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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 September 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
- ------------------------------- -------------------
(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 November 3, 1995
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Common stock, $5 par value 4,599,249 shares
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Page 1
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets-
September 30, 1995 and December 31, 1994 ................... 3
Consolidated Condensed Statements of Operations-
Three and nine months ended September 30, 1995 and 1994 .... 4
Consolidated Condensed Statements of Cash Flows-
Nine months ended September 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 nine months ended
September 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)
September 30, December 31,
1995 1994
---------------------------
<S> <C> <C>
Assets
------
Current assets:
Cash ......................................................... $ 2,548 $ 3,857
Investment in U.S. Government securities ..................... 4,880
Accounts and notes receivable-net ............................ 44,432 51,254
Inventories .................................................. 42,624 35,750
Prepaid expenses ............................................. 2,304 329
Deferred income taxes ........................................ 9,225 10,004
Net assets of discontinued operations ........................ 20,082
-----------------------
Total current assets .......................................... 106,013 121,276
-----------------------
Property, plant and equipment-net .............................. 12,390 12,750
-----------------------
Other assets:
Deferred income taxes ........................................ 13,750 16,744
Other ........................................................ 363 265
-----------------------
Total other assets ....................................... 14,113 17,009
-----------------------
Total assets ............................................. $132,516 $151,035
=======================
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt ....................... $ 400 $ 400
Accounts payable ............................................. 3,689 5,569
Accrued expenses ............................................. 12,012 11,753
Accrued federal and foreign income taxes ..................... 1,677 2,333
-----------------------
Total current liabilities ................................ 17,778 20,055
-----------------------
Long-term debt, less current installments ...................... 200
-----------------------
Other liabilities and credits:
Postretirement benefits payable .............................. 44,456 43,183
Pension benefits payable ..................................... 2,870 2,581
Other ........................................................ 2,055 3,086
-----------------------
Total other liabilities and credits ...................... 49,381 48,850
-----------------------
Debt to affiliate .............................................. 19,000
-----------------------
Shareholders' equity ........................................... 65,357 62,930
-----------------------
Total liabilities and shareholders' equity ............... $132,516 $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 Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
-----------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Net sales ...................................... $25,857 $25,429 $68,903 $65,134
Interest, royalties and other .................. 1,257 1,791 7,680 4,185
-----------------------------------------
Total revenues ............................. 27,114 27,220 76,583 69,319
-----------------------------------------
Expenses:
Cost of sales .................................. 15,805 16,219 43,862 41,714
Selling, general and administrative ............ 9,898 10,672 27,316 27,572
Interest:
Affiliate .................................... 170 75 310
Others ....................................... 38 16 71 50
-----------------------------------------
Total expenses ............................. 25,741 27,077 71,324 69,646
-----------------------------------------
Income (loss) from continuing operations before
income tax (expense) benefit .................... 1,373 143 5,259 (327)
Income tax (expense) benefit ..................... (508) (62) (3,642) 127
-----------------------------------------
Income (loss) from continuing operations ......... 865 81 1,617 (200)
Discontinued operations of BTI:
Gain on disposal (net of tax of $195) .......... 363
(Loss) income from operations (net of tax
benefit (expense) of $22 and $(156)) .......... (30) 226
-----------------------------------------
Net income ....................................... $ 865 $ 51 $ 1,980 $ 26
=========================================
Net income per share:
Income (loss) from continuing operations ....... $ .19 $ .02 $ .35 $ (.04)
Discontinued operations of BTI ................. (.01) .08 .05
-----------------------------------------
Net income ..................................... $ .19 $ .01 $ .43 $ .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)
Nine Months Ended
September 30,
1995 1994
----------------------
<S> <C> <C>
Operating Activities:
Net income ................................................... $ 1,980 $ 26
Adjustments to reconcile net income to net cash provided
by (used for) operating activities .......................... 5,663 2,087
Gain on sale of BTI .......................................... (558)
Changes in assets and liabilities-net:
Receivables ................................................ 5,446 (2,170)
Inventories ................................................ (6,874) (133)
Prepaid expenses ........................................... (1,975) 348
Net assets of discontinued operations ...................... (2,435)
Other assets ............................................... (98) 1
Accounts payable and accrued expenses ...................... (1,791) (5,057)
Accrued federal and foreign income taxes ................... (656) (269)
Other liabilities and credits .............................. 978 4,777
---------------------
2,115 (2,825)
---------------------
Investing Activities:
Proceeds from disposal of BTI ................................ 20,810
Purchases of U.S. Government securities ...................... (5,655)
Proceeds from sale of U.S. Government securities ............. 775
Purchases of property, plant and equipment ................... (154) (306)
---------------------
15,776 (306)
---------------------
Financing Activities:
Principal payments on debt to affiliate ...................... (19,000) (14,000)
Principal payments on long-term debt ......................... (200) (200)
Proceeds from debt to affiliate .............................. 16,000
---------------------
(19,200) 1,800
---------------------
Net change in cash ............................................. (1,309) (1,331)
Cash, beginning of period ...................................... 3,857 5,639
---------------------
Cash, end of period ............................................ $ 2,548 $ 4,308
=====================
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 nine months ended September 30, 1994, net sales were
$11,236,000 and $37,276,000, 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 nine months ended September 30, 1995 and
1994 include federal tax (benefit) expense to the Company of $(336,000),
$325,000, $2,906,000 and $209,000, 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, respectively, for the nine months ended September
30, 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 $525,000 for the three and nine months ended
September 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 $525,000 and $750,000
for the nine months ended.
