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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, 1995
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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 August 4, 1995
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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, 1995 and December 31, 1994 ........................ 3
Consolidated Condensed Statements of Operations-
Three and six months ended June 30, 1995 and 1994 .......... 4
Consolidated Condensed Statements of Cash Flows-
Six months ended June 30, 1995 and 1994 .................... 5
Notes to Consolidated Condensed Financial Statements .......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K ....................... 11
Exhibit 27--Financial Data Schedule for the six months ended
June 30, 1995 ............................................. 13
Page 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
<TABLE>
<CAPTION>
Bulova Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(Amounts in thousands)
June 30, December 31,
1995 1994
---------------------------
<S> <C> <C>
Assets
------
Current assets:
Cash ......................................................... $ 3,768 $ 3,857
Investment in U.S. Government securities ..................... 4,793
Accounts and notes receivable-net ............................ 44,527 51,254
Inventories .................................................. 41,546 35,750
Prepaid expenses ............................................. 767 329
Deferred income taxes ........................................ 9,090 10,004
Net assets of discontinued operations ........................ 20,082
---------------------------
Total current assets ..................................... 104,491 121,276
---------------------------
Property, plant and equipment-net .............................. 12,530 12,750
---------------------------
Other assets:
Deferred income taxes ........................................ 14,145 16,744
Other ........................................................ 383 265
---------------------------
Total other assets ....................................... 14,528 17,009
---------------------------
Total assets ............................................. $131,549 $151,035
===========================
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt ....................... $ 400 $ 400
Accounts payable ............................................. 4,019 5,569
Accrued expenses ............................................. 10,322 11,753
Accrued federal and foreign income taxes ..................... 2,343 2,333
---------------------------
Total current liabilities ................................ 17,084 20,055
---------------------------
Long-term debt, less current installments ...................... 200
---------------------------
Other liabilities and credits:
Postretirement benefits payable .............................. 45,278 43,183
Pension benefits payable ..................................... 2,870 2,581
Other ........................................................ 2,064 3,086
---------------------------
Total other liabilities and credits ...................... 50,212 48,850
---------------------------
Debt to affiliate .............................................. 19,000
---------------------------
Shareholders' equity ........................................... 64,253 62,930
---------------------------
Total liabilities and shareholders' equity ............... $131,549 $151,035
===========================
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
Page 3
<TABLE>
<CAPTION>
Bulova Corporation and Subsidiaries
Consolidated Condensed Statements of Operations
(Amounts in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
-----------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Net sales ...................................... $20,191 $19,969 $43,046 $39,705
Interest, royalties and other .................. 5,321 1,043 6,423 2,394
-----------------------------------------
Total revenues ............................. 25,512 21,012 49,469 42,099
-----------------------------------------
Expenses:
Cost of sales .................................. 13,703 13,037 28,057 25,495
Selling, general and administrative ............ 8,022 8,680 17,418 16,900
Interest:
Affiliate .................................... 129 75 140
Others ....................................... 23 (44) 33 34
-----------------------------------------
Total expenses ............................. 21,748 21,802 45,583 42,569
-----------------------------------------
Income (loss) from continuing operations before
income tax (expenses) benefits................... 3,764 (790) 3,886 (470)
Income tax (expenses) benefits ................... (3,077) 321 (3,134) 189
-----------------------------------------
Income (loss) from continuing operations ......... 687 (469) 752 (281)
Discontinued operations of BTI:
Gain on disposal (net of tax of $195) .......... 363
Income from operations (net of tax of
$391 and $177) ................................ 565 256
-----------------------------------------
Net income (loss) ................................ $ 687 $ 96 $ 1,115 $ (25)
