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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
------------- -------------
Commission File Number 1-457
BULOVA CORPORATION
(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, New York 11377-7874
(Address of principal executive offices) (Zip Code)
(718) 204-3300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $5.00 per share
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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
--------- ---------
As at February 28, 1997, 4,599,857 shares of Common Stock of the Registrant
were outstanding and the aggregate market value of voting stock held by non-
affiliates was approximately $665,000.
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Page 1
BULOVA CORPORATION
INDEX TO ANNUAL REPORT ON
FORM 10-K FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION
For The Year Ended December 31, 1996
<TABLE>
<CAPTION>
Item Page
No. PART I No.
---- ----
<S> <C> <C>
1 BUSINESS .......................................................... 3
2 PROPERTIES ........................................................ 4
3 LEGAL PROCEEDINGS ................................................. 4
4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............... 4
PART II
5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS .......................................................... 4
6 SELECTED FINANCIAL DATA ........................................... 5
7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ............................................ 5
8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ....................... 8
9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE ............................................. 20
PART III
10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ................ 21
11 EXECUTIVE COMPENSATION ............................................ 22
12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT .... 23
13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .................... 24
PART IV
14 EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K .... 25
</TABLE>
Page 2
PART I
Item 1. Business.
Bulova Corporation (together with its subsidiaries referred to herein as
"Registrant" or the "Company," unless the context otherwise requires) is a New
York corporation. Loews Corporation ("Loews") owns approximately 97% of
Registrant's outstanding Common Stock. See Item 12 below of this Form 10-K.
Registrant is engaged in the distribution and sale of watches, clocks and
timepiece parts for consumer use. The principal watch brands are Bulova,
Caravelle, Accutron and Sportstime. Clocks are principally sold under the Bulova
brand name. The Registrant's market segment breakdown includes a luxury watch
line represented by Accutron, a mid-ranged priced watch brand represented by
Bulova, and a lower-priced watch line represented by Caravelle. In addition, the
Registrant's Sportstime by Bulova brand, with watches using names and logos of
various professional and college athletic teams, is sold at various price
levels.
Bulova's principal markets are the United States and Canada, which accounted
for 90% and 10%, respectively, of sales. In most other areas of the world,
Registrant has appointed licensees who market watches under Registrant's
trademarks in return for a royalty. For additional information concerning
Registrant's sales in foreign markets, see Note 7 of the Notes to Consolidated
Financial Statements included in Item 8 of this Form 10-K.
Registrant buys complete watches and clocks from foreign suppliers for
substantially all of its products. Watch movements, cases and other components
are also purchased from foreign suppliers. In the United States, most of
Registrant's consumer products are sold through major department stores, jewelry
store chains, and premium outlets through Registrant's commission sales force
and outside sales representatives. In Canada, Registrant, through a marketing
subsidiary, sells directly to retailers. The customer base is comprised of large
retailers, small local chains and local independent jewelry shops. In fiscal
1996, one customer represented approximately 12% of sales. No other customer
represented more than 10% of the Company's sales.
The business is intensely competitive. The principal methods of competition
are price, styling, product availability, aftersale service, warranty and
product performance. In all six categories, Registrant occupies a favorable
position of long standing. There are approximately ten major competitors with
well established names and positions in the principal markets in which
Registrant competes. At least three of these have sales and assets substantially
greater than Registrant. In addition, there are an indeterminate number of minor
competitors.
It is characteristic of Registrant's business and of the watch industry
generally that customer receivables from watch sales are carried for relatively
long periods. Registrant grants its retailers seasonal credit terms, depending
on the product and date of sale. In certain circumstances, Registrant also
extends credit to its retailers on an interest-bearing basis.
Any backlog of orders is not believed to be significant. The business is
seasonal; with the greatest sales coming in the third and fourth fiscal quarters
in expectation of the holiday selling season.
Employees
Registrant currently employs approximately 440 persons, approximately 135 of
whom are union members, and has experienced satisfactory labor relations. The
Company has comprehensive benefit plans for substantially all employees.
Page 3
Item 2. Properties.
The Company owns an 80,000 square foot plant in Woodside, New York used for
executive and sales offices, watch distribution, service and warehouse purposes.
In addition, the Company leases a 71,000 square foot plant in Maspeth, New York,
for clock service and warehouse purposes, and a 25,000 square foot plant in
Toronto, Canada, for watch and clock sales and service.
Item 3. Legal Proceedings.
Pending litigation includes various civil actions for damages. On the basis of
the facts presently known to it, management does not believe that these actions
will have a material adverse effect upon the financial condition or results of
operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
MARKET PRICES
The following table sets forth, for the periods indicated, the high and low
bid prices for the Company's Common Stock in the over-the-counter market as
reported by Carr Securities Corp. These quotations represent prices between
dealers and do not include retail mark-up, mark-down or commissions. They do not
represent actual transactions.
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------
High Low High Low
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter ................. 4 1/4 4 1/4 3 3/4 3
Second Quarter ................ 4 1/4 4 1/4 4 3 3/4
Third Quarter ................. 4 1/4 4 1/4 4 4
Fourth Quarter ................ 4 3/4 4 1/4 4 1/4 4
</TABLE>
DIVIDEND INFORMATION
The Company paid no dividends for the years ended December 31, 1996 and 1995.
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
There were approximately 1,500 holders of record of common stock of the
Company at February 28, 1997.
Page 4
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Results of Operations:
Revenues....................... $120,792 $109,223 $100,046 $101,303 $ 98,841
Income (loss) from continuing
operations.................... 7,001 2,269 532 1,911 (1,342)
Per share...................... 1.52 .49 .11 .41 (.29)
Income before cumulative
effect of accounting changes 7,001 2,632 834 2,514 4,793
Per share...................... 1.52 .57 .18 .54 1.04
Net income (loss).............. 7,001 2,632 834 2,514 (13,189)
Per share...................... 1.52 .57 .18 .54 (2.87)
Financial Position:
Total assets................... 148,454 134,127 151,035 149,865 165,489
Discontinued operations-net.... - - 20,082 15,445 11,245
Long-term debt................. - - 200 600 1,000
Debt to affiliate.............. - - 19,000 16,000 31,000
Shareholders' equity........... 72,381 65,463 62,930 64,101 61,893
Dividends per share............ None None None None None
Shares of common stock
outstanding .................. 4,599 4,599 4,599 4,599 4,599
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
The Company generated net cash flow from operations of $9,569,000 for the year
ended December 31, 1996. The Company generated (utilized) net cash flow from
operations of $528,000 and $(3,931,000) for the years ended December 31, 1995
and 1994, respectively.
The increase in net cash flow is due primarily to increased sales and
collections from customers and the collection of an arbitral award, as well as a
tax audit adjustment discussed below.
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 (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 pensions and 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 consolidated federal tax returns for 1984 through 1990.
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 with Benetton International, N.V. ("Benetton") regarding
premature termination of a licensing agreement, which is subject to return under
certain circumstances. See Contingencies below.
In previous years, the Company relied on Loews, which owns approximately 97% of
the Company's common stock, to meet working capital needs which the Company was
not able to meet through internally generated funds. In 1979, the Company
entered into a Credit Agreement with Loews which provides 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
Page 5
Company and Loews. The Credit Agreement currently expires June 30, 1998.
The Company has not required any working capital advances from Loews since the
entire debt of $19,000,000 under the Credit Agreement was paid in January 1995.
The decrease in borrowing reflects the increased cash flow, the Benetton
arbitral award, sale of BTI and tax settlement, as noted above.
The Company expects to generate sufficient cash flow from operations in 1997.
While Loews has no obligation to enter into or maintain arrangements for any
further borrowing, it is anticipated that should the Company require working
capital advances, they would be provided by Loews under the Credit Agreement.
See Note 2 of the Notes to Consolidated Financial Statements.