Page 6
6. The Company's inventories, in thousands of dollars, are comprised of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
--------------------------
<S> <C> <C>
Watches and clocks ........................... $39,904 $32,924
Jewelry ...................................... 288 430
Precious metals .............................. 340 450
Other ........................................ 2,092 1,946
----------------------
Total .................................... $42,624 $35,750
======================
</TABLE>
7. Shareholders' equity:
<TABLE>
<CAPTION>
September 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 ............................ 20,125 18,145
Cumulative translation adjustment ............ (959) (1,406)
----------------------
Total .................................... 65,362 62,935
Less treasury stock, at cost ................. 5 5
----------------------
Total shareholders' equity ............... $65,357 $62,930
======================
</TABLE>
8. During the third quarter of 1995, the Company provided for a liability of
$150,000 in relation to an environmental condition at its former Woodside,
N.Y. watch manufacturing facility which the Company agreed to remediate in
October 1995. Additionally, during the second quarter of 1994 the Company
provided for a liability of $250,000 in relation to an environmental
condition at its former Valley Stream, N.Y. defense manufacturing facility.
Finally, in the third quarter of 1994 the Company received revised cost
estimates associated with the environmental clean-up of a former Sag Harbor,
N.Y. watch manufacturing facility which the Company sold on March 12, 1981.
Based on the cost estimates currently available, the Company provided an
additional $484,000 liability to record the minimal level of estimated
clean-up costs at this facility.
The environmental liability recognized in the Company's financial statements
to date of $2,484,000 represents the minimum of the Company's estimated
range of equally likely outcomes, the upper limit of that range is
approximately $3,100,000.
Page 7
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
September 30, 1995 and December 31, 1994 and the results of operations for
the three and nine months and changes in cash flows for the nine months
ended September 30, 1995 and 1994, respectively.
Results of operations for the third quarter and first nine 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 continues to be adversely impacted by difficult business
conditions. Competition and the oversupply of watch and clock products places
significant pressure on price points which negatively impact gross profit, net
income and cash flow. The Company is continuing its efforts to reduce costs and
closely monitor inventory purchasing to ensure inventory carrying costs are at
appropriate levels.
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. Increased inventory purchasing, necessary to meet the seasonal
inventory buildup requirements in the fourth quarter of 1995, will reduce
working capital and may result in borrowings from Loews under the Credit
Agreement.
Cash Flow From Operations
The Company generated net cash flow from operations of approximately
$2,115,000 for the nine months ended September 30, 1995 compared to cash
utilization of $2,825,000 for the corresponding period of the prior year.
The increase in cash flow is primarily due to the tax settlement as noted
above and the change in quarter levels of accounts payable and accrued
expenses, other liabilities and credits and accounts receivable, resulting
from timing of transactions. An increase in inventory purchasing, necessary to
meet the seasonal inventory build up requirements, partially offset the cash
flow increase noted above. Also contributing to the cash flow increase is the
improved results of operations for the nine months ended September 30, 1995.
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 purchases of U.S. Government
securities.
Page 9
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.
Results of Operations
For the three months ended September 30, 1995, total revenues were relatively
unchanged and for the nine months ended September 30, 1995, increased
$7,264,000, or 10.5%, as compared to the corresponding period of the prior year.
