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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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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
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
ONE BULOVA AVENUE, WOODSIDE, N.Y. 11377-7874
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(Address of principal executive offices) (Zip Code)
(718) 204-3300
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Class Outstanding at May 2, 1997
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Common stock, $5 par value 4,599,249 shares
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Page 1
INDEX
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets-
March 31, 1997 and December 31, 1996 ....................... 3
Consolidated Condensed Statements of Income -
Three months ended March 31, 1997 and 1996 ................. 4
Consolidated Condensed Statements of Cash Flows-
Three months ended March 31, 1997 and 1996 ................. 5
Notes to Consolidated Condensed Financial Statements .......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K ....................... 9
Exhibit 27--Financial Data Schedule for the three months ended
March 31, 1997 ............................................ 11
Page 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
<TABLE>
<CAPTION>
Bulova Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(Amounts in thousands)
March 31, December 31,
1997 1996
-----------------------
<S> <C> <C>
Assets
------
Current assets:
Cash ......................................................... $ 12,994 $ 10,665
Investment in U.S. government securities ..................... 14,755 4,978
Accounts and notes receivable-net ............................ 38,823 54,417
Inventories, principally watches and clocks .................. 38,336 37,130
Prepaid expenses ............................................. 2,749 3,174
Deferred income taxes ........................................ 7,585 8,232
----------------------
Total current assets ..................................... 115,242 118,596
----------------------
Property, plant and equipment-net .............................. 11,527 11,582
----------------------
Other assets:
Deferred income taxes ........................................ 17,305 17,437
Other ........................................................ 476 839
----------------------
Total other assets ....................................... 17,781 18,276
----------------------
Total assets ............................................. $144,550 $148,454
======================
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable ............................................. $ 2,342 $ 3,442
Accrued expenses ............................................. 15,397 17,967
Accrued federal and foreign income taxes ..................... 787 1,663
----------------------
Total current liabilities ................................ 18,526 23,072
----------------------
Other liabilities and credits:
Postretirement benefits payable .............................. 42,553 42,754
Pension benefits payable ..................................... 3,854 4,055
Other ........................................................ 5,721 6,192
----------------------
Total other liabilities and credits ...................... 52,128 53,001
----------------------
Shareholders' equity ........................................... 73,896 72,381
----------------------
Total liabilities and shareholders' equity ............... $144,550 $148,454
======================
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
Page 3
<TABLE>
<CAPTION>
Bulova Corporation and Subsidiaries
Consolidated Condensed Statements of Income
(Amounts in thousands, except per share data)
Three Months Ended
March 31,
1997 1996
---------------------
<S> <C> <C>
Revenues:
Net sales .................................................... $28,548 $24,346
Interest, royalties and other ................................ 1,524 1,198
---------------------
Total revenues ........................................... 30,072 25,544
---------------------
Expenses:
Cost of sales ................................................ 16,449 15,045
Selling, general and administrative .......................... 10,712 9,298
---------------------
Total expenses ........................................... 27,161 24,343
---------------------
Income before income tax expense ............................... 2,911 1,201
Income tax expense ............................................. (1,317) (500)
---------------------
Net income ..................................................... $ 1,594 $ 701
=====================
Net income per share ........................................... $ .35 $ .15
=====================
Weighted average number of shares outstanding .................. 4,599 4,599
=====================
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
Page 4
<TABLE>
<CAPTION>
Bulova Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Amounts in thousands)
Three Months Ended
March 31,
1997 1996
----------------------
<S> <C> <C>
Operating Activities:
Net income ................................................... $ 1,594 $ 701
Adjustments to reconcile net income to net cash provided
by operating activities ..................................... 1,475 997
Changes in assets and liabilities-net:
Receivables ................................................ 14,900 13,436
Inventories ................................................ (1,206) (1,119)
Prepaid expenses ........................................... 425 192
Other assets ............................................... 363 (21)
Accounts payable and accrued expenses ...................... (3,670) (1,311)
Accrued federal and foreign income taxes ................... (876) 11
Other liabilities and credits .............................. (952) 3,200
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12,053 16,086
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Investing Activities:
Purchases of U.S. government securities ...................... (14,628) (9,770)
Proceeds from sales of U.S. government securities ............ 5,000
Purchases of property, plant and equipment ................... (108) (34)
Proceeds from disposal of property, plant and equipment ...... 12 17
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(9,724) (9,787)
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Net change in cash ............................................. 2,329 6,299
Cash, beginning of period ...................................... 10,665 5,963
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Cash, end of period ............................................ $ 12,994 $12,262
=====================
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, 1996 filed with the Securities and
Exchange Commission on March 26, 1997.
2. 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 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.
3. Under the tax allocation agreement between the Company and its parent,
Loews Corporation ("Loews"), the Company will pay Loews approximately
$787,000 and has paid approximately $66,000 for the three months ended
March 31, 1997 and 1996, respectively.
See Note 4 of the Notes to Consolidated Financial Statements in the Annual
Report on Form 10-K for the year ended December 31, 1996.
4. Loews provides administrative and managerial services for which the Company
was charged $516,000 and $175,000 for the three months ended March 31, 1997
and 1996, respectively. This expense is included in selling, general and
administrative expenses. The cost allocated to the Company is estimated to
be the incremental cost incurred by Loews in providing these services to the
Company. The increased charges reflect the re-evaluation by Loews of the
services provided to the Company.
See Note 2 of the Notes to Consolidated Financial Statements in the Annual
Report on Form 10-K for the year ended December 31, 1996.