Contingencies
In 1991, the Company and a third party commenced an arbitration proceeding
before the Netherlands Arbitration Institute contesting the attempt of 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 damages award and on February 12, 1996, the Company received
approximately $3,857,000 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.
During the third quarter of 1995, the Company provided for a liability of
$150,000 in relation to an environmental condition at a former Jackson Heights,
N.Y. watch manufacturing facility which the Company agreed to remediate. During
the fourth quarter of 1995, the Company provided for an additional liability,
related to an environmental condition at its Woodside, N.Y. facility, of
$100,000 for the estimated clean-up expense required. Additional testing and
further evaluation is required before a definitive cost of ultimate clean-up can
be determined. These liabilities, therefore, may require future revisions.
The impact of environmental remediation liabilities will directly affect cash
flow from operations. The environmental remediation liability recognized in the
Company's financial statements at December 31, 1996 of $639,000 represents the
minimum of the Company's estimated range of equally likely outcomes, the upper
limit of that range is approximately $1,239,000.
Management does not believe that the foregoing matters will have a material
adverse effect on the Company's financial condition or results of operations.
Management believes that liabilities accrued by the Company represent a
reasonable estimate for various legal and environmental matters for which it
believes it is probable that a liability exists or a settlement will be
negotiated. See Note 9 of the Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
Total revenues increased $11,569,000 and $20,746,000, or 10.6% and 20.7%, as
compared to 1995 and 1994, respectively.
Watch and clock revenues increased $14,664,000 and $21,389,000, or 14.6% and
22.8%, over 1995 and 1994, respectively. The increase is due to overall
higher unit prices and sales volume, and a favorable change in the product sales
mix. Unit prices increased 4.0% and 8.6%, while unit volume increased 10.2% and
13.1%, as compared to 1995 and 1994, respectively.
Effective January 1, 1996, the Company selectively increased prices, primarily
on the Bulova brand, which contributed to the increased revenues. New style
introductions, combined with a consistent marketing effort focused on brand
image, resulted in significant growth of the Bulova and Caravelle watch brands,
which posted combined increases of $16,568,000 and $21,650,000, or 24.4% and
34.4%, as compared to 1995 and 1994.
Royalties, interest and other revenues include $4,200,000 of interest income
recognized during the second quarter of 1995, related to the tax audit
adjustment discussed above, as well as a credit of $430,000, recognized in 1996,
due to a revision to the Company's estimated liability related to the Executive
Life shortfall. See Note 9 of the Notes to Consolidated Financial Statements.
The Company recorded a favorable foreign currency adjustment of $1,472,000 in
1994 related to the shut-down of its European facilities. Exclusive of the
above transactions, royalties, interest and other revenues increased by $675,000
and $399,000 as compared to 1995 and 1994. The increase as compared to 1995 is
primarily related to increased royalties. The increase as compared to 1994 is
attributable to higher interest income.
The Company recognized $3,863,000, $3,197,000 and $3,780,000 in royalty income
in 1996, 1995 and 1994, respectively. Royalty income represents payments by a
distributor and licensees principally in Europe, the Far East and South America.
Two agreements were
Page 6
renegotiated in 1996. As a result, the Company expects a decline of
approximately $375,000 in 1997, which will directly impact results of operations
and cash flow. Included in royalty income are royalties under the "Benetton by
Bulova" license agreement of $106,000 and $1,484,000 for the years ended 1995
and 1994, respectively. The license agreement with Benetton expired September
30, 1994.
The Company has adopted amendments to its postretirement benefit health care
plan which has reduced the related health care costs incurred by the Company.
Selling, general and administrative expenses include postretirement benefit
costs of $443,000, $2,152,000 and $3,157,000 for the years ended 1996, 1995 and
1994, respectively. The cost savings have contributed to the favorable results
discussed below. See Note 5 of the Notes to Consolidated Financial Statements.
Environmental costs of $250,000 and $1,545,000 were included in selling, general
and administrative expenses for 1995 and 1994, respectively. Exclusive of these
items, selling, general and administrative expenses as a percentage of net sales
for the year ended December 31, 1996 was 36.8%, as compared to 38.9% and 41.0%
for the years ended December 31, 1995 and 1994, respectively. This reduction
represents management's continued efforts to control discretionary spending.
Income from continuing operations before income taxes was affected by the
$4,200,000 of interest income recognized during 1995 related to the tax audit
adjustment discussed above. Exclusive of that transaction, income from
continuing operations before income taxes increased $9,113,000 and $10,886,000
as compared to 1995 and 1994, respectively. This increase is primarily
attributable to reduced postretirement benefit and environmental costs, the
increased revenues, as discussed above, favorable changes in the product sales
mix and improved procurement practices.
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 years ended December
31, 1996, 1995 and 1994. 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 $730,000, $700,000 and $1,200,000 for the years ended December
31, 1996, 1995 and 1994, respectively. The cost allocated to the Company is
estimated to be the incremental cost incurred by Loews in providing these
services to the Company. Loews re-evaluated the services and costs which are
allocated to the Company during the fourth quarter of 1996. As a result, the
costs will increase by $1,334,000 to $2,064,000 in 1997. The additional cost
will reduce income and cash flow. See Note 2 of the Notes to Consolidated
Financial Statements.
Taxes - For the year ended December 31, 1995, income taxes included a charge of
$1,772,000 caused by the limitation on the utilization of certain tax attributes
in connection with the tax audit adjustment. See Note 4 of the Notes to
Consolidated Financial Statements.
Other - As previously discussed, in January 1995 the Company sold its industrial
and defense manufacturing business, 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, and reported as results from
discontinued operations.
ACCOUNTING STANDARDS
In October 1996, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position No. 96-1, "Environmental Remediation Liabilities,"
which among other things, sets forth criteria for accrual of costs in relation
to clean-up and remediation of environmental conditions. It is effective for
fiscal years beginning after December 15, 1996, and will not have a significant
impact on the Company.