=========================================
Net income (loss) per share:
Income (loss) from continuing operations ....... $ .15 $ (.10) $ .16 $ (.06)
Discontinued operations of BTI ................. .12 .08 .05
-----------------------------------------
Net income (loss)............................... $ .15 $ .02 $ .24 $ (.01)
=========================================
Weighted average number of shares outstanding .... 4,599 4,599 4,599 4,599
=========================================
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
Page 4
<TABLE>
<CAPTION>
Bulova Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Amounts in thousands)
Six Months Ended
June 30,
1995 1994
----------------------
<S> <C> <C>
Operating Activities:
Net income (loss) ............................................ $ 1,115 $ (25)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities ............................ 4,783 2,411
Gain on sale of BTI .......................................... (558)
Changes in assets and liabilities-net:
Receivables ................................................ 5,792 5,622
Inventories ................................................ (5,796) 947
Prepaid expenses ........................................... (438) 166
Net assets of discontinued operations ...................... (214)
Other assets ............................................... (118) 1
Accounts payable and accrued expenses ...................... (3,151) (5,561)
Accrued federal and foreign income taxes ................... 10 (1,369)
Other liabilities and credits .............................. 1,570 1,393
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3,209 3,371
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Investing Activities:
Proceeds from disposal of BTI ................................ 20,810
Purchases of U.S. Government securities ...................... (4,793)
Purchases of property, plant and equipment ................... (115) (192)
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15,902 (192)
---------------------
Financing Activities:
Principal payments on debt to affiliate ...................... (19,000) (12,000)
Principal payments on long-term debt ......................... (200) (200)
Proceeds from debt to affiliate .............................. 5,000
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(19,200) (7,200)
---------------------
Net change in cash ............................................. (89) (4,021)
Cash, beginning of period ...................................... 3,857 5,639
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Cash, end of period ............................................ $ 3,768 $ 1,618
=====================
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, 1994 filed with the Securities and
Exchange Commission on March 27, 1995.
2. There have been no changes in significant accounting policies since December
31, 1994. In addition, certain amounts applicable to prior periods have been
reclassified to conform to classifications followed in 1995.
3. On January 17, 1995 the Company sold its industrial and defense
manufacturing business, Bulova Technologies, Inc. ("BTI") for $20,810,000 in
cash. The sale resulted in a pre-tax and after-tax gain of $558,000 and
$363,000, respectively, which was recorded in the first quarter of 1995. The
Company applied $18,000,000 of the consideration received to the repayment
of the debt to affiliate.
The prior year operating results of BTI have been reported separately as
discontinued operations in the consolidated condensed financial statements.
For the three and six months ended June 30, 1994, net sales were $14,520,000
and $26,040,000, respectively. See Note 2 of the Notes to Consolidated
Financial Statements in the Annual Report on Form 10-K for the year ended
December 31, 1994.
4. Income taxes for the three and six months ended June 30, 1995 and 1994
include federal tax (expense) benefit to the Company of $(3,485,000),
$164,000, $(3,242,000) and $116,000, respectively, related to the tax
allocation agreement between the Company and its parent, Loews
Corporation ("Loews").
Additionally, during the second quarter of 1995, the Company reached a tax
settlement in connection with the examination of the Loews consolidated tax
returns for the 1984 through 1990 tax years. As a result of the settlement,
the Company received $4,200,000 of interest income and recorded
$1,772,000 of tax expense caused by the limitation on the utilization of
certain tax attributes. This transaction resulted in pre-tax and after-tax
income of $4,200,000 and $958,000 for the three and six months ended
June 30, 1995, respectively. All amounts due from Loews in connection
with tax receivables through 1990 were received by the Company in
August 1995.
See Note 7 of the Notes to Consolidated Financial Statements in the Annual
Report on Form 10-K for the year ended December 31, 1994.
5. Loews provides administrative and managerial services for which the
Company was charged $175,000 and $350,000 for the three and six months
ended June 30, 1995 and 1994. 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
$350,000 and $500,000.