Net sales for the three and nine months ended September 30, 1995 increased by
$428,000 and $3,769,000, or 1.7% and 5.8%, respectively, as compared to the
corresponding periods of the prior year. This increase is primarily due to
unit sales volume and price increases for the three and nine months ended
September 30, 1995 of 8.7% and 2.9%, respectively, and a favorable change in the
product sales mix. The Bulova brand, a higher priced product, comprised 51.2%
of total watch sales through the nine months ended September 30, 1995, compared
to 50.0% for the prior year. In addition, the Bulova brand unit price has
increased 6.6% over 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 decreased by
$534,000 and $705,000 for the three and nine months ended September 30, 1995, as
compared to the corresponding periods of the prior year. These decreases are
primarily due to lower royalty income.
The Company recognized $882,000, $1,389,000, $2,502,000 and $3,094,000 in
royalty income for the three and nine months ended September 30, 1995 and 1994,
respectively, which included $7,000, $779,000, $107,000 and $1,407,000 of
proceeds under the "Benetton by Bulova" license agreement that expired September
30, 1994. The remaining royalty income represents payments by a distributor and
licensees in Europe, the Far East and South America.
Income from continuing operations before income taxes for the three and nine
months ended September 30, 1995 increased $1,230,000 and $5,586,000,
respectively, as compared to the corresponding periods of the prior year. The
primary reason for the increase during the nine month period is the recognition
of $4,200,000 of interest income as discussed above. In addition, for the
three and nine months ended September 30, 1995 and 1994, environmental costs of
$150,000, $484,000, $150,000 and $734,000 were included in selling, general and
administrative expenses, respectively. Exclusive of these items, income from
continuing operations before income taxes increased due to a decline in selling,
general and administrative expenses as a percentage of sales from 40.1% to 37.7%
and from 41.2% to 39.5%, for the three and nine month periods ended September
30, 1995, respectively. The decrease in selling, general and administrative
costs represents management's continued efforts to control discretionary costs.
Income taxes for the nine months ended September 30, 1995 include a $1,772,000
expense caused by the limitation on the utilization of certain tax attributes
in connection with the tax audit adjustment.
Page 10
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 nine months ended September 30, 1995. Future
fluctuations however, could negatively impact gross profit, income and cash
flow.
Contingencies - During the third quarter of 1995, the Company provided for a
liability of $150,000 in relation to an environmental condition at its former
Woodside, N.Y. watch manufacturing facility which the Company agreed to
remediate in October 1995. Additionally, during the second quarter of 1994 the
Company provided for a liability of $250,000 in relation to an environmental
condition at its former Valley Stream, N.Y. defense manufacturing facility.
Finally, in the third quarter of 1994 the Company received revised cost
estimates associated with the environmental clean-up of a former Sag Harbor,
N.Y. watch manufacturing facility which the Company sold on March 12, 1981.
Based on the cost estimates currently available, the Company provided an
additional $484,000 liability to record the minimal level of estimated clean-up
costs at this facility.
The impact of the environmental clean-up will directly affect cash flow and
net income, and it is expected that the utilization of cash will be funded by
the Credit Agreement with Loews.
Related parties - Loews provided administrative services for which the Company
paid $175,000 and $525,000 for the three and nine months ended September 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 $525,000 and $750,000 for the nine months ended.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits --
(27) Financial Data Schedule for the nine months ended September 30, 1995.
(b) Current reports on Form 8-K -- There were no reports on Form 8-K filed for
the three months ended September 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
------------------
(Registrant)
Dated: November 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,548
<SECURITIES> 4,880
<RECEIVABLES> 47,816
<ALLOWANCES> 3,384
<INVENTORY> 42,624
<CURRENT-ASSETS> 106,013
<PP&E> 20,235
<DEPRECIATION> 7,845
<TOTAL-ASSETS> 132,516
<CURRENT-LIABILITIES> 17,778
<BONDS> 0
<COMMON> 22,999
0
0
<OTHER-SE> 42,358
<TOTAL-LIABILITY-AND-EQUITY> 132,516
<SALES> 68,903
<TOTAL-REVENUES> 76,583
<CGS> 43,862
<TOTAL-COSTS> 43,862
<OTHER-EXPENSES> 26,814
<LOSS-PROVISION> 502
<INTEREST-EXPENSE> 146
<INCOME-PRETAX> 5,259
<INCOME-TAX> 3,642
<INCOME-CONTINUING> 1,617
<DISCONTINUED> 363
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,980
<EPS-PRIMARY> .43
<EPS-DILUTED> 0
</TABLE>
