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 March 31, 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
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(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 May 6, 1994
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Common Stock, $5 par value 4,599,249 shares
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<PAGE>
INDEX
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets-
March 31, 1994 and December 31, 1993 . . . . . . 3
Consolidated Condensed Statements of Operations-
Three months ended March 31, 1994 and 1993 . . . 4
Consolidated Condensed Statements of Cash Flows-
Three months ended March 31, 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
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
- - -----------------------------
<TABLE>
Bulova Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(Amounts in thousands)
<CAPTION>
March 31, December 31,
1994 1993
--------------------------
<S> <C> <C>
Assets
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Current assets:
Cash ..................................... $ 4,591 $ 5,880
Accounts and notes receivable-net ........ 46,977 54,674
Inventories .............................. 50,267 52,109
Prepaid expenses ......................... 1,041 1,131
Deferred income taxes .................... 10,704 10,616
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Total current assets ................... 113,580 124,410
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Property, plant and equipment-net .......... 21,115 21,467
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Other assets:
Deferred income taxes .................... 16,248 16,171
Other .................................... 395 393
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Total other assets ..................... 16,643 16,564
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Total assets ........................... $151,338 $162,441
=======================
Liabilities and Shareholders' Equity
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Current liabilities:
Current installments of long-term debt ... $ 966 $ 1,016
Accounts payable ......................... 7,349 8,517
Accrued expenses ......................... 15,843 18,361
Accrued federal and foreign income taxes . 525 1,736
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Total current liabilities .............. 24,683 29,630
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Long-term debt, less current installments .. 3,146 3,266
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Other liabilities and credits:
Postretirement benefits payable .......... 43,946 43,135
Pension benefits payable ................. 3,246 3,348
Other .................................... 2,793 2,961
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Total other liabilities and credits .... 49,985 49,444
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Debt to affiliate .......................... 10,000 16,000
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Shareholders' equity:
Common stock ............................. 22,999 22,999
Additional paid-in capital ............... 23,197 23,197
Retained earnings ........................ 17,190 17,311
Cumulative translation adjustment ........ 143 599
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Total .................................. 63,529 64,106
Less treasury stock, at cost ............. 5 5
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Total shareholders' equity ............. 63,524 64,101
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Total liabilities and shareholders'
equity ................................ $151,338 $162,441
=======================
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
3
<PAGE>
<TABLE>
Bulova Corporation and Subsidiaries
Consolidated Condensed Statements of Operations
(Amounts in thousands, except per share data)
<CAPTION>
Three Months Ended
March 31,
1994 1993
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<S> <C> <C>
Revenues:
Net Sales:
Consumer products ....................... $19,736 $22,503
Industrial and defense products ......... 11,520 11,303
Interest, royalties and other ............. 1,351 1,141
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Total revenues ........................ 32,607 34,947
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Expenses:
Cost of sales ............................. 22,770 23,458
Selling, general and administrative ....... 9,635 10,575
Interest:
Affiliates .............................. 327 572
Others .................................. 78 105
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Total expenses ........................ 32,810 34,710
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(Loss) income before income (taxes) benefits (203) 237
Income (taxes) benefits ..................... 82 (95)
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Net (loss) income ........................... $ (121) $ 142
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Net (loss) income per share ................. $(.03) $.03
=================
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
4
<PAGE>
<TABLE>
Bulova Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Amounts in thousands)
<CAPTION>
Three Months Ended
March 31,
1994 1993
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<S> <C> <C>
Operating Activities:
Net (loss) income ......................... $ (121) $ 142
Adjustments to reconcile net (loss) income
to cash provided by operating activities 776 602
Changes in assets and liabilities-net:
Receivables .............................. 7,210 7,232
Inventories .............................. 1,842 1,303
Prepaid expenses ......................... 90 664
Other assets ............................. (2) 186
Accounts payable and accrued expenses .... (3,686) (282)
Accrued federal and foreign income taxes . (1,211) (2,171)
Other liabilities and credits ............ 85 (129)
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4,983 7,547
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Investing Activities:
Purchases of property, plant and equipment . (102) (186)
Proceeds from real estate deposits ......... 757
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(102) 571
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Financing Activities:
Principal payments on debt to affiliate .... (7,000) (13,000)
Proceeds from debt to affiliate ............ 1,000
Principal payments on long-term debt ....... (3,236) (161)
Issuance of long-term debt ................. 3,066
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(6,170) (13,161)
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Net change in cash .......................... (1,289) (5,043)
Cash, beginning of period ................... 5,880 6,287
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Cash, end of period ......................... $ 4,591 $1,244
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See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
5
<PAGE>
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 months ended March 31, 1994 and
1993 include federal tax benefits received by the Company of
$48,000 and $263,000 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 and $250,000 for the
three months ended March 31, 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 March 31, 1994, as compared to
$250,000 and $375,000 for the prior year's quarter.
5. Net (loss) income per share has been computed on the basis of
4,599,000 weighted average number of shares outstanding for
the three months ended March 31, 1994 and 1993.