Page 7
Item 8. Financial Statements and Supplementary Data.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
Assets:
- -------------------------------------------------------------------------------
December 31 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash $ 10,665,000 $ 5,963,000
Investment in U.S. government securities 4,978,000
Receivables, less allowance for doubtful
accounts and cash discounts of $4,062,000
and $3,146,000 (Note 1) 54,417,000 50,958,000
Inventories (Note 1) 37,130,000 38,914,000
Prepaid expenses (Note 5) 3,174,000 1,453,000
Deferred income taxes (Notes 1 and 4) 8,232,000 7,470,000
- -------------------------------------------------------------------------------
Total current assets 118,596,000 104,758,000
- -------------------------------------------------------------------------------
Property, plant and equipment, at cost
(Notes 1 and 8):
Land, buildings and improvements 14,090,000 14,090,000
Machinery and equipment 2,523,000 2,571,000
Furniture, fixtures and leasehold improvements 3,703,000 3,597,000
- -------------------------------------------------------------------------------
20,316,000 20,258,000
Less accumulated depreciation and amortization 8,734,000 7,998,000
- -------------------------------------------------------------------------------
Property, plant and equipment-net 11,582,000 12,260,000
- -------------------------------------------------------------------------------
Other assets:
Deferred income taxes (Notes 1 and 4) 17,437,000 16,711,000
Other assets 839,000 398,000
- -------------------------------------------------------------------------------
Total other assets 18,276,000 17,109,000
- -------------------------------------------------------------------------------
Total assets $148,454,000 $134,127,000
===============================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
Page 8
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
- -------------------------------------------------------------------------------
December 31 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 3,442,000 $ 3,351,000
Accrued expenses:
Salaries, wages and commissions 3,576,000 2,462,000
Postretirement benefits (Note 5) 1,288,000 1,746,000
Advertising 2,128,000 1,706,000
Warranty 1,030,000 1,324,000
Other 9,945,000 6,904,000
Accrued federal and foreign income taxes
(Notes 1 and 4) 1,663,000 55,000
Current installments of long-term debt 200,000
- -------------------------------------------------------------------------------
Total current liabilities 23,072,000 17,748,000
- -------------------------------------------------------------------------------
Other liabilities and credits:
Postretirement benefits payable (Note 5) 42,754,000 43,143,000
Pension benefits payable (Note 5) 4,055,000 4,712,000
Other 6,192,000 3,061,000
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Total other liabilities and credits 53,001,000 50,916,000
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Commitments and contingent liabilities
(Notes 2, 4, 5, 8 and 9)
Shareholders' equity (Note 1):
Common stock, $5 par value:
Authorized: 7,500,000 shares
Issued: 4,600,000 shares 22,999,000 22,999,000
Additional paid-in capital 23,197,000 23,197,000
Retained earnings 27,778,000 20,777,000
Cumulative translation adjustment (1,251,000) (1,081,000)
Pension liability adjustment (337,000) (424,000)
- -------------------------------------------------------------------------------
72,386,000 65,468,000
Less 1,000 shares of common stock held in
treasury, at cost 5,000 5,000
- -------------------------------------------------------------------------------
Total shareholders' equity 72,381,000 65,463,000
- -------------------------------------------------------------------------------
Total liabilities and shareholders' equity $148,454,000 $134,127,000
===============================================================================
</TABLE>
Page 9
<TABLE>
<CAPTION>
STATEMENTS OF CONSOLIDATED INCOME
Year Ended December 31 1996 1995 1994
- -------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C>
Net sales $115,113,000 $100,449,000 $ 93,724,000
Royalties, interest and other
(Note 4) 5,679,000 8,774,000 6,322,000
- -------------------------------------------------------------------------------
Total 120,792,000 109,223,000 100,046,000
- -------------------------------------------------------------------------------
Expenses:
Cost of sales 66,756,000 63,160,000 59,267,000
Selling, general and
administrative (Notes 2
and 5) 42,341,000 39,149,000 39,416,000
Interest:
Affiliate (Note 2) 75,000 467,000
Others 26,000 83,000 113,000
- -------------------------------------------------------------------------------
Total 109,123,000 102,467,000 99,263,000
- -------------------------------------------------------------------------------
Income from continuing
operations before
income taxes 11,669,000 6,756,000 783,000
Income tax expense
(Notes 1 and 4) 4,668,000 4,487,000 251,000
- -------------------------------------------------------------------------------
Income from continuing
operations 7,001,000 2,269,000 532,000
Discontinued operations of BTI
(net of tax of $195,000 and
$155,000) (Note 3) 363,000 302,000
- -------------------------------------------------------------------------------
Net income $ 7,001,000 $ 2,632,000 $ 834,000
===============================================================================
Income per share (Note 1):
Income from continuing
operations $ 1.52 $ .49 $ .11
Discontinued operations of BTI .08 .07
- -------------------------------------------------------------------------------
Net income $ 1.52 $ .57 $ .18
===============================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
Page 10
<TABLE>
<CAPTION>
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Additional Cumulative Pension
Common Paid-in Retained Translation Liability Treasury
Stock Capital Earnings Adjustment Adjustment Stock
- -------------------------------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, Dec. 31, 1993 $22,999 $23,197 $17,311 $ 599 $ (5)
Net income 834
Exchange rate changes
during the year (net
of income tax
benefit of $287) (533)
Foreign currency
adjustment (1,472)
- -------------------------------------------------------------------------------------------------
Balance, Dec. 31, 1994 22,999 23,197 18,145 (1,406) (5)
Net income 2,632
Exchange rate changes
during the year (net
of income taxes
of $175) 325
Pension liability
adjustment (Note 5) $(424)
- -------------------------------------------------------------------------------------------------
Balance, Dec. 31, 1995 22,999 23,197 20,777 (1,081) (424) (5)
Net income 7,001
Exchange rate changes
during the year (net
of income tax
benefit of $92) (170)
Pension liability
adjustment (Note 5) 87
- -------------------------------------------------------------------------------------------------
Balance, Dec. 31, 1996 $22,999 $23,197 $27,778 $(1,251) $(337) $ (5)
=================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
Page 11
<TABLE>
<CAPTION>
STATEMENTS OF CONSOLIDATED CASH FLOWS
Year Ended December 31 1996 1995 1994
- -------------------------------------------------------------------------------
Operating Activities:
<S> <C> <C> <C>
Net income $ 7,001,000 $ 2,632,000 $ 834,000
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Amortization of investments (339,000) (345,000)
Depreciation and amortization 773,000 667,000 608,000
(Gain) loss on disposition of
assets (67,000) (558,000) 165,000
Provision for losses and cash
discounts on accounts receivable 3,194,000 2,174,000 2,577,000
Deferred income taxes (1,488,000) 2,567,000 39,000
Changes in operating assets and
liabilities-net:
Receivables (6,653,000) (1,878,000) (6,099,000)
Inventories 1,784,000 (3,164,000) 4,528,000
Prepaid expenses (1,721,000) (1,124,000) 191,000
Net assets of discontinued
operations (4,637,000)
Other assets (441,000) (133,000) 127,000
Accounts payable and accrued
expenses 3,916,000 1,000 730,000
Accrued federal and foreign
income taxes 1,608,000 (463,000) (637,000)
Other-net 2,002,000 152,000 (2,357,000)
- -------------------------------------------------------------------------------
9,569,000 528,000 (3,931,000)
- -------------------------------------------------------------------------------
Investing activities:
Purchases of U.S. government
securities (14,639,000) (5,655,000)
Proceeds from sales of U.S.
government securities 10,000,000 6,000,000
Purchases of property, plant
and equipment (112,000) (177,000) (462,000)
Proceeds from disposal of
property, plant and equipment 84,000 11,000
Proceeds from disposal of BTI 20,810,000
- -------------------------------------------------------------------------------
(4,667,000) 20,978,000 (451,000)
- -------------------------------------------------------------------------------
Financing activities:
Principal payments on
long-term debt (200,000) (400,000) (400,000)
Proceeds from debt to affiliate 23,000,000
Principal payments on debt to
affiliate (19,000,000) (20,000,000)
- -------------------------------------------------------------------------------
(200,000) (19,400,000) 2,600,000
- -------------------------------------------------------------------------------
Net change in cash 4,702,000 2,106,000 (1,782,000)
Cash, beginning of year 5,963,000 3,857,000 5,639,000
- -------------------------------------------------------------------------------
Cash, end of year $ 10,665,000 $ 5,963,000 $ 3,857,000
===============================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
Page 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies -
(a) Business - The Company is engaged in the distribution and sale of watches,
clocks and timepieces for consumer use. The principal watch brands are Bulova,
Caravelle, Accutron and Sportstime. Clocks are principally sold under the Bulova
brand name. Bulova's principal markets are the United States and Canada.
Royalties are received from a distributor and licensees principally in Europe,
the Far East and South America. Loews Corporation ("Loews") owns approximately
97% of the Company's outstanding voting stock.
(b) Principles of Consolidation - The consolidated financial statements
include all of its subsidiaries, which are 100% owned, and all material
intercompany accounts and transactions have been eliminated.
(c) Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(d) Accounts Receivable and Concentration of Credit Risk - Watches and clocks
are sold to retail outlets throughout the United States and Canada. The Company
grants its retailers seasonal credit terms as well as extends credit on an
interest-bearing basis. For the years ended December 31, 1996 and 1995, accounts
receivable were substantially comprised of balances due from retailers.
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of trade accounts receivable. One customer
represents approximately 12% of sales for the year ended December 31, 1996.
Although the Company's exposure to credit risk associated with non-payment by
this customer is affected by conditions or occurrences within the retail
industry, trade receivables from this significant customer were collected within
terms; no other customer represented more than 10% of the Company's sales. The
carrying amount of receivables approximates fair value.
