain from asset dispositions ................ 16 2,936 33 2,936
------------------------------------------
Income (loss) before income (taxes) benefit . 167 37 (36) 274
Income (taxes) benefit ...................... (71) (15) 11 (110)
------------------------------------------
Net income (loss) ........................... $ 96 $ 22 $ (25) $ 164
==========================================
Net income (loss) per share ................. $ .02 $ .01 $ (.01) $ .04
==========================================
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
Page 4
<TABLE>
Bulova Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Amounts in thousands)
<CAPTION>
Six Months Ended
June 30,
1994 1993
------------------------
<S> <C> <C>
Operating Activities:
Net (loss) income ........................................... $ (25) $ 164
Adjustments to reconcile net (loss) income to net
cash provided by operating activities ...................... 2,390 (486)
Changes in assets and liabilities-net:
Receivables ................................................ 7,923 9,563
Inventories ................................................ (1,341) (3,536)
Prepaid expenses ........................................... 166 739
Other assets ............................................... (3) 261
Accounts payable and accrued expenses ...................... (4,434) (3,437)
Accrued federal and foreign income taxes ................... (1,369) (3,336)
Other liabilities and credits .............................. 818 568
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4,125 500
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Investing Activities:
Purchases of property, plant and equipment .................. (602) (481)
Proceeds from asset dispositions ............................ 4,650
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(602) 4,169
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Financing Activities:
Principal payments on debt to affiliate ..................... (11,000) (16,000)
Proceeds from debt to affiliate ............................. 4,000 10,000
Principal payments on long-term debt ........................ (3,618)
Issuance of long-term debt .................................. 3,066 (523)
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(7,552) (6,523)
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Net change in cash ............................................ (4,029) (1,854)
Cash, beginning of period ..................................... 5,880 6,287
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Cash, end of period ........................................... $ 1,851 $ 4,433
========================
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
Page 5
Bulova Corporation and Subsidiaries
Notes to Consolidated Condensed Financial Statements
1. See Notes to Consolidated Financial Statements in the Annual Report on
Form 10-K for the year ended December 31, 1993 filed with the Securities
and Exchange Commission on March 30, 1994.
2. There have been no changes in significant accounting policies since
December 31, 1993. In addition, certain amounts applicable to prior periods
have been reclassified to conform to classifications followed
in 1994.
3. Income taxes for the three and six months ended June 30, 1994 and 1993
include federal (benefits) tax received by the Company of $(164,000),
$591,000, $(116,000) and $900,000, respectively, related to the tax
allocation agreement between the Company and its parent, Loews Corporation
("Loews").
See Note 6 of the Notes to Consolidated Financial Statements in the Annual
Report on Form 10-K for the year ended December 31, 1993.
4. Loews provided administrative and managerial services for which the Company
was charged $300,000, $250,000, $600,000 and $500,000 for the three and six
months ended June 30, 1994 and 1993, respectively. This expense is included
in selling, general and administrative expenses. The cost allocated to the
Company is estimated to be the incremental cost incurred by Loews in
providing these services to the Company. If the Company incurred these
costs on a stand-alone basis, it believes the costs incurred could
aggregate between $300,000 and $425,000 for the three months ended June 30,
1994 and $600,000 and $850,000 for the six months ended June 30, 1994, as
compared to $250,000 and $375,000, and $500,000 and $750,000 for the
corresponding periods of the prior year.
5. Net income (loss) per share has been computed on the basis of 4,599,000
weighted average number of shares outstanding for the three and six months
ended June 30, 1994 and 1993.
6. The Company's inventories, in thousands of dollars, are comprised of the
following:
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
----------------------
<S> <C> <C>
Watch materials, including finished parts ..... $35,616 $37,630
Industrial and defense materials (net of
progress payments of $7,799 and $9,373) ...... 14,119 11,831
Jewelry ....................................... 621 420
Precious metals................................ 448 311
Other ......................................... 2,646 1,917
----------------------
Total ........................................ $53,450 $52,109
======================
</TABLE>
Page 6
7. Bulova Technologies, Inc., a wholly owned subsidiary of the Company,
settled defense contract claims with the U.S. government. These settlements
increased revenues and pre-tax income by approximately $125,000 and
$408,000 for the three and six months ended June 30, 1994, respectively, as
compared to $1,600,000 in each of the comparable periods of the prior year.