Page 6
5. Shareholders' equity:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------------------
(In thousands)
<S> <C> <C>
Common stock ................................. $22,999 $22,999
Additional paid-in capital ................... 23,197 23,197
Retained earnings ............................ 29,372 27,778
Cumulative translation adjustment ............ (1,330) (1,251)
Pension liability adjustment ................. (337) (337)
----------------------
Total .................................... 73,901 72,386
Less treasury stock, at cost ................. 5 5
----------------------
Total shareholders' equity ............... $73,896 $72,381
======================
</TABLE>
6. 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 $536,000 represents the minimum of the
Company's estimated range of equally likely outcomes, the upper limit of
that range is approximately $1,136,000.
See Note 9 of the Notes to Consolidated Financial Statements in the Annual
Report on Form 10-K for the year ended December 31, 1996.
7. In the opinion of Management, the accompanying consolidated condensed
financial statements reflect all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as of
March 31, 1997 and December 31, 1996 and the results of operations and
changes in cash flows for the three months ended March 31, 1997 and 1996,
respectively.
Results of operations for the first quarter of each of the years is not
necessary indicative of results of operations for that entire year.
Page 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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Liquidity and Capital Resources:
In the first quarter of 1996, the Company received approximately $3,857,000 in
cash which represented damages, costs and interest, as a result of the
arbitration proceedings with Benetton International, N.V. regarding premature
termination of a licensing agreement, which is subject to return under certain
circumstances. See Note 2 of the Notes to Consolidated Condensed Financial
Statements.
The Company generated cash flow from operations of $12,053,000 and $16,086,000
for the three months ended March 31, 1997 and 1996, respectively. The decrease
in net cash flow is due primarily to the collection of the arbitral award
discussed above, and an increase in inventory of approximately $1,206,000.
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 (the "Credit Agreement") 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 Company and Loews. The Credit
Agreement currently expires June 30, 1998.
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 in the Annual
Report on Form 10-K for the year ended December 31, 1996.
The Company plans to improve warehouse operation efficiency during 1997 by
investing in property, plant and equipment. Capital expenditures for the current
year are expected to be funded through operations, and are estimated to be
approximately $1,000,000. The review and evaluation of operations and
information systems are not complete, and actual expenditures may differ from
current estimates. The Company's capital expenditures amounted to $108,000
for the three months ended March 31, 1997. In addition, as of March 31, 1997
the Company has outstanding purchase commitments related to capital
expenditures amounting to approximately $830,000.
The Company purchased U.S. Treasury bills for $14,628,000 in cash during the
three months ended March 31, 1997. The securities mature in July 1997 and are
classified as available for sale.
Results of Operations:
Total revenues increased $4,528,000, or 17.7%, for the three months ended March
31, 1997 as compared to the prior year.
Watch and clock net sales increased $4,202,000, or 17.3%, for the three months
ended March 31, 1997, as compared to 1996. The increase is due to overall high
unit prices and sales volume.
The watch and clock revenue increase is primarily attributable to the continued
growth of our core Bulova watch brand, which posted increases of $3,041,000, or
Page 8
21.2% for the three months ended March 31, 1997, as compared to the prior year.
The increase is the result of the brand's 18.8% increase in unit volume over the
prior year.
Interest, royalties and other revenues increased $326,000, or 27.2%, for the
three months ended March 31, 1997, as compared to 1996. The Company recognized
$1,053,000 and $916,000 in royalty income for the first quarter of 1997 and
1996, respectively. Royalty income represents payments by a distributor and
licensees principally in Europe, the Far East and South America. Interest
income increased $107,000 or 51.0% for the three months ended March 31, 1997,
as compared to the prior year due to the increased investment activity.
Selling, general and administrative expenses as a percentage of net sales for
the three months ended March 31, 1997 was 37.5% as compared to 38.2% for the
prior year. This decrease is the result of higher sales and management's
continued efforts to control discretionary costs.
Income before income taxes increased $1,710,000 for the three months ended March
31, 1997, as compared to the prior year, resulting from the sales increase as
discussed above and lower postretirement benefit costs, partially offset by
higher costs allocated by Loews.
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 months ended
March 31, 1997. 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 was charged $516,000 and $175,000 for the three months ended March 31,
1997 and 1996, respectively. The cost allocated to the Company is estimated
to be the incremental cost incurred by Loews in providing these services to
the Company. The increased charges reflect the re-evaluation by Loews of the
services provided to the Company.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits --
(27) Financial Data Schedule for the three months ended March 31, 1997.
(b) Current reports on Form 8-K -- There were no reports on Form 8-K filed for
the three months ended March 31, 1997.
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
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(Registrant)
Dated: May 13, 1997 By: /s/ Paul S. Sayegh
-----------------------
PAUL S. SAYEGH
Chief Operating Officer
(Duly authorized
officer and principal
financial officer)
Page 10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 12,994
<SECURITIES> 14,755
<RECEIVABLES> 42,929
<ALLOWANCES> 4,106
<INVENTORY> 38,336
<CURRENT-ASSETS> 115,242
<PP&E> 20,414
<DEPRECIATION> 8,887
<TOTAL-ASSETS> 144,550
<CURRENT-LIABILITIES> 18,526
<BONDS> 0
<COMMON> 22,999
0
0
<OTHER-SE> 50,897
<TOTAL-LIABILITY-AND-EQUITY> 144,550
<SALES> 28,548
<TOTAL-REVENUES> 30,072
<CGS> 16,449
<TOTAL-COSTS> 16,449
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 694
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 2,911
<INCOME-TAX> 1,317
<INCOME-CONTINUING> 1,594
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,594
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0
</TABLE>