(e) Inventories - Substantially all inventory, consisting primarily of
finished watches and clocks, is computed on a first-in, first-out basis and are
valued at lower of cost or market.
(f) Property, Plant and Equipment - Depreciation is calculated on the
straight-line method over the estimated useful lives of the various classes of
assets. Leasehold improvements are, if such period is shorter, amortized
over the life of the lease. Asset lives range from 2 to 12 years for machinery,
equipment, and furniture and fixtures and from 15 to 40 years for buildings and
improvements.
(g) Income Taxes - The Company is included in Loews consolidated federal tax
return. Under the tax allocation agreement, the Company is required to provide
a current tax provision calculated on a stand-alone basis. No provision is
required for undistributed earnings of subsidiaries, since substantially all of
these earnings may be remitted to the Company with little or no tax becoming
payable.
(h) Net Income Per Share and Shareholders' Equity - Net income per share has
been computed on the basis of the weighted average number of shares outstanding
during the periods (4,599,000 for each of the three years ended December 31,
1996).
In addition to its common stock, the Company has authorized 500,000 shares of
preferred stock.
(i) Foreign Currency Adjustment - The effect of changes in exchange rates in
translating foreign currency financial statements is accumulated in a separate
component of shareholders' equity.
(j) Investments - Investments in U.S. government securities are considered
available for sale and carried at fair value, which approximates cost.
(k) Forward Exchange Contracts - In connection with purchases of inventory,
the Company has entered into forward exchange contracts in order to hedge its
exposure to fluctuations in foreign currency exchange rates. These agreements
generally involve the exchange of one currency for a second currency at some
future date. Counterparties to these agreements are major international
financial institutions. As of December 31, 1996, there were no foreign currency
contracts outstanding. As of December 31, 1995, the U.S. dollar equivalent of
foreign currency contracts approximated $443,000. These agreements matured
through March 1996.
(l) Impairment of Long-Lived Assets - The Company reviews its long-lived
assets for impairment when changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Long-lived assets and certain
intangibles, under certain circumstances, are reported at the lower of carrying
amount or fair value. Assets to be disposed of and assets not expected to
provide any future service potential to the Company are recorded at the lower of
carrying amount or fair value less cost to sell.
Page 13
Note 2. Related Parties -
In 1979, the Company entered into a credit agreement with Loews (the "Credit
Agreement") which provides for unsecured loans, from time to time, in amounts
aggregating up to $50,000,000 with interest at 10% per annum. The Credit
Agreement initially expired in 1980, but the expiration date has been
periodically extended by the Company and Loews. It currently expires June 30,
1998. In January 1995, the balance was paid in full with the proceeds from the
sale of BTI (see Note 3).
Loews has provided administrative services for which the Company paid $730,000,
$700,000 and $1,200,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. In 1994 the Company allocated $800,000 of these administrative
charges to BTI. The cost allocated to the Company is estimated to be the
incremental cost incurred by Loews in providing these services to the
Company. Loews re-evaluated the services and costs which are allocated to the
Company during the fourth quarter of 1996. As a result, the costs will increase
by $1,334,000 to $2,064,000.
Note 3. Discontinued Operations -
On January 17, 1995, Bulova Technologies, Inc. ("BTI"), the Company's industrial
and defense manufacturing business, was sold for $20,810,000 in cash. The sale
resulted in a pre-tax and after tax gain of approximately $558,000 and $363,000,
respectively. The Company applied $18,000,000 of the consideration received to
the repayment of the entire debt to affiliate.
The operating results of BTI have been reported separately as discontinued
operations in the Consolidated Financial Statements. The operating results for
the year ended December 31, 1995 were not material.
Summarized financial information of BTI is as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1994
- -------------------------------------------------------------------------------
<S> <C>
Net sales (a) $ 52,600,000
Cost of sales (45,117,000)
Selling, general and administrative (5,849,000)
Interest expense (1,177,000)
- -------------------------------------------------------------------------------
Income before income taxes 457,000
Income taxes (155,000)
- -------------------------------------------------------------------------------
Net income $ 302,000
===============================================================================
(a) Includes $2,370,000 from settlement of defense contract claims with the U.S.
government.
</TABLE>
Note 4. Income Taxes -
The Company and Loews have a tax allocation agreement with respect to the filing
by Loews of consolidated federal income tax returns, which include the Company
and its subsidiaries. Under the agreement, the Company will (i) be paid by Loews
the amount, if any, by which Loews's consolidated federal income tax is reduced
by virtue of the inclusion of the Company and its subsidiaries in the return, or
(ii) pay to Loews an amount, if any, equal to federal income tax which would
have been payable by the Company if the Company and its subsidiaries had filed a
separate consolidated return. Under this agreement, the Company will pay Loews
approximately $5,282,000 and has received approximately $2,109,000 and $286,000
for the years ended December 31, 1996, 1995 and 1994, respectively. This
agreement may be canceled by the Company or Loews upon thirty days written
notice.
Income before income tax expense consisted of the following for continuing
operations:
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes:
Domestic $11,350,000 $ 5,933,000 $ 382,000
Foreign 319,000 823,000 401,000
- -------------------------------------------------------------------------------
Total $11,669,000 $ 6,756,000 $ 783,000
===============================================================================
Page 14
Year Ended December 31 1996 1995 1994
- -------------------------------------------------------------------------------
Income tax expense (benefit):
Federal:
Current $ 5,282,000 $ 746,000 $ (289,000)
Deferred (1,627,000) 2,790,000 116,000
State and local-current 958,000 700,000 65,000
Foreign:
Current (22,000) 245,000 310,000
Deferred 77,000 6,000 49,000
- -------------------------------------------------------------------------------
Income tax expense $ 4,668,000 $ 4,487,000 $ 251,000
===============================================================================
<CAPTION>
Deferred tax assets are as follows:
December 31 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Employee benefits $22,735,000 $23,078,000
Inventory 5,779,000 5,856,000
Accrued expenses 4,106,000 1,963,000
Accounts receivable 1,482,000 1,116,000
Tax loss carryforward 1,085,000 785,000
- -------------------------------------------------------------------------------
35,187,000 32,798,000
Valuation allowance (9,518,000) (8,617,000)
- -------------------------------------------------------------------------------
Deferred tax assets-net $25,669,000 $24,181,000
===============================================================================
</TABLE>
The valuation allowance relates to state and local temporary differences and
loss carryforwards.
Income taxes differ from that computed at the U.S. statutory rate for the
following reasons:
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes computed at
statutory rate $4,084,000 $2,365,000 $ 274,000
Increase (decrease) in taxes
resulting from:
State and local taxes, net
of federal benefit 623,000 455,000 42,000
Foreign taxes, net of foreign
tax credit (53,000) (43,000) (38,000)
Permanent differences 31,000 38,000 (482,000)
Tax settlement 1,772,000
(Benefit) expense related to
prior years' losses (177,000) 292,000
Other (17,000) 77,000 163,000
- -------------------------------------------------------------------------------
Income tax expense $4,668,000 $4,487,000 $ 251,000
===============================================================================
</TABLE>
Federal, foreign, state and local income tax payments (refunds) amounted to
approximately $2,910,000, $(6,022,000) and $(2,314,000) for the years ended
December 31, 1996, 1995 and 1994, respectively.
At December 31, 1996, the Company had state and local operating loss
carryforwards of approximately $9,257,000 which expire between 1999 and 2002.
Federal income tax returns have been settled through 1990 and the years 1991
through 1994 are currently under examination. While tax liabilities for
subsequent years are subject to audit and final determination, in the opinion of
management the amount accrued in the consolidated balance sheet is believed to
be adequate to cover any additional assessments which may be made by federal,
state and local tax authorities and should not have a material effect on the
financial position and results of operations of the Company. 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 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.