8. As discussed in Note 5 in the Notes to Consolidated Financial Statements in
the Annual Report on Form 10-K for the year ended December 31, 1993, during
the second quarter of 1993 the sale of the Company's Valley Stream, New
York property was consummated. This transaction resulted in a pre-tax and
after-tax gain of approximately $2,907,000 and $1,890,000, respectively.
9. On July 7, 1994 the Company became aware of an environmental contaminate
which was discovered in the ground water of its former defense
manufacturing facility. Testing and evaluation of this site is in its
preliminary stages. Based upon the information available, during the second
quarter of 1994 the Company accrued $250,000 to provide for the minimum
level of clean-up expense estimated to be required. Additional testing and
further evaluation is required before a definitive cost of ultimate clean-
up can be determined. Therefore, the liability accrued by the Company in
the second quarter may require future revisions. The environmental
liability recognized in the Company's financial statements to date of
$1,850,000 represents the minimum of the Company's estimated range of
equally likely outcomes; the upper limit of that range is approximately
$2,350,000.
10. During the second quarter of 1994, the Company adjusted the gross margin
related to certain defense contracts which increased income before taxes
for the three and six months ended June 30, 1994 by $1,620,000. Of this
adjustment, $1,200,000 related to contracts awarded in 1993 but not
substantially completed until the second quarter of 1994. These contracts
required the production and delivery of products with which the Company had
limited experience. During the second quarter, the Company recognized that
its production efficiencies were better than originally estimated and
adjusted its gross margin accordingly. The remaining adjustment resulted
from the award of additional foreign contracts which had the effect of
lowering unit production costs.
11. As discussed in Note 2 in the Notes to Consolidated Financial Statements in
the Annual Report on Form 10-K for the year ended December 31, 1993, during
the second quarter of 1993 the Company's industrial and defense segment
accrued an additional reserve of $500,000 in relation to a claim of an
allegedly defective product delivered prior to 1992. As of December 31,
1993, the Company had satisfied all outstanding obligations related to this
claim.
12. In the opinion of Management, the accompanying consolidated condensed
financial statements reflect all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as
of June 30, 1994 and December 31, 1993 and the results of operations for
the three and six months and the changes in cash flows for the six months
ended June 30, 1994 and 1993, respectively.
Results of operations for the second quarter and first six months of each
of the years is not necessarily indicative of results of operations for
that entire year.
Page 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
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Liquidity and Capital Resources:
Cash Flow
The Company continues to be adversely impacted by difficult business
conditions in its two lines of business: consumer products and industrial and
defense products. Competition and oversupply of watch and clock products
continues to negatively affect the Company's consumer products segment. The
Company's industrial and defense products segment continues to be negatively
impacted by a reduction in U.S. government defense spending. The Company's
efforts to obtain commercial contracts to replace defense contracts remain in
the developmental stage and are not expected to contribute significantly in
1994.
For a number of years the Company has relied on Loews Corporation ("Loews"),
which owns approximately 97% of the Company's common stock, to meet working
capital needs which the Company has not been able to meet through internally
generated funds. Currently, these needs are met through a credit agreement with
Loews (the "Credit Agreement") which provides for unsecured loans, from time to
time, in amounts aggregating up to $50,000,000. The Credit Agreement initially
expired in 1980, but that expiration date has been periodically extended by the
Company and Loews. The Credit Agreement currently expires June 30, 1996.
At June 30, 1994 loans aggregating $9,000,000 were outstanding under the
Credit Agreement, compared to $16,000,000 at December 31, 1993. At July 31,
1994, the outstanding balance was $17,000,000.
The reduction in borrowing during the first six months of 1994 is primarily
due to collection of accounts receivable, partially offset by an increase of
inventory purchases and a reduction of accounts payable and accrued expenses.
See detail discussion below on cash flow from operations. The increase in
borrowing since June 1994 represents increased inventory purchases to prepare
for the holiday selling season.
Despite the reduction in borrowing from Loews in 1994, it is likely that the
Company from time to time will require additional borrowings from Loews to meet
its working capital needs, including normal inventory purchases. While Loews has
no obligation to enter into or maintain arrangements for any further borrowings,
the Company anticipates that its additional working capital needs will be
provided by Loews under the Credit Agreement.
