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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 March 31, 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 May 3, 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-
March 31, 1996 and December 31, 1995 ....................... 3
Consolidated Condensed Statements of Income -
Three months ended March 31, 1996 and 1995 ................. 4
Consolidated Condensed Statements of Cash Flows-
Three months ended March 31, 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 ........................... 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K ....................... 9
Exhibit 27--Financial Data Schedule for the three months ended
March 31, 1996 ............................................ 11
Page 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
<TABLE>
<CAPTION>
Bulova Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(Amounts in thousands)
March 31, December 31,
1996 1995
-----------------------
<S> <C> <C>
Assets
------
Current assets:
Cash ......................................................... $ 12,262 $ 5,963
Investment in U.S. Government securities ..................... 9,825
Accounts and notes receivable-net ............................ 36,959 50,958
Inventories .................................................. 40,033 38,914
Prepaid expenses ............................................. 1,261 1,453
Deferred income taxes ........................................ 7,193 7,470
----------------------
Total current assets ..................................... 107,533 104,758
----------------------
Property, plant and equipment-net .............................. 12,120 12,260
----------------------
Other assets:
Deferred income taxes ........................................ 16,643 16,711
Other ........................................................ 419 398
----------------------
Total other assets ....................................... 17,062 17,109
----------------------
Total assets ............................................. $136,715 $134,127
======================
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt ....................... $ 200 $ 200
Accounts payable ............................................. 3,622 3,351
Accrued expenses ............................................. 12,560 14,142
Accrued federal and foreign income taxes ..................... 66 55
----------------------
Total current liabilities ................................ 16,448 17,748
----------------------
Other liabilities and credits:
Postretirement benefits payable .............................. 43,176 43,143
Pension benefits payable ..................................... 4,511 4,712
Other ........................................................ 6,582 3,061
----------------------
Total other liabilities and credits ...................... 54,269 50,916
----------------------
Shareholders' equity ........................................... 65,998 65,463
----------------------
Total liabilities and shareholders' equity ............... $136,715 $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
March 31,
1996 1995
---------------------
<S> <C> <C>
Revenues:
Net sales .................................................... $24,346 $22,855
Interest, royalties and other ................................ 1,198 1,102
---------------------
Total revenues ........................................... 25,544 23,957
---------------------
Expenses:
Cost of sales ................................................ 15,045 14,354
Selling, general and administrative .......................... 9,298 9,481
---------------------
Total expenses ........................................... 24,343 23,835
---------------------
Income from operations before income tax expense ............... 1,201 122
Income tax expense ............................................. (500) (57)
---------------------
Income from operations ......................................... 701 65
Gain on disposal of discontinued operations of BTI (net of tax
of $195) ..................................................... 363
---------------------
Net income ..................................................... $ 701 $ 428
=====================
Net income per share:
Income from operations ....................................... $ .15 $ .01
Gain on disposal of discontinued operations of BTI ........... .08
---------------------
Net income ..................................................... $ .15 $ .09
=====================
Weighted average number of shares outstanding .................. 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)
Three Months Ended
March 31,
1996 1995
----------------------
<S> <C> <C>
Operating Activities:
Net income ................................................... $ 701 $ 428
Adjustments to reconcile net income to net cash provided
by operating activities ..................................... 1,082 4,065
Amortization of investments .................................. (68)
Gain on disposition of assets ................................ (17)
Gain on disposal of BTI ...................................... (558)
Changes in assets and liabilities-net:
Receivables ................................................ 13,436 8,203
Inventories ................................................ (1,119) (744)
Prepaid expenses ........................................... 192 138
Other assets ............................................... (21) (89)
Accounts payable and accrued expenses ...................... (1,311) (1,800)
Accrued federal and foreign income taxes ................... 11 (1,768)
Other liabilities and credits .............................. 3,200 914
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16,086 8,789
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Investing Activities:
Proceeds from disposal of BTI ................................ 20,810
Purchases of U.S. Government securities ...................... (9,770)
Proceeds from sale of property, plant and equipment .......... 17
Purchases of property, plant and equipment ................... (34) (40)
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(9,787) 20,770
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Financing Activities:
Principal payments on debt to affiliate ...................... (19,000)
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(19,000)
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Net change in cash ............................................. 6,299 10,559
Cash, beginning of period ...................................... 5,963 3,857
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Cash, end of period ............................................ $12,262 $ 14,416
=====================
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 represents damages, costs
and interest. The funds received by the Company are subject to return by the
Company together with interest, if the Dutch courts ultimately uphold
Benetton's petition to overturn the arbitral award. Accordingly the Company
has recorded a deferred credit during the first quarter in the amount of
$3,874,000.
4. 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.
5. Income taxes for the three months ended March 31, 1996 and 1995 include
federal tax expense to the Company of $66,000, and $243,000, respectively,
related to the tax allocation agreement between the Company and its parent,
Loews Corporation ("Loews").
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.
6. Loews provides administrative and managerial services for which the Company
was charged $175,000 for each of the three months ended March 31, 1996 and
1995. 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 $175,000 and $250,000.
