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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, 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 August 5, 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-
June 30, 1996 and December 31, 1995 ........................ 3
Consolidated Condensed Statements of Income-
Three and six months ended June 30, 1996 and 1995 .......... 4
Consolidated Condensed Statements of Cash Flows-
Six months ended June 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 ........................... 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K ....................... 9
Exhibit 27--Financial Data Schedule for the six months ended
June 30, 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)
June 30, December 31,
1996 1995
-------------------------
<S> <C> <C>
Assets
------
Current assets:
Cash ......................................................... $ 11,131 $ 5,963
Investment in U.S. Government securities ..................... 9,955
Accounts and notes receivable-net ............................ 39,481 50,958
Inventories, principally watches and clocks .................. 39,500 38,914
Prepaid expenses ............................................. 1,435 1,453
Deferred income taxes ........................................ 7,133 7,470
------------------------
Total current assets ..................................... 108,635 104,758
------------------------
Property, plant and equipment-net .............................. 11,988 12,260
------------------------
Other assets:
Deferred income taxes ........................................ 16,567 16,711
Other ........................................................ 428 398
------------------------
Total other assets ....................................... 16,995 17,109
------------------------
Total assets ............................................. $137,618 $134,127
========================
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable ............................................. $ 3,362 $ 3,351
Accrued expenses ............................................. 13,449 14,142
Accrued federal and foreign income taxes ..................... 241 55
Current installments of long-term debt ....................... 200
------------------------
Total current liabilities ................................ 17,052 17,748
------------------------
Other liabilities and credits:
Postretirement benefits payable .............................. 43,133 43,143
Pension benefits payable ..................................... 4,310 4,712
Other ........................................................ 6,439 3,061
------------------------
Total other liabilities and credits ...................... 53,882 50,916
------------------------
Shareholders' equity ........................................... 66,684 65,463
------------------------
Total liabilities and shareholders' equity ............... $137,618 $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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
-----------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Net sales ...................................... $22,666 $20,191 $47,012 $43,046
Interest, royalties and other .................. 1,297 5,321 2,495 6,423
-----------------------------------------
Total revenues ............................. 23,963 25,512 49,507 49,469
-----------------------------------------
Expenses:
Cost of sales .................................. 13,903 13,703 28,948 28,057
Selling, general and administrative ............ 9,027 8,045 18,325 17,526
-----------------------------------------
Total expenses ............................. 22,930 21,748 47,273 45,583
-----------------------------------------
Income from operations before income tax expense . 1,033 3,764 2,234 3,886
Income tax expense ............................... (363) (3,077) (863) (3,134)
-----------------------------------------
Income from operations ........................... 670 687 1,371 752
Gain on disposal of discontinued operations of BTI
(net of tax of $195) ............................ 363
-----------------------------------------
Net income ...................................... $ 670 $ 687 $ 1,371 $ 1,115
=========================================
Net income per share:
Income from operations ......................... $ .15 $ .15 $ .30 $ .16
Gain on disposal of discontinued operations of
BTI ........................................... .08
-----------------------------------------
Net income ..................................... $ .15 $ .15 $ .30 $ .24
=========================================
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,
1996 1995
----------------------
<S> <C> <C>
Operating Activities:
Net income ................................................... $ 1,371 $ 1,115
Adjustments to reconcile net income to net cash provided by
operating activities ........................................ 1,990 4,783
Amortization of investments .................................. (188)
Gain on disposition of assets ................................ (34)
Gain on sale of BTI .......................................... (558)
Changes in assets and liabilities-net:
Receivables ................................................ 10,312 5,792
Inventories ................................................ (586) (5,796)
Prepaid expenses ........................................... 18 (438)
Other assets ............................................... (30) (118)
Accounts payable and accrued expenses ...................... (682) (3,151)
Accrued federal and foreign income taxes ................... 186 10
Other liabilities and credits .............................. 2,819 1,570
----------------------
15,176 3,209
----------------------
Investing Activities:
Purchases of U.S. Government securities ...................... (9,770) (4,793)
Purchases of property, plant and equipment ................... (72) (115)
Proceeds from disposal of property, plant and equipment ...... 34
Proceeds from disposal of BTI ................................ 20,810
----------------------
(9,808) 15,902
----------------------
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 ............................................. 5,168 (89)
Cash, beginning of period ...................................... 5,963 3,857
----------------------
Cash, end of period ............................................ $ 11,131 $ 3,768
======================
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. 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 and six months ended June 30, 1996 and 1995
include federal tax expense to the Company of $175,000, $3,485,000,
$241,000 and $3,242,000, 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 three and six months ended
June 30, 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.