Cash Flow From Operations
The Company generated net cash flow from operations of $4,125,000 for the six
months ended June 30, 1994, compared to $500,000 for the corresponding period of
the prior year.
The increase in cash flows is due to the reduction in inventory of $9,408,000
resulting from management's efforts to maintain effective controls over
inventory purchasing, which was partially offset by a reduction in accounts
payable and accrued expenses from period to period of $3,794,000 resulting from
the timing of these transactions.
Page 8
Cash Flow From Investing Activities
Investing activities for the six months ended June 30, 1993 included net
proceeds from the sales of the Company's former defense facility of $4,650,000.
For the corresponding period in 1994 the Company did not receive any proceeds
from the disposal of assets. The Company does not anticipate any material
capital expenditures in 1994.
Cash Flow from Financing Activities
During the first quarter of 1994 the Company's industrial and defense segment
refinanced its existing industrial development revenue bonds with a bank
mortgage note. See Notes 4 and 12 to Consolidated Financial Statements of the
Annual Report on Form 10-K for the year ended December 31, 1993.
Results of Operations:
For the three and six months ended June 30, 1994 revenues increased by
$6,203,000, or 21.2%, and $3,846,000, or 6.0%, respectively, and income before
income taxes increased by $130,000 and decreased by $310,000, as compared to the
corresponding periods of the prior year.
Consumer Products
For the three and six months ended June 30, 1994, watch, clock and jewelry
revenue increased by $1,490,000, or 8.1%, and decreased by $1,277,000, or 3.1%,
respectively, and income before income taxes decreased by $1,635,000 and
$1,421,000, respectively, as compared to the corresponding periods of the prior
year. The primary reason for the decrease in income before income taxes is the
$2,907,000 gain from disposal of the segment's former defense manufacturing
facility which was recognized in the second quarter of 1993.
For the quarter ended June 30, 1994 revenues increased due to an increase in
unit sales, partially offset by a lower average unit selling price representing
approximately $601,000, or 3.3%. For the six months ended June 30, 1994 the
revenue decrease is due to a decrease in unit sales combined by with a decrease
in average unit selling price representing approximately $330,000 or .8%.
The segment's sales volume increase of 11.3% as compared to the quarter ended
June 30, 1993 is due primarily to shipments made during the second quarter which
were related to a temporary shipment backlog of approximately $2,000,000 as
reported in the March 31, 1994 quarterly report. This temporary backlog was
caused by the implementation of a new inventory system. For the six months ended
June 30, 1994, the segment's sales volume decreased 2.3% compared to the
corresponding period of the prior year. The primary reason for this decrease is
a sales volume decline of 12.8% associated with the Company's Canadian
operations.
Cost of sales as a percentage of sales decreased 2.0% compared to the quarter
and six months ended June 30, 1993. The primary reason for the decrease is a
change in the product sales mix and effective procurement practices implemented
by the Company. Selling, general and administrative costs as a percentage of
sales decreased 1.0% as compared to the six months ended June 30, 1993. The
reduction of costs has resulted from management's efforts to control
discretionary costs.
The Company recognized $669,000, $1,144,000, $1,705,000 and $2,298,000 in
royalty income for the three and six months ended June 30, 1994 and 1993,
respectively. These amounts include $159,000, $653,000, $628,000 and $1,382,000
of proceeds under the "Benetton By Bulova" license agreement for the three and
Page 9
six months ended June 30, 1994 and 1993, respectively. The license agreement
with Benetton expired June 30, 1994. However, proceeds will continue to be
received by the Company up until the end of fiscal 1994. The impact of losing
the Benetton agreement will directly impact this segment's revenues, income and
cash flow.
The Company imports most of its watch and clock products. Foreign currency
fluctuations therefore can have a material impact on the Company's operations.
Approximately 25% of the Company's purchases are denominated in Japanese yen.
As a result of hedging practices adopted by the Company, foreign currency
fluctuations have not had a material impact on the results of operations for the
three and six months ended June 30, 1994 and 1993. Future fluctuations however,
could negatively impact gross profit, income and cash flow.