Page 6
6. The Company's inventories, in thousands of dollars, are comprised of the
following:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------------------
<S> <C> <C>
Watches and clocks ............................ $38,720 $32,924
Jewelry ....................................... 288 430
Precious metals ............................... 380 450
Other ......................................... 2,158 1,946
----------------------
Total ...................................... $41,546 $35,750
======================
</TABLE>
7. Shareholders' equity:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------------------
(In thousands)
<S> <C> <C>
Common stock .................................. $22,999 $22,999
Additional paid-in capital .................... 23,197 23,197
Retained earnings ............................. 19,260 18,145
Cumulative translation adjustment ............. (1,198) (1,406)
----------------------
Total ...................................... 64,258 62,935
Less treasury stock, at cost .................. 5 5
----------------------
Total shareholders' equity ................. $64,253 $62,930
======================
</TABLE>
8. As discussed in Note 13 in the Notes to Consolidated Financial Statements in
the Annual Report on Form 10-K for the year ended December 31, 1994, during
the second quarter of 1994 the Company accrued an additional $250,000 in
relation to an environmental contaminate which was discovered in the ground
water of its former defense manufacturing facility. Additional testing and
further evaluation are still required before a definitive cost of ultimate
clean-up can be determined. Therefore, the liability accrued by the Company
may require future revisions. The environmental liability recognized in the
Company's financial statements to date of $2,334,000 represents the minimum
of the Company's estimate range of equally likely outcomes, the upper limit
of that range is approximately $2,834,000.
9. 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, 1995 and December 31, 1994 and the results of operations for the
three and six months and changes in cash flows for the six months ended
June 30, 1995 and 1994, respectively.
Page 7
Results of operations for the second quarter and first six months of each
of the years is not necessary indicative of results of operations for that
entire year.
Page 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
--------------------------------------------------------------------------------
Liquidity and Capital Resources:
Cash Flow
In January 1995 the Company sold its industrial and defense products segment,
Bulova Technologies, Inc. ("BTI") for $20,810,000 in cash. The Company applied
$18,000,000 of the consideration received to the repayment of the entire debt
owed to its parent, Loews Corporation ("Loews") under the credit agreement
described below, and the balance of the consideration was added to working
capital. Additionally, the Company assumed BTI's liabilities with respect to
postretirement health care benefits for employees of BTI who had retired prior
to the consummation of the sale.
On August 3, 1995, the Company collected $10,554,000, including $4,200,000 of
interest, from Loews related to a tax audit adjustment from the examination of
Loews's tax returns for 1984 through 1990.
The Company anticipates its cash needs will be met from its available working
capital. The Company is continuing its efforts to reduce costs and closely
monitors inventory purchasing to ensure appropriate levels are maintained.
For a number of years the Company has relied on 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.
In 1979, the Company entered into a credit agreement with Loews ("the Credit
Agreement") which provided 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, 1997. As noted above,
the Company repaid all of its borrowings under the Credit Agreement in the
first quarter of 1995.
Cash Flow From Operations
The Company generated net cash flow from operations of approximately
$3,209,000 for the six months ended June 30, 1995 compared to $3,371,000 for the
corresponding period of the prior year.
The decrease in cash flow is primarily due to the increase in inventory levels
associated with purchases necessary to meet the seasonal inventory buildup
requirements. This decrease was partially offset by the change in the six month
levels of accounts payable and accrued expenses, other liabilities and credits
and accounts receivable.
Cash Flow From Investing Activities
The increase in cash flow is primarily due to the cash received from the sale
of BTI as discussed above, partially offset by the purchases of U.S. Government
securities.
Cash Flow From Financing Activities
Cash flow from financing activities primarily represents changes in the
amounts due to Loews under the Credit Agreement discussed above.
Page 9
Results of Operations
For the three and six months ended June 30, 1995, total revenues increased
$4,500,000 and $7,370,000, or 21.4% and 17.5%, respectively, as compared to the
corresponding periods of the prior year.
Net sales improved due to the increase in watch, clock and jewelry revenue of
$222,000 and $3,341,000, or 1.1% and 8.4%, respectively, as compared to the
corresponding periods of the prior year. This increase is primarily due to a
unit sales volume increase for the three and six months ended June 30, 1995 of
1.0% and 3.7%, respectively, and a favorable change in the product sales mix.
