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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, 1996
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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 1, 1996
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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-
September 30, 1996 and December 31, 1995 ................... 3
Consolidated Condensed Statements of Income-
Three and nine months ended September 30, 1996 and 1995 .... 4
Consolidated Condensed Statements of Cash Flows-
Nine months ended September 30, 1996 and 1995 .............. 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, 1996 ........................................ 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,
1996 1995
---------------------------
<S> <C> <C>
Assets
------
Current assets:
Cash ......................................................... $ 11,787 $ 5,963
Investment in U.S. Government securities ..................... 4,914
Accounts and notes receivable-net ............................ 50,482 50,958
Inventories, principally watches and clocks .................. 37,259 38,914
Prepaid expenses ............................................. 3,421 1,453
Deferred income taxes ........................................ 6,846 7,470
----------------------
Total current assets ..................................... 114,709 104,758
----------------------
Property, plant and equipment-net .............................. 11,882 12,260
----------------------
Other assets:
Deferred income taxes ........................................ 16,094 16,711
Other ........................................................ 416 398
----------------------
Total other assets ....................................... 16,510 17,109
----------------------
Total assets ............................................. $143,101 $134,127
======================
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable ............................................. $ 4,264 $ 3,351
Accrued expenses ............................................. 13,683 14,142
Accrued federal and foreign income taxes ..................... 1,445 55
Current installments of long-term debt ....................... 200
----------------------
Total current liabilities ................................ 19,392 17,748
----------------------
Other liabilities and credits:
Postretirement benefits payable .............................. 41,946 43,143
Pension benefits payable ..................................... 4,109 4,712
Other ........................................................ 7,070 3,061
----------------------
Total other liabilities and credits ...................... 53,125 50,916
----------------------
Shareholders' equity ........................................... 70,584 65,463
----------------------
Total liabilities and shareholders' equity ............... $143,101 $134,127
======================
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
Page 3
<TABLE>
<CAPTION>
Bulova Corporation and Subsidiaries
Consolidated Condensed Statements of Income
(Amounts in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
-----------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Net sales ...................................... $32,980 $25,857 $79,992 $68,903
Interest, royalties and other .................. 1,761 1,257 4,256 7,680
-----------------------------------------
Total revenues ............................. 34,741 27,114 84,248 76,583
-----------------------------------------
Expenses:
Cost of sales .................................. 18,888 15,805 47,836 43,862
Selling, general and administrative ............ 9,990 9,936 28,315 27,462
-----------------------------------------
Total expenses ............................. 28,878 25,741 76,151 71,324
-----------------------------------------
Income from operations before income tax expense . 5,863 1,373 8,097 5,259
Income tax expense ............................... (1,980) (508) (2,843) (3,642)
-----------------------------------------
Income from operations ........................... 3,883 865 5,254 1,617
Gain on disposal of discontinued operations of BTI
(net of tax of $195) ............................ 363
-----------------------------------------
Net income ....................................... $ 3,883 $ 865 $ 5,254 $ 1,980
=========================================
Net income per share:
Income from continuing operations .............. $ .84 $ .19 $ 1.14 $ .35
Gain of disposal of discontinued operations of
BTI ........................................... .08
-----------------------------------------
Net income ....................................... $ .84 $ .19 $ 1.14 $ .43
=========================================
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,
1996 1995
---------------------------
<S> <C> <C>
Operating Activities:
Net income ................................................... $ 5,254 $ 1,980
Adjustments to reconcile net income to net cash provided
by operating activities ..................................... 3,674 5,105
Changes in assets and liabilities-net:
Receivables ................................................ (1,771) 5,446
Inventories ................................................ 1,655 (6,874)
Prepaid expenses ........................................... (1,968) (1,975)
Other assets ............................................... (18) (98)
Accounts payable and accrued expenses ...................... 454 (1,791)
Accrued federal and foreign income taxes ................... 1,390 (656)
Other liabilities and credits .............................. 2,074 978
----------------------
10,744 2,115
----------------------
Investing Activities:
Purchases of U.S. Government securities ...................... (14,639) (5,655)
Proceeds from sale of U.S. Government securities ............. 10,000 775
Purchases of property, plant and equipment ................... (130) (154)
Proceeds from disposal of property, plant and equipment ...... 49
Proceeds from disposal of BTI ................................ 20,810
----------------------
(4,720) 15,776
----------------------
Financing Activities:
Principal payments on long-term debt ......................... (200) (200)
Principal payments on debt to affiliate....................... (19,000)
----------------------
(200) (19,200)
----------------------
Net change in cash ............................................. 5,824 (1,309)
Cash, beginning of period ...................................... 5,963 3,857
----------------------
Cash, end of period ............................................ $ 11,787 $ 2,548
======================
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, 1995 filed with the Securities and
Exchange Commission on March 27, 1996.