6. The Company's inventories, in thousands of dollars, are
comprised of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
-------------------------
<S> <C> <C>
Watch materials, including finished parts .... $34,455 $37,630
Industrial and defense materials (net of
progress payments of $8,752 and $9,373) ..... 12,619 11,831
Jewelry ...................................... 546 420
Precious metals .............................. 438 311
Other ........................................ 2,209 1,917
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Total ................................ $50,267 $52,109
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</TABLE>
6
<PAGE>
7. Bulova Technologies, Inc., a wholly-owned subsidiary of the
Company, settled a defense contract claim with the U.S.
Government. This settlement increased revenues and reduced
pre-tax losses by approximately $283,000 for the three months
ended March 31, 1994. There were no settlement claims for the
period ended March 31, 1993.
8. In the opinion of the Company, the accompanying consolidated
condensed financial statements reflect all adjustments
(consisting of only normal recurring accruals) necessary to
present fairly the financial position as of March 31, 1994
and December 31, 1993 and the results of operations and
changes in cash flows for the three months ended March 31,
1994 and 1993, respectively.
Results of operations during the first quarter of each of the
years is not necessarily indicative of results of operations
for that entire year.
7
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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 adversely
affect the Company's consumer products segment. The Company's
industrial and defense products segment continues to be adversely
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
the expiration date has been periodically extended by the Company
and Loews. The Credit Agreement currently expires June 30, 1995.
At March 31, 1994 loans aggregating $10,000,000 were
outstanding under the Credit Agreement, compared to $16,000,000
at December 31, 1993.
The reduction in borrowing during the first three months of
1994 was due to a reduction of inventory purchases as well as
collection of accounts receivable. See detail discussion below on
cash flow from operations.
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.
8
<PAGE>
Cash Flow from Operations
The Company generated net cash flow from operations of
approximately $4,983,000 for the quarter ended March 31, 1994,
compared to $7,547,000 for the corresponding period of the prior
year.
The decrease in cash flows is due to the decline in the quarter
end levels of accounts payable and accrued expenses from period
to period of $3,404,000 resulting from the timing of the
transactions which was partially offset by an increase in prepaid
expenses of $574,000.
Financial Commitments
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 months ending March 31, 1994 revenues declined by
$2,340,000, or 6.7%, and income before income taxes decreased by
$440,000 as compared to the corresponding period of the prior
year.
Consumer Products
Watch, clock and jewelry revenue decreased by $2,767,000 or
12.3%, and income before income taxes increased by $214,000 as
compared to the quarter ending March 31, 1993.
Revenues decreased due to a decline in unit sales, partially
offset by a higher average unit selling price representing
approximately $569,000, or 2.5%.
The segment's sales volume declined 14.2% as compared to the
quarter ending March 31, 1993 due primarily to a temporary
backlog of approximately $2,000,000 in shipments resulting from
the implementation of a new inventory system. Management
anticipates these shipments will be made prior to the end of the
second quarter of 1994.
Cost of sales as a percentage of sales decreased 2.7% as
compared to the quarter ended March 31, 1993. Selling, general
and administrative costs as a percentage of sales decreased 4.3%
as compared to the first quarter of 1993. The reduction of costs
has resulted from management's efforts to control discretionary
costs during periods of sales decline.
The Company recognized $916,000 and $1,046,000 in royalty
income in the first quarter of 1994 and 1993, respectively, which
includes $468,000 and $759,000 of proceeds under the "Benetton by
Bulova" license agreement for the quarters ended March 31, 1994
9
<PAGE>
and 1993, respectively. The license agreement with Benetton is
scheduled to expire in June 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 quarters ended March 31, 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 $217,000 or 1.9%
as compared to the quarter ending March 31, 1993. Net sales and
income before taxes includes $283,000 of revenues from favorable
settlement of contract claims with the U.S. Government for the
quarter ended March 31, 1994. There were no contract claim
settlements during the first quarter of 1993. These claims
represent payment for work performed in earlier years which had
not been billed. The Company estimates that there is
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 settlement discussed above,
net sales for the quarter ended March 31, 1994 approximated those
of 1993. The Company does not expect 1994 sales to significantly
improve over the prior year primarily due to the continued
decline in sales to the U.S. Government caused by defense
cutbacks. During 1993, the commercial contract segment accounted
for 16% of this segment's sales. The Company does not expect the
commercial sales segment to increase significantly in 1994.
Furthermore, commercial contract business carries a lower profit
margin than defense business. The commercial business therefore,
is not expected to replace the lost margin associated with the
decline in defense sales.
Income before taxes, exclusive of the claim settlement,
decreased by $937,000, as compared to the quarter ended March 31,
1993. The Company expects that competition for both the 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 to $300,000 from $250,000
for the quarter ended March 31, 1994, as compared to the prior
year's quarter. See Note 4 to Consolidated Condensed Financial
Statements.
10
<PAGE>
Interest Expense and Income - Interest expense decreased to
$405,000 from $677,000 due to the $6,000,000 decrease in
borrowing to Loews under the Credit Agreement. Interest and
other income was higher in the first quarter of 1994 compared to
1993 primarily resulting from custom refunds received.
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 March 31, 1994.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BULOVA CORPORATION
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(Registrant)
Dated: May 16, 1994 By: Paul S. Sayegh
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PAUL S. SAYEGH
Chief Operating
Officer (Duly
authorized officer and
principal financial
officer)
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