The Bulova brand, a higher priced product, comprised 57.8% of total watch sales
through the six months ended June 30, 1995, compared to 51.1% for the prior
year.
Interest, royalties and other revenues were primarily affected by the
$4,200,000 of interest income recognized during the second quarter of 1995,
related to the tax audit adjustment discussed above. Exclusive of the $4,200,000
interest income recorded, interest, royalties and other revenues increased
(decreased) by $78,000 and $(171,000) for the three and six months ended
June 30, 1995, as compared to the corresponding periods of the prior year. For
the three months ended June 30, 1995, the increase is due to higher operating
interest income and royalty income. For the six months ended June 30, 1995,
the decrease is primarily due to lower royalty income.
The Company recognized $790,000, $669,000, $1,620,000 and $1,705,000 in
royalty income for the three and six months ended June 30, 1995 and 1994,
respectively, which included $14,000, $160,000, $100,000 and $628,000 of
proceeds under the "Benetton by Bulova" license agreement that expired June 30,
1994. The remaining royalty income represents payments by three licensees in
Europe, the Far East and South America.
Income from continuing operations before income taxes for the three and six
months ended June 30, 1995 increased $4,554,000 and $4,356,000, respectively, as
compared to the corresponding periods of the prior year. The primary reason for
the increase is the recognition of $4,200,000 of interest income during the
second quarter of 1995, as discussed above. Exclusive of this transaction, for
the three and six months ended June 30, 1995, the increase in income from
continuing operations resulted from the decrease in selling, general and
administrative expenses as a percentage of sales from 43.5% to 39.7% and from
42.6% to 40.5%, respectively. The decrease in selling, general and
administrative costs represents management's continued efforts to control
discretionary costs, partially offset by an increase in cost of sales.
Income taxes for the three and six months ended June 30, 1995 include
$1,772,000 expense caused by the limitation on the utilization of certain tax
attributes in connection with the tax audit adjustment.
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.
Currency rate fluctuations did not have a material impact on the results of
operations during the three and six months ended June 30, 1995. Future
fluctuations however, could negatively impact gross profit, income and cash
flow.
Page 10
Related parties - Loews provided administrative services for which the Company
paid $175,000 and $350,000 for the three and six months ended June 30, 1995 and
1994. 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 would
aggregate between $350,000 and $500,000.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits -- (27) Financial Data Schedule for the six months ended June 30,
1995.
(b) Current reports on Form 8-K -- There were no reports on Form 8-K filed for
the three months ended June 30, 1995.
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
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(Registrant)
Dated: August 14, 1995 By: Paul S. Sayegh
-----------------------
PAUL S. SAYEGH
Chief Operating Officer
(Duly authorized
officer and principal
financial officer)
Page 12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 3,768
<SECURITIES> 4,793
<RECEIVABLES> 47,980
<ALLOWANCES> 3,453
<INVENTORY> 41,546
<CURRENT-ASSETS> 104,491
<PP&E> 20,213
<DEPRECIATION> 7,683
<TOTAL-ASSETS> 131,549
<CURRENT-LIABILITIES> 17,084
<BONDS> 0
<COMMON> 22,999
0
0
<OTHER-SE> 41,254
<TOTAL-LIABILITY-AND-EQUITY> 131,549
<SALES> 43,046
<TOTAL-REVENUES> 49,469
<CGS> 28,057
<TOTAL-COSTS> 28,057
<OTHER-EXPENSES> 16,987
<LOSS-PROVISION> 431
<INTEREST-EXPENSE> 108
<INCOME-PRETAX> 3,886
<INCOME-TAX> 3,134
<INCOME-CONTINUING> 752
<DISCONTINUED> 363
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,115
<EPS-PRIMARY> .24
<EPS-DILUTED> 0
</TABLE>