Page 6
6. Loews provides administrative and managerial services for which the Company
was charged $190,000, $175,000, $365,000 and $350,000 for the three and six
months ended June 30, 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 $365,000
and $500,000.
7. Shareholders' equity:
<TABLE>
<CAPTION>
June 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 ............................. 22,148 20,777
Cumulative translation adjustment ............. (1,228) (1,081)
Pension liability adjustment .................. (424) (424)
Unrealized depreciation ....................... (3)
----------------------
Total ...................................... 66,689 65,468
Less treasury stock, at cost .................. 5 5
----------------------
Total shareholders' equity ................. $66,684 $65,463
======================
</TABLE>
8. 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.
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, 1996 and December 31, 1995 and the results of operations for the
three and six months and changes in cash flows for the six months ended
June 30, 1996 and 1995, respectively.
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 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
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 4 of the Notes to Consolidated Condensed Financial
Statements. It is expected that working capital needs will be provided from
internally generated funds in 1996.
The Company generated net cash flow from operations of $15,176,000 and
$3,209,000 for the six months ended June 30, 1996 and 1995, respectively. This
increase is due primarily to increased collections from customers and the
arbitration judgment discussed above.
The Company purchased U.S. Treasury bills for $9,770,000 in cash during the
first quarter of 1996. The securities mature in August 1996 and are classified
as available for sale.
Results of Operations:
Total revenues decreased $1,549,000, or 6.1%, and increased $38,000, or 0.1%,
for the three and six months ended June 30, 1996 as compared to the prior year.
Watch and clock revenues increased $2,475,000, or 12.3%, and $3,966,000, or
9.2%, for the three and six months ended June 30, 1996, as compared to 1995. The
increase primarily reflects growth in unit sales 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 declined as compared to the prior year
due to the $4,200,000 of interest income recognized during the second quarter of
1995, related to the tax audit adjustment discussed above. Exclusive of that
transaction, royalties, interest and other revenues increased $176,000, or
15.7%, and $272,000, or 12.2% for the three and six months ended June 30, 1996,
as compared to 1995 due primarily to higher royalty income. The Company
recognized $941,000, $790,000, $1,857,000 and $1,620,000 in royalty income for
the three and six months ended June 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 six months ended June 30, 1996 was
38.7% and 38.4%, as compared to 32.1% and 34.8% for the corresponding periods
Page 8
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.
Income from continuing operations before income taxes declined as compared to
the prior year due to the $4,200,000 of interest income recognized during the
second quarter of 1995, related to the tax audit adjustment discussed above.
Exclusive of that transaction, income from continuing operations before income
taxes increased $1,469,000 and $2,548,000 for the three and six months ended
June 30, 1996, as compared to the prior year.
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 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 six months
ended June 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 $190,000, $175,000, $365,000 and $350,000 for the three and six
months ended June 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 $365,000 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,
1996.
(b) Current reports on Form 8-K -- There were no reports on Form 8-K filed for
the three months ended June 30, 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: August 14, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 11,131
<SECURITIES> 9,955
<RECEIVABLES> 43,060
<ALLOWANCES> 3,579
<INVENTORY> 39,500
<CURRENT-ASSETS> 108,635
<PP&E> 20,305
<DEPRECIATION> 8,317
<TOTAL-ASSETS> 137,618
<CURRENT-LIABILITIES> 17,052
<BONDS> 0
<COMMON> 22,999
0
0
<OTHER-SE> 43,685
<TOTAL-LIABILITY-AND-EQUITY> 137,618
<SALES> 47,012
<TOTAL-REVENUES> 49,507
<CGS> 28,948
<TOTAL-COSTS> 28,948
<OTHER-EXPENSES> 17,820
<LOSS-PROVISION> 490
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> 2,234
<INCOME-TAX> 863
<INCOME-CONTINUING> 1,371
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,371
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0
</TABLE>