Page 6
7. The Company's inventories are comprised of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------------------
(In thousands)
<S> <C> <C>
Watches and clocks ........................... $37,673 $35,914
Other ........................................ 2,360 3,000
----------------------
Total .................................... $40,033 $38,914
======================
</TABLE>
8. Shareholders' equity:
<TABLE>
<CAPTION>
March 31, 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 ............................ 21,478 20,777
Cumulative translation adjustment ............ (1,234) (1,081)
Pension lability adjustment .................. (424) (424)
Unrealized depreciation ...................... (13)
----------------------
Total .................................... 66,003 65,468
Less treasury stock, at cost ................. 5 5
----------------------
Total shareholders' equity ............... $65,998 $65,463
======================
</TABLE>
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
March 31, 1996 and December 31, 1995 and the results of operations and
changes in cash flows for the three months ended March 31, 1996 and 1995,
respectively.
Results of operations for the first quarter of each of the years is not
necessary indicative of results of operations for that entire year.
Page 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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Liquidity and Capital Resources:
In the first quarter of 1996, the Company received approximately $3,857,000 in
relation to an arbitration proceeding regarding a license agreement, the
retention of which is subject to final resolution of appeals now pending. 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 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 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, 1997.
The Company has repaid all its indebtedness to Loews from the proceeds of the
sale of a subsidiary in January 1995. See Note 4 of the Notes to Consolidated
Condensed Financial Statements. It is expected that the Company's working
capital needs for 1996 will be provided from internally generated funds.
The Company generated net cash flow from operations of $16,086,000 and
$8,789,000 for the three months ended March 31, 1996 and 1995, respectively.
This increase is due primarily to increased collections from customers and the
arbitration judgment discussed above, partially offset by an increase in
inventory purchases of approximately $1,172,000.
The Company purchased U.S. Treasury bills for $9,770,000 in cash during the
three months ended March 31, 1996. The securities mature in August 1996 and are
classified as available for sale.
Results of Operations:
Total revenues increased $1,587,000, or 6.6%, for the three months ended March
31, 1996 as compared to the prior year.
Watch and clock revenue increased $1,491,000, or 6.5%, for the three months
ended March 31, 1996, as compared to 1995. The increase is due to overall higher
unit prices and sales volume. Unit prices increased 7.4%, while unit volume
increased 2.1%, as compared to 1995. The watch and clock revenue increase is
attributable to the Bulova watch brand, partially offset by the decline in clock
sales volume for the three months ended March 31, 1996, as compared to the prior
year.
Royalties, interest and other revenues increased $96,000, or 8.7%, for the three
months ended March 31, 1996, as compared to 1995. The increase is primarily
attributable to increased royalty income. The Company recognized $916,000 and
$830,000 in royalty income for the first quarter of 1996 and 1995, respectively.
Royalty income represents payments by a distributor and licensees in Europe, the
Far East and South America.
Cost of sales as a percentage of net sales decreased 1.0% as compared to the
prior year. The decrease is attributable to a change in the product sales mix
and improved procurement practices. Selling, general and administrative expenses
Page 8
as a percentage of net sales decreased 3.3% as compared to 1995. This decrease
represents management's efforts to control discretionary costs.
Income from operations before income taxes increased $1,079,000 as compared to
the prior year. The increase in gross profit and income from operations is
primarily attributable to the price increase described above, a favorable
product mix and reduced discretionary costs.
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 the operations for the quarters ended
March 31, 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 $175,000 for the quarters ended March 31, 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. Management believes that these
costs, if incurred on a stand-alone basis, could aggregate between $175,000 and
$250,000.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits --
(27) Financial Data Schedule for the three months ended March 31, 1996.
(b) Current reports on Form 8-K -- There were no reports on Form 8-K filed for
the three months ended March 31, 1996.
Page 9
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: May 10, 1996 By: /s/ Paul S. Sayegh
-----------------------
PAUL S. SAYEGH
Chief Operating Officer
(Duly authorized
officer and principal
financial officer)
Page 10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 12,262
<SECURITIES> 9,825
<RECEIVABLES> 40,415
<ALLOWANCES> 3,456
<INVENTORY> 40,033
<CURRENT-ASSETS> 107,533
<PP&E> 20,263
<DEPRECIATION> 8,143
<TOTAL-ASSETS> 136,715
<CURRENT-LIABILITIES> 16,448
<BONDS> 0
<COMMON> 22,999
0
0
<OTHER-SE> 42,999
<TOTAL-LIABILITY-AND-EQUITY> 136,715
<SALES> 24,346
<TOTAL-REVENUES> 25,544
<CGS> 15,045
<TOTAL-COSTS> 15,045
<OTHER-EXPENSES> 9,032
<LOSS-PROVISION> 257
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> 1,201
<INCOME-TAX> 500
<INCOME-CONTINUING> 701
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 701
<EPS-PRIMARY> .15
<EPS-DILUTED> 0
</TABLE>