2. There have been no changes in significant accounting policies since December
31, 1995. In addition, certain amounts applicable to prior periods have been
reclassified to conform to classifications followed in 1996.
3. In 1991, the Company and a third party commenced an arbitration proceeding
before the Netherlands Arbitration Institute contesting the attempt of
Benetton International N.V. ("Benetton") to prematurely terminate the
License Agreement for "Benetton by Bulova" timepieces and seeking damages
in relation thereto. (The License Agreement subsequently terminated in
1994). The arbitral panel determined that Benetton was not entitled to
terminate the License Agreement prior to the expiration of its term and
awarded damages to the Company in relation thereto. Benetton has commenced
proceedings in the Dutch courts seeking to overturn the arbitral award on a
number of grounds and, pending the outcome of those proceedings, to suspend
enforcement of the damages award. The Dutch courts have refused to suspend
enforcement of the damage award and on February 12, 1996, the Company
received approximately $3,857,000 thereunder which represented damages,
costs and interest. The funds received are subject to return, with interest,
if the Dutch courts ultimately uphold Benetton's petition to overturn the
arbitral award. As a result, the Company has deferred recognition of the
award and recorded a deferred credit.
4. As discussed in Note 9 of the Notes to Consolidated Financial Statements in
the Annual Report on Form 10-K for the year ended December 31, 1995, the
Company maintains postretirement benefit health care plans. The Company
adopted certain amendments to its plans. These amendments adjusted the
cost sharing provisions including copayments, deductibles and payment
limits. As a result of the amendments adopted by the Company and a
revised actuarial estimate received in the third quarter, a credit of
$1,194,000 was recorded.
5. During the third quarter the Company revised its estimated liability
related to the Executive Life shortfall and, as a result, recorded a
credit of $430,000. See Note 13 of the Notes to Consolidated Financial
Statements in the Annual Report on Form 10-K for the year ended
December 31, 1995.
6. 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.
7. Income taxes for the three and nine months ended September 30, 1996 and
1995 include federal tax expense (benefit) to the Company of $1,445,000,
($336,000), $1,686,000 and $2,906,000, 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
Page 6
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. All amounts due from Loews in connection with tax receivables
through 1990 were received by the Company in August 1995.
See Note 8 of the Notes to Consolidated Financial Statements in the Annual
Report on Form 10-K for the year ended December 31, 1995.
8. Loews provides administrative and managerial services for which the Company
was charged $183,000, $175,000, $548,000 and $525,000 for the three and nine
months ended September 30, 1996 and 1995, 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 $548,000 and $750,000 for the nine months ended September 30, 1996.
9. Shareholders' equity:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------------------------
(In thousands)
<S> <C> <C>
Common stock ................................. $22,999 $22,999
Additional paid-in capital ................... 23,197 23,197
Retained earnings ............................ 26,031 20,777
Cumulative translation adjustment ............ (1,214) (1,081)
Pension liability adjustment ................. (424) (424)
----------------------
Total .................................... 70,589 65,468
Less treasury stock, at cost ................. 5 5
----------------------
Total shareholders' equity ............... $70,584 $65,463
======================
</TABLE>
10. 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. The Company is responsible for the clean-up of certain
environmental conditions at its current facility as well as certain former
manufacturing facilities.
The environmental liability recognized in the Company's financial statements
to date of $2,584,000 represents the minimum of the Company's estimated
range of equally likely outcomes, the upper limit of that range is
approximately $3,184,000.
See Note 13 of the Notes to Consolidated Financial Statements in the
Annual Report on Form 10-K for the year ended December 31, 1995.
11. 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, 1996 and December 31, 1995 and the results of operations for
the three and nine months and changes in cash flows for the nine months
Page 7
ended September 30, 1996 and 1995, 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 the first quarter of 1996, the Company received approximately $3,857,000 in
cash which represented damages, costs and interest, as a result of the
arbitration proceedings from Benetton International, N.V. regarding premature
termination of a licensing agreement with the Company. See Note 3 of the Notes
to Consolidated Condensed Financial Statements.
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 had not been able to meet through internally generated funds. In 1979,
the Company entered into a credit agreement with Loews (the "Credit Agreement")
which provides for unsecured loans 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, 1998.
In 1995 the Company repaid its debt to Loews from the proceeds of its sale of
BTI in January 1995. See Note 6 of the Notes to Consolidated Condensed Financial
Statements. It is expected that working capital needs will be provided from
internally generated funds through 1997.
During 1995 the Company reported the collection of $10,554,000 from Loews, which
included $4,200,000 of interest, related to a tax audit adjustment from the
examination of Loews's tax returns for the years 1984 through 1990.
The Company generated net cash flow from operations of $10,744,000 and
$2,115,000 for the nine months ended September 30, 1996 and 1995, respectively.