The Company's Canadian tax returns for the years 1984 through 1992 are currently
under examination. The Company is contesting significant assessments with
respect to these examinations. In the opinion of the Company, the additional tax
and interest, if any, resulting from these assessments should not have a
material effect on its consolidated financial position or results of operations.
Page 15
Note 5. Retirement Plans -
Pension Plans - The Company maintains non-contributory pension plans for all of
its employees in the United States.
Separate retirement plans are maintained by the Company's Canadian subsidiary,
which are not material.
Pension cost of the U.S. plans includes the following components:
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned $ 614,000 $ 517,000 $ 740,000
Interest cost 1,852,000 1,761,000 1,652,000
Return on assets-(gain) loss (954,000) (3,271,000) 424,000
Net amortization and deferrals (826,000) 1,564,000 (1,764,000)
Curtailment and special
termination benefits expense 168,000
- -------------------------------------------------------------------------------
Net pension cost $ 854,000 $ 571,000 $ 1,052,000
===============================================================================
<CAPTION>
The status of the underfunded U.S. plans were as follows:
December 31 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation $24,109,000 $23,618,000
===============================================================================
Accumulated vested benefit obligation $23,486,000 $22,864,000
===============================================================================
Projected benefit obligation $26,143,000 $26,424,000
Plan assets at fair value 22,377,000 19,575,000
- -------------------------------------------------------------------------------
Projected benefit obligation over plan assets 3,766,000 6,849,000
Unrecognized net asset at January 1 1,913,000 2,392,000
Unrecognized net loss (4,465,000) (5,850,000)
Unrecognized prior service cost (322,000) (40,000)
Additional minimum liability 840,000 693,000
- -------------------------------------------------------------------------------
Accrued pension cost $ 1,732,000 $ 4,044,000
===============================================================================
<CAPTION>
The rates used in the actuarial assumptions were:
Year Ended December 31 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.50% 7.00% 8.75%
Rate of compensation increase 5.75% 5.50% 6.25%
Expected long-term rate of return
on assets 7.56% 8.75% 7.50%
- --------------------------------------------------------------------------------
</TABLE>
The Company's funding policy is to make contributions in accordance with
applicable governmental requirements. The assets of the plans are invested
primarily in interest-bearing obligations. Benefits are determined based on
compensation during each year of credited service. Included in prepaid expense
is $2,323,000 of contributions in excess of the minimum funding requirement for
the year ended December 31, 1996.
At December 31, 1996 and 1995, the Company's minimum pension liability exceeded
its unrecognized prior service cost and net transition obligation by $840,000
and $693,000, respectively. This excess is recorded as a reduction to
shareholders' equity of $337,000 and $424,000, net of tax benefits of $181,000
and $229,000, and intangible assets of $322,000 and $40,000, for the years ended
December 31, 1996 and 1995, respectively.
Other Postretirement Benefit Plans - The Company maintains postretirement health
care plans covering eligible employees and retirees. Union participants
generally become eligible upon retirement at age 55 and 10 years of service or
upon completion of 20 years of service. Another plan covers salaried employees
who are eligible upon retirement at age 55 and 20 years of service or upon
retirement at age 60 and 10 years of service. Prior to January 1, 1995,
Page 16
participants were eligible upon retirement at age 55 and 10 years of service or
upon completion of 20 years of service. The benefits provided by the Company are
basically health, and for certain retirees, life insurance type benefits. During
1996, the Company made certain amendments to the plan covering salaried
employees which reduced postretirement benefit expense by approximately
$1,108,000.
<TABLE>
<CAPTION>
The rates used in the actuarial assumptions were:
December 31 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Net periodic postretirement benefit cost 7.00% 8.75%
Accumulated postretirement benefit liability 7.50% 7.00%
- --------------------------------------------------------------------------------
<CAPTION>
The following table sets forth the postretirement plan's status:
December 31 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $18,448,000 $22,624,000
Fully eligible active plan participants 1,570,000 4,028,000
Other active plan participants 1,072,000 3,428,000
- --------------------------------------------------------------------------------
21,090,000 30,080,000
Unrecognized prior service cost 5,535,000 679,000
Unrecognized net gain 17,417,000 14,130,000
- --------------------------------------------------------------------------------
Accrued postretirement benefit liability $44,042,000 $44,889,000
================================================================================
<CAPTION>
Postretirement benefit cost includes the following components:
Year Ended December 31 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service costs $ 206,000 $ 438,000 $ 562,000
Interest costs 1,821,000 2,657,000 2,595,000
Net amortization and deferral (1,498,000) (943,000)
Curtailment gain (86,000)
- --------------------------------------------------------------------------------
Net periodic postretirement
benefit cost $ 443,000 $2,152,000 $3,157,000
================================================================================
</TABLE>
For measurement purposes, a trend rate of 12.5% pre-65 and 9.5% post-65, for
covered costs was used. These trend rates are expected to decrease gradually to
7.0% at 0.5% per annum. An increase of one percentage point in assumed health
care cost trend rates would increase the accumulated postretirement benefit
obligation by approximately $1,730,000 and the net periodic postretirement
benefit cost by approximately $210,000.
Page 17
Note 6. Quarterly Financial Data (Unaudited) -
<TABLE>
<CAPTION>
1996 Quarters Ended Dec. 31 Sept. 30 June 30 March 31
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $36,544,000 $34,741,000 $23,963,000 $25,544,000
Cost of sales 18,920,000 18,888,000 13,903,000 15,045,000
Income from continuing
operations 1,747,000 3,883,000 670,000 701,000
Per share .38 .84 .15 .15
Net income 1,747,000 3,883,000 670,000 701,000
Per share .38 .84 .15 .15
<CAPTION>
1995 Quarters Ended Dec. 31 Sept. 30 June 30 March 31
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $32,640,000 $27,114,000 $25,512,000 $23,957,000
Cost of sales 19,298,000 15,805,000 13,703,000 14,354,000
Income from continuing
operations 652,000 865,000 687,000 65,000
Per share .14 .19 .15 .01
Net income 652,000 865,000 687,000 428,000
Per share .14 .19 .15 .09
- --------------------------------------------------------------------------------
</TABLE>
Note 7. Geographic Information -
<TABLE>
<CAPTION>
United States
--------------------- Canada
Year Ended December 31, 1996 Operations Royalties Operations Eliminations Total
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $103,425 $11,688 $115,113
Intercompany sales 1,377 $(1,377)
- ------------------------------------------------------------------------------------------------
Net sales 104,802 11,688 (1,377) 115,113
Royalties, interest & other 2,303 $3,863 (487) 5,679
- ------------------------------------------------------------------------------------------------
Total revenues $107,105 $3,863 $11,688 $(1,864) $120,792
================================================================================================
Operating profit $ 7,756 $3,863 $ 806 $ 12,425
Interest expense (26) (487) $ 487 (26)
Corporate charges (730) (730)
- ------------------------------------------------------------------------------------------------
Income from continuing
operations before tax $ 7,000 $3,863 $ 319 $ 487 $ 11,669
================================================================================================
Identifiable assets $137,149 $11,305 $148,454
================================================================================================
<CAPTION>
Year Ended December 31, 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $ 87,535 $12,914 $100,449
Intercompany sales 2,664 $(2,664)
- ------------------------------------------------------------------------------------------------
Net sales 90,199 12,914 (2,664) 100,449
Royalties, interest & other 6,117 $3,197 (540) 8,774
- ------------------------------------------------------------------------------------------------
Total revenues $ 96,316 $3,197 $12,914 $(3,204) $109,223
================================================================================================
Operating profit $ 3,594 $3,197 $ 823 $ 7,614
Interest expense (158) (540) $ 540 (158)
Corporate charges (700) (700)
- ------------------------------------------------------------------------------------------------
Income from continuing
operations before tax $ 2,736 $3,197 $ 283 $ 540 $ 6,756
================================================================================================
Identifiable assets $120,643 $13,484 $134,127
================================================================================================
Page 18
<CAPTION>
United States
--------------------- Canada
Year Ended December 31, 1994 Operations Royalties Operations Eliminations Total
- ------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $ 81,865 $11,859 $ 93,724
Intercompany sales 1,901 $ 738 $(2,639)
- ------------------------------------------------------------------------------------------------
Net sales 83,766 738 11,859 (2,639) 93,724
Royalties, interest & other 2,973 3,780 (431) 6,322
- ------------------------------------------------------------------------------------------------
Total revenues $ 86,739 $4,518 $11,859 $(3,070) $100,046
================================================================================================
Operating (loss) profit $ (2,822) $3,759 $ 1,126 $ 2,063
Interest expense (580) (431) $ 431 (580)
Corporate charges (700) (700)
- ------------------------------------------------------------------------------------------------
Income (loss) from continuing
operations before tax $ (4,102) $3,759 $ 695 $ 431 $ 783
================================================================================================
Identifiable assets $139,473 $11,562 $151,035
================================================================================================
</TABLE>
Note 8. Leases -
The Company leases certain of its warehouse and office facilities. The future
minimum lease payments under operating leases for the five years ending December
31, 2001 is $482,000, $482,000, $497,000, $500,000 and $500,000.
