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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
ONE BULOVA AVENUE, WOODSIDE, N.Y. 11377-7874
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(Address of principal executive offices) (Zip Code)
(718) 204-3300
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Class Outstanding at August 1, 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-
June 30, 1997 and December 31, 1996 ........................ 3
Consolidated Condensed Statements of Income-
Three and six months ended June 30, 1997 and 1996 .......... 4
Consolidated Condensed Statements of Cash Flows-
Six months ended June 30, 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 six months ended
June 30, 1997 ................................................ 11
Page 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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<TABLE>
<CAPTION>
Bulova Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(Amounts in thousands)
June 30, December 31,
1997 1996
-------------------------
<S> <C> <C>
Assets
------
Current assets:
Cash ......................................................... $ 12,214 $ 10,665
Investment in U.S. government securities ..................... 14,949 4,978
Accounts and notes receivable-net ............................ 39,535 54,417
Inventories, principally watches and clocks .................. 38,230 37,130
Prepaid expenses ............................................. 3,170 3,174
Prepaid federal income tax ................................... 235
Deferred income taxes ........................................ 