This increase is due primarily to higher sales, increased collections from
customers and the arbitration judgment discussed above, partially offset by
proceeds from the tax audit adjustment received in 1995.
The Company purchased U.S. Treasury bills for $9,770,000 in cash during the
first quarter of 1996. The securities matured in August 1996 in the amount of
$10,000,000. The Company used a portion of the proceeds to purchase additional
U.S. Treasury bills for $4,869,000 in cash. The securities mature in January
1997 and are classified as available for sale.
Results of Operations:
The following discussion and analysis is exclusive of the following items:
(i) The Company adopted amendments to its postretirement benefit health care
plans and recorded a credit of $1,194,000 during the third quarter of 1996 in
relation thereto. (See Note 4 of the Notes to Consolidated Condensed Financial
Statements.) (ii) The Company recorded a credit of $430,000 during the third
quarter related to an adjustment to the Remaining Shortfall of the Executive
Life annuity. (See Note 5 of the Notes to Consolidated Condensed Financial
Statements.) (iii) During the second quarter of 1995 the Company recognized
$4,200,000 of interest income related to the tax audit adjustment discussed
above. (See Note 7 of the Notes to Consolidated Condensed Financial Statements.)
Page 9
Total revenues increased $7,197,000, or 26.5%, and $11,435,000, or 15.8%, for
the three and nine months ended September 30, 1996 as compared to the prior
year.
Watch and clock revenues increased $7,123,000, or 27.5%, and $11,089,000, or
16.1%, for the three and nine months ended September 30, 1996, as compared to
1995. The increase is attributed to a 9.5% growth in unit sales, principally of
the Company's Bulova and Caravelle brands. In addition, effective January 1,
1996, the Company increased prices, primarily on the Bulova brand, which
contributed to the increased revenues.
Royalties, interest and other revenues increased $74,000, or 5.9%, and $346,000,
or 9.9% for the three and nine months ended September 30, 1996, as compared to
1995.
The Company recognized $998,000, $882,000, $2,855,000 and $2,502,000 in royalty
income for the three and nine months ended September 30, 1996 and 1995,
respectively. Royalty income represents payments by a distributor and licensees
in Europe, the Far East and South America.
Gross profit on net sales for the three and nine months ended September 30, 1996
was 41.6% and 39.7%, as compared to 38.9% and 36.3% for the corresponding
periods of the prior year. This increase is attributed to the price increase
discussed above, in conjunction with a favorable change in the product sales
mix.
Selling, general and administrative expenses as a percentage of net sales for
the three and nine months ended September 30, 1996 was 32.8% and 36.4% as
compared to 38.4% and 39.9% for the corresponding periods of the prior year.
This decrease is a result of higher sales and management's continued efforts to
control discretionary costs.
Income from continuing operations before income taxes increased $2,866,000 and
$5,414,000 for the three and nine months ended September 30, 1996 as compared to
the prior year.
Income taxes for the nine months ended September 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 operations. Approximately
10% 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 nine months
ended September 30, 1996 and 1995. Future foreign currency fluctuations,
however, could impact gross profit, income and cash flow.
Corporate
Related Parties - Loews has provided administrative services for which the
Company paid $183,000, $175,000, $548,000 and $525,000 for the three and nine
months ended September 30, 1996 and 1995. The cost allocated to the Company is
estimated to be the incremental cost incurred by Loews in providing these
services to the Company. Management believes that these costs, if incurred on a
stand-alone basis, could aggregate between $548,000 and $750,000 for the nine
months ended September 30, 1996. Loews is currently re-evaluating the services
and costs which are allocated to the Company. It is expected that the Company
will experience an increase in such costs in 1997, the amount of which has not
been determined as of this date.
Page 10
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, 1996.
(b) Current reports on Form 8-K -- There were no reports on Form 8-K filed for
the three months ended September 30, 1996.
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, 1996 By: /s/ 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-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 11,787
<SECURITIES> 4,914
<RECEIVABLES> 54,667
<ALLOWANCES> 4,185
<INVENTORY> 37,259
<CURRENT-ASSETS> 114,709
<PP&E> 20,356
<DEPRECIATION> 8,474
<TOTAL-ASSETS> 143,101
<CURRENT-LIABILITIES> 19,392
<BONDS> 0
<COMMON> 22,999
0
0
<OTHER-SE> 47,585
<TOTAL-LIABILITY-AND-EQUITY> 143,101
<SALES> 79,992
<TOTAL-REVENUES> 84,248
<CGS> 47,836
<TOTAL-COSTS> 47,836
<OTHER-EXPENSES> 27,159
<LOSS-PROVISION> 1,136
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> 8,097
<INCOME-TAX> 2,843
<INCOME-CONTINUING> 5,254
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,254
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 0
</TABLE>