Note 9. Contingencies and Litigation -
(a) Environmental Matters - During 1991 the Company settled a lawsuit commenced
by the owner of property formerly owned by the Company which sought damages
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, for alleged environmental contamination at the property. Under the
settlement agreement the Company assumed responsibility for the clean-up of the
property and agreed to pay to the owner $50,000 per year until the clean-up is
completed. In 1994, the Company accrued an additional $484,000 based upon
revised cost estimates. As of December 31, 1996, the remaining estimated
liability of $267,000 represents the minimum level of clean-up expense required.
During 1994 the Company became aware of an environmental contaminate which was
discovered in the ground water of a former defense manufacturing facility.
The Company accrued $250,000 to provide for the estimated clean-up costs to be
required. Additional testing and further evaluation is required before a
definitive cost of ultimate clean-up can be determined. Therefore, the
liability accrued by the Company may require revisions in the future.
During the third quarter of 1995, the Company provided for a liability of
$150,000 in relation to an environmental condition at a former Jackson Heights,
N.Y. watch manufacturing facility which the Company agreed to remediate in
October 1995.
During the fourth quarter of 1995, the Company became aware of an environmental
condition at its Woodside, N.Y. facility. Testing and evaluation of the site
remain in its preliminary stages. Based upon the information available, the
Company provided $100,000 during the fourth quarter of 1995 for the estimated
clean-up expense required. Additional testing and further evaluation is
required before a definitive cost of ultimate clean-up can be determined.
Therefore, the liability accrued may require future revisions.
At December 31, 1996, the total estimated environmental liability recognized in
the Company's financial statements of $639,000 represents the minimum of the
Company's estimated range in equally likely outcomes; the upper limit of that
range is approximately $1,239,000.
(b) Arbitral Award - 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 by Bulova") 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 damage
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 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.
Page 19
(c) Executive Life - In April 1991 Executive Life Insurance Company ("Executive
Life"), the insurance company that had issued annuity policies to the
Company's retirees, was placed in conservatorship under the laws of California,
the state in which Executive Life is domiciled. The Company has been making up
any shortfall which resulted from such conservatorship to those retirees who
were not receiving their full retirement payment from Executive Life.
In 1993 the Superior Court of the State of California approved a revised plan of
rehabilitation (the "Revised Plan") for Executive Life. Under the Revised Plan,
(i) Aurora National Life Assurance Company ("Aurora") has assumed the
obligations of Executive Life under annuity policies for those Company retirees
who elect to participate in the Revised Plan, but at a reduced rate and (ii) The
National Organization of Life and Health Guaranty Associations ("NOLHGA") on
behalf of participating state life and health insurance guaranty associations,
has agreed to pay the balance of the original Executive Life annuity obligation
with respect to substantially all of the participating retirees. The Company has
agreed to make up any remaining shortfall ("Remaining Shortfall") with respect
to any participating retiree who does not receive his or her full entitlement
from Aurora and NOLHGA.
In 1993 the Company entered into an agreement with the Department of Labor in
which the Department of Labor acknowledged the termination of its investigation
concerning the purchase of the Executive Life annuity. Pursuant to that
agreement, the Company has amended its retirement plan to make up any Remaining
Shortfall. This agreement further provides that should Aurora or NOLHGA fail to
pay any amount required to be paid by them under the Revised Plan, the Company
would cause such payment to be made.
(d) Other - In 1994 the Company provided $811,000 to cover the estimated legal
and or settlement costs related to an action which was settled in 1995.
In October 1996, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position No. 96-1, "Environmental Remediation Liabilities,"
which among other things, sets forth criteria for accrual of costs in relation
to clean-up and remediation of environmental conditions. It is effective for
fiscal years beginning after December 15, 1996, and will not have a significant
impact on the Company.
It is not possible to predict the outcome of pending litigation; however, on the
basis of the facts presently known to it, management does not believe the
actions pending will have a material adverse effect on the financial condition
or results of operations of the Company. Should additional facts arise in the
future indicating a probable adverse determination of any such actions, such
ultimate determination might have a material adverse effect upon the Company's
financial condition.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Page 20
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) Directors.
<TABLE>
<CAPTION>
Principal Occupations Director of
During Past Five Years the Company
Name Age and Other Directorships Since
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Andrew H. Tisch ..... 47 Chairman of the Board of the Company 1979
and Chairman of the Management Committee
of Loews Corporation since 1995.
Prior thereto he had been Chairman of the
Board and Chief Executive Officer of
Lorillard, Inc., a wholly owned
subsidiary of Loews. Mr. Tisch is also
a director of Zale Corporation.
Herbert C. Hofmann .. 54 President and Chief Executive Officer 1979
of the Company. Mr. Hofmann is also a
director of Diamond Offshore Drilling,
Inc. (51% owned subsidiary of Loews)
and also serves as Senior Vice President
of Loews.
Harry B. Henshel .... 78 Vice Chairman of the Board of the Company. 1958
Laurence A. Tisch ... 74 Co-Chairman of the Board and Co-Chief 1979
Executive Officer of Loews. Mr. Tisch
is also Chief Executive Officer and
director of CNA Financial Corporation
("CNA")(84% owned subsidiary of Loews).
Mr. Tisch also serves as a director of
Automatic Data Processing, Inc.
Preston R. Tisch .... 70 Co-Chairman of the Board and Co-Chief 1988
Executive Officer of Loews. Mr. Tisch
is also a director of CNA, Hasbro, Inc.
and Rite Aid Corporation.
</TABLE>
Messrs. Laurence A. Tisch and Preston R. Tisch are brothers and Mr. Andrew H.
Tisch is the son of Mr. Laurence A. Tisch. There are no other family
relationships among any of the Company's directors.
Each director serves until the annual meeting of shareholders next succeeding
his election and until his successor shall have been duly elected and qualified.
(b) Executive Officers.
<TABLE>
<CAPTION>
First Became
Name Position and Offices Held Age an Officer
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Herbert C. Hofmann ..... President and Chief Executive 54 1985
Officer
Warren J. Neitzel ...... General Counsel and Corporate 46 1993
Secretary
John T. O'Reilly ....... Controller 36 1996
Paul S. Sayegh ......... Chief Operating Officer 53 1979
</TABLE>
Page 21
There are no family relationships among the above. Officers are elected and
hold office until their successors are elected and qualified, and are subject to
removal by the Board of Directors. All officers of the Company, except Mr.