Industrial and Defense Products
Industrial and defense revenues increased by $4,686,000, or 47.7%, and
$4,903,000, or 23.2%, for the three and six months ended June 30, 1994,
respectively. Net sales and income before taxes include $125,000 and $408,000 of
revenues from favorable settlement of contract claims with the U.S. government
for the three and six months ended June 30, 1994, as compared to $1,600,000 in
each of the comparable periods of the prior year. These claims represent payment
for work performed in earlier years which had not been billed or paid. As of
June 30, 1994, the Company estimated that there are approximately $4,000,000 of
settlement claims outstanding with defense prime contractors. The Company,
however, is unable to predict the outcome of these claims.
Before giving effect to the claim settlements discussed above, net sales for
the three and six months ended June 30, 1994 increased $6,161,000 and
$6,095,000, respectively, compared to the corresponding periods of the prior
year. The primary reason for the increased sales is the shipment of goods
produced under contracts from prior years for which the U.S. government delayed
shipment, in the amount of $5,200,000. In addition, there was as an increase of
$1,500,000 in commercial contract sales. However, the Company continues to
expect that 1994 sales will not improve significantly over the prior year
primarily due to the decline of U.S. government defense spending. For the six
months ended June 30, 1994 and 1993, commercial business represented 19% and
16%, respectively, of this segment's sales. Commercial business carries a lower
profit margin than defense business. As a result, the commercial business is not
expected to replace the lost margins associated with the decline in defense
sales.
Income before taxes, exclusive of the claim settlements, increased by
$2,957,000 and $2,303,000 as compared to the three and six months ended June 30,
1993, respectively.
This increase is due primarily to the increased revenues described above, as
well as an adjustment to gross margin related to certain defense contracts,
during the second quarter of 1994, which increased income before taxes for the
three and six months ended June 30, 1994 by $1,620,000. Of this adjustment,
$1,200,000 related to contracts awarded in 1993 but not substantially completed
until the second quarter of 1994. These contracts required the production and
delivery of products with which the Company had limited experience. During the
second quarter, the Company recognized that its production efficiencies were
better than originally estimated and adjusted its gross margin accordingly. The
remaining adjustment resulted from the award of additional foreign contracts
which had the effect of lowering unit production costs.
In addition, during the second quarter of 1993, earnings were reduced by a
reserve of $500,000 in settlement of a claim by a customer for an allegedly
Page 10
defective product. As of December 31, 1993, the Company has satisfied all of its
obligations related to this issue.
The Company expects that competition for both defense and commercial business
will remain intense. It is likely therefore that contract pricing will be
reduced, influencing profit margins, income and cash flow.
Corporate
Related Parties - The charge for administrative and managerial services
provided by Loews increased by $50,000 and $100,000 for the three and six months
ended June 30, 1994, respectively, as compared to the corresponding periods of
the prior year. See Note 4 to Consolidated Condensed Financial Statements.
Interest Expense and Income - For the three and six months ended June 30, 1994
interest expense decreased by $295,000 and $567,000, respectively, due primarily
to the $7,000,000 decrease in borrowings from Loews under the Credit Agreement.
Interest and other income was higher for the six months ended June 30, 1994 as
compared to the corresponding period of the prior year primarily resulting from
custom refunds received.
Contingencies - On July 7, 1994 the Company became aware of an environmental
contaminate which was discovered in the groundwater of its former defense
manufacturing facility. Testing and evaluation of this site is in its
preliminary stages. Based upon the information available, during the second
quarter of 1994 the Company accrued $250,000 to provide for the minimum level of
clean-up expense estimated to be required. Additional testing and further
evaluation is required before a definitive cost of ultimate clean up can be
determined. The liability accrued by the Company in the second quarter may
therefore require revisions in the future. The environmental liability
recognized in the Company's financial statements to date of $1,850,000 is the
minimum of the Company's estimate range of equally likely outcomes, the upper
limit of that range is approximately $2,350,000.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- - ----------------------------------------
(a) Exhibits -- None.
(b) Current reports on Form 8-K -- There were no reports on Form 8-K filed for
the three months ended June 30, 1994.
Page 11
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.
BULOVA CORPORATION
-------------------
(Registrant)
Dated: August 15, 1994 By: Paul S. Sayegh
----------------------
PAUL S. SAYEGH
Chief Operating
Officer (Duly
authorized officer and
principal financial
officer)
Page 12