O'Reilly, have been engaged actively and continuously in the business of the
Company and its subsidiaries for more than the past five years.
Prior to his appointment as General Counsel and Corporate Secretary, Mr.
Neitzel served as Senior Counsel for the Company's former defense subsidiary
since 1980.
Mr. O'Reilly served as Assistant Controller for approximately two years prior
to his appointment as Controller. Prior thereto he served, since 1990, as
Treasurer of CLAS International, a hotel reservation service affiliated with
Loews.
Item 11. Executive Compensation.
(a) General.
The following table sets forth information for the years indicated regarding
the compensation of the chief executive officer and each of the other two most
highly compensated executive officers of the Company whose compensation exceeded
$100,000 as of December 31, 1996, for services in all capacities to the Company.
Summary Compensation Table
<TABLE>
<CAPTION>
Name and Principal Position Year Salary
- --------------------------------------------------------------------------------
<S> <C> <C>
Herbert C. Hofmann 1996 -
President and Chief Executive Officer (a) 1995 -
1994 -
Paul S. Sayegh 1996 $245,000
Chief Operating Officer 1995 223,000
1994 212,000
Warren J. Neitzel 1996 130,000
General Counsel and Corporate Secretary 1995 130,000
1994 112,000
- --------------
(a) Mr. Hofmann is compensated by Loews. Included in the charges to the Company
under a Service Agreement, as discussed in Item 13 of this Form 10-K, was
$200,000 for Mr. Hofmann's services in 1996, 1995 and 1994.
</TABLE>
Information with respect to certain non-cash compensation made available to
the Company's executive officers in 1996, has not been included because the
incremental costs thereof to the Company was below the Securities and Exchange
Commission's required disclosure threshold.
(b) Compensation Pursuant to Plans.
The Company provides a non-contributory retirement plan (the "Plan") for all
employees, except for those covered by Loews's benefit plans, which Plan
provides pensions upon retirement at one and one-half per cent of the employee's
annual compensation during each year of credited service after December 31,
1976, plus one and one-half per cent of annual compensation for the year 1976
multiplied by the number of years of credited service rendered prior to January
1, 1977. Compensation under the Plan includes all compensation as an employee
included in the table above. Pension benefits are not subject to reduction for
Page 22
Social Security benefits or other amounts. The following table shows estimated
annual benefits payable upon retirement under the Plan for various amounts of
average compensation and years of credited service, based upon retirement in
1996 and a straight life annuity form of pension. Other forms of pension
payments are also available under the Plan. Pension benefits may be limited by
the Internal Revenue Code.
<TABLE>
<CAPTION>
Estimated Annual Pension for Representative
Remuneration Years of Credited Service
------------ -----------------------------------------------
15 20 25 30 35
-- -- -- -- --
<S> <C> <C> <C> <C> <C>
$ 50,000................. $11,250 $15,000 $18,750 $ 22,500 $ 26,250
100,000................. 22,500 30,000 37,500 45,000 52,500
150,000................. 33,750 45,000 56,250 67,500 78,750
200,000................. 45,000 60,000 75,000 90,000 105,000
250,000................. 56,250 75,000 93,750 112,500 131,250
<CAPTION>
The years of credited service and the estimated annual retirement benefit
payable at normal retirement age for the following officers are as follows:
Estimated Annual
Name Years Retirement Benefit
---- ----- ------------------
<S> <C> <C>
Herbert C. Hofmann*
Warren J. Neitzel 16 $53,807
Paul S. Sayegh*
*Not covered under the Plan.
</TABLE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) Security Ownership of Certain Beneficial Owners.
The only person known to the Registrant to be the beneficial owner of more
than 5% of any class of Registrant's voting securities is Loews, which owns
beneficially 4,459,859 shares of the outstanding Common Stock of Registrant as
of February 28, 1997 constituting approximately 97% of the total shares of
Common Stock outstanding. Loews's principal executive offices are located at 667
Madison Avenue, New York, New York 10021-8087. For information with respect to
the principal holders of the outstanding voting securities of Loews, see Item 12
(b) below.
(b) Security Ownership of Management.
The following table sets forth certain information, as of February 28, 1997,
with respect to the shares of Registrant's Common Stock and shares of Loews
Common Stock beneficially owned by each of the directors of the Company and
executive officers named above and by all directors and executive officers of
the Company as a group:
Page 23
<TABLE>
<CAPTION>
Shares of
Name of Individual Shares of Loews
or Number of Common Stock Percent of Common Percent of
Persons in Group (1) Class Stock(1) Class
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Harry B. Henshel ..... 100 *
Herbert C. Hofmann ... 400 *
Warren J. Neitzel ....
John T. O'Reilly .....
Paul S. Sayegh .......
Andrew H. Tisch ...... 2,000(2) *
Laurence A. Tisch .... 18,059,998 15.7%
Preston R. Tisch ..... 18,059,998 15.7%
All directors and
executive officers as
a group (8 listed
above) .............. 100 * 36,122,396 31.4%
* Represents less than 1% of the outstanding shares of stock.
(1) Except as otherwise indicated, the persons listed as beneficial owners
of shares of stock have sole voting and investment power with respect to
such shares.
(2) In addition, 372 shares of Loews Common Stock are owned by Mr. Tisch's
son, as to which Mr. Tisch disclaims any beneficial interest and 20,000
shares of Loews Common Stock are held by a charitable foundation as to
which Mr. Tisch has shared voting and investment power.
</TABLE>
Item 13. Certain Relationships and Related Transactions.
The Company and Loews have entered into a credit agreement (the "Credit
Agreement") providing for unsecured loans by Loews, from time to time, in
amounts aggregating up to $50,000,000, bearing interest at the rate of 10% per
annum currently expiring on June 30, 1998. There has not been any borrowings
under the Credit Agreement since January 17, 1995.
The Company and Loews have entered into a tax allocation agreement with
respect to the filing by Loews of consolidated federal income tax returns which
include the Company and its subsidiaries. Under this agreement, the Company will
(i) be paid by Loews the amount, if any, by which Loews's consolidated federal
income tax is reduced by virtue of the inclusion of the Company and its
subsidiaries in Loews's consolidated federal income tax return or (ii) pay to
Loews an amount, if any, equal to the federal income tax which would have been
payable by the Company if the Company and its subsidiaries had filed a separate
consolidated return. This agreement may be canceled by the Company or Loews upon
thirty days written notice. Pursuant to this agreement, $1,663,000 was payable
to Loews for the year ended December 31, 1996.
The Company and Loews have entered into a services agreement pursuant to which
Loews provides to the Company various administrative services, including among
other things, data processing, purchasing, accounts payable, printing services,
tax return preparation and cash management services. In addition, the Company
provides Loews with warehousing services. Pursuant to this agreement, each party
reimburses the other in an amount not to exceed the allocated cost of the
services provided. The Company and Loews paid $730,000 and $47,000,
respectively, for services provided during 1996. Loews re-evaluated the services
and costs which are allocated to the Company during the fourth quarter of 1996.
As a result, the costs will increase by $1,334,000 to $2,064,000. In addition,
the Company has reimbursed to Loews approximately $587,000 in salaries and
related employee benefits for 1996 for employees of Loews on loan to the
Company.
Page 24
The Company participates in blanket insurance policies, primarily relating to
property and casualty and general liability insurance, maintained by Loews which
cover properties and facilities of Loews and certain of its subsidiaries,
including the Company. The Company reimbursed to Loews approximately $552,000
for premiums paid with respect to 1996.
Certain of the Company's employee health and life insurance benefits are
provided by an insurance subsidiary of CNA. Premiums and fees for such
insurance amounted to approximately $311,000 for 1996.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. The consolidated financial statements appear above under Item 8. The
following additional financial data should be read in conjunction with those
financial statements. Schedules not included with these additional financial
data have been omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes to
consolidated financial statements.
<TABLE>
<CAPTION>
Page
Number
------
2. Financial statement schedules:
<S> <C>
Independent Auditors' Report...................................... 30
Bulova Corporation and Subsidiaries:
Schedule II-Valuation and Qualifying Accounts................... 31
<CAPTION>
3. Exhibits: Exhibit
Description Number
----------- -------
<S> <C> <C>
(3) Articles of Incorporation and By-Laws
Restated Certificate of Incorporation, dated May 25, 1964, and
filed on August 4, 1964 as Exhibit 3(a) to Amendment No. 2 to
Registrant's Registration Statement on Form S-1 (Reg. No. 2-22576),
incorporated herein by reference. Copies of amendments thereto,
dated July 26, 1966, April 22, 1969 and July 2, 1969, incorporated
herein by reference to Exhibit 3(a) of Registrant's Annual Report
on Form 10-K for the year ended December 31, 1980. Copy of
Certificate of Change thereto, dated November 25, 1985,
incorporated herein by reference to Exhibit 3(a) of Registrant's
Annual Report on Form 10-K for the year ended December 31, 1985.
Copy of Certificate of Change thereto, dated July 14, 1987,
incorporated herein by reference to Exhibit 3(a) of Registrant's
Annual Report on Form 10-K for the year ended December 31, 1987.
Copy of Certificate of Amendment thereto, dated June 16, 1988,
incorporated herein by reference to Exhibit 3(a) of Registrant's
Annual Report on Form 10-K for the year ended December 31, 1988 ... 3(a)
By-laws currently in effect and incorporated herein by reference
to Exhibit 3(b) of Registrant's Annual Report on Form 10-K for
the year ended December 31, 1984 .................................. 3(b)
Page 25
<CAPTION> Exhibit
Description Number
----------- -------
<S> <C> <C>
(10) Material Contracts
Merger Agreement entered into on January 17, 1995, by Bulova
Technologies, Inc., a New York corporation ("BTI"), BTI
Acquisition Corporation, a Delaware corporation, and Bulova
Corporation, a New York corporation, the form of which was filed
as part of Exhibit (2) to Registrant's Report on Form 8-K dated
January 17, 1995, and incorporated herein by reference ............ 10(a)
Credit Agreement between Loews Corporation and Registrant dated
as of September 19, 1979, the form of which was filed as part of
Exhibit (2) of Item 9(a) of Registrant's Report on Form 10-Q for
the quarter ended September 30, 1979, and incorporated herein by
reference ......................................................... 10(b)
Federal Income Tax Allocation Agreement between Loews Corporation
and Registrant dated as of March 12, 1980 and effective April 1,
1979, incorporated herein by reference to Exhibit 10(b) of
Registrant's Annual Report on Form 10-K for the year ended December
31, 1987 .......................................................... 10(c)
Corporate Services Agreement between Loews Corporation and
Registrant dated as of January 1, 1987, incorporated herein by
reference to Exhibit 10(c) of Registrant's Annual Report on
Form 10-K for the year ended December 31, 1987 .................... 10(d)
(21) Subsidiaries of the Registrant
List of subsidiaries of Registrant ................................ 21*
(27) Financial Data Schedule ........................................... 27*
*Filed herewith
(b) Reports on Form 8-K:
There were no reports on Form 8-K for the three months ended December 31,
1996.
Page 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Dated: March 26, 1997 By /s/ Paul S. Sayegh
--------------------------------
(Paul S. Sayegh, Chief Operating
Officer and Principal Financial
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: March 26, 1997 By /s/ Herbert C. Hofmann
--------------------------------
(Herbert C. Hofmann, President,
Chief Executive Officer and
Director)
Dated: March 26, 1997 By /s/ Paul S. Sayegh
--------------------------------
(Paul S. Sayegh, Chief Operating
Officer and Principal Financial
Officer)
Dated: March 26, 1997 By /s/ John T. O'Reilly
--------------------------------
(John T. O'Reilly, Controller
and Principal Accounting
Officer)
By
--------------------------------
(Harry B. Henshel, Director)
Dated: March 26, 1997 By /s/ Andrew H. Tisch
--------------------------------
(Andrew H. Tisch, Director)
Dated: March 26, 1997 By /s/ Laurence A. Tisch
-------------------------------
(Laurence A. Tisch, Director)
Dated: March 26, 1997 By /s/ Preston R. Tisch
--------------------------------
(Preston R. Tisch, Director)
Page 27
INDEPENDENT AUDITORS' REPORT
The Board of Directors and
Shareholders of Bulova Corporation:
We have audited the accompanying consolidated balance sheets of Bulova
Corporation and its subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. Our audits
also included the financial statement schedule listed in the index at Item
14(a)2. These financial statements and financial statement schedule are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on the financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Bulova Corporation and its
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles. Also, in
our opinion such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
Deloitte & Touche LLP
New York, New York
February 12, 1997
Page 28
Schedule II
BULOVA CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
</TABLE>
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance at charged to Balance
beginning costs and at end
Description of period expenses Deductions of period
----------- -------------------------------------------------
<CAPTION>
Year Ended December 31, 1996
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts ................... $2,712,000 $2,073,000 $1,271,000 (a) $3,514,000
Allowance for cash discounts 434,000 1,121,000 1,007,000 548,000
-------------------------------------------------
$3,146,000 $3,194,000 $2,278,000 $4,062,000
=================================================
Allowance for loss on
investment in unconsolidated
subsidiary ................. $ 529,000 $ 529,000
========== ==========
<CAPTION>
Year Ended December 31, 1995
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts ................... $3,022,000 $ 872,000 $1,182,000 (a) $2,712,000
Allowance for cash discounts 455,000 1,302,000 1,323,000 434,000
-------------------------------------------------
$3,477,000 $2,174,000 $2,505,000 $3,146,000
=================================================
Allowance for loss on
investment in unconsolidated
subsidiary ................. $ 529,000 $ 529,000
========== ==========
<CAPTION>
Year Ended December 31, 1994
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts .................. $2,563,000 $1,675,000 $1,216,000 (a) $3,022,000
Allowance for cash discounts 391,000 902,000 838,000 455,000
-------------------------------------------------
$2,954,000 $2,577,000 $2,054,000 $3,477,000
=================================================
Allowance for loss on
investment in unconsolidated
subsidiary ................. $ 529,000 $ 529,000
========== ==========
- -------------
(a) Includes doubtful accounts written off net of recoveries.
Page 29
</TABLE>
Exhibit 21
BULOVA CORPORATION
Subsidiaries of the Registrant
December 31, 1996
<TABLE>
<CAPTION>
Organized under
Name of Subsidiary the Laws of Business Names
------------------ --------------- --------------
<S> <C> <C>
Bulova Watch Company Limited Canada Bulova
</TABLE>
The names of certain subsidiaries which, if considered as a single subsidiary,
would not constitute a "significant subsidiary" as defined in Regulation S-X
have been omitted.
Page 30
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,665
<SECURITIES> 4,978
<RECEIVABLES> 58,479
<ALLOWANCES> 4,062
<INVENTORY> 37,130
<CURRENT-ASSETS> 118,596
<PP&E> 20,316
<DEPRECIATION> 8,734
<TOTAL-ASSETS> 148,454
<CURRENT-LIABILITIES> 23,072
<BONDS> 0
<COMMON> 22,999
0
0
<OTHER-SE> 49,382
<TOTAL-LIABILITY-AND-EQUITY> 148,454
<SALES> 115,113
<TOTAL-REVENUES> 120,792
<CGS> 66,756
<TOTAL-COSTS> 66,756
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,073
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> 11,669
<INCOME-TAX> 4,668
<INCOME-CONTINUING> 7,001
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,001
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 0
</TABLE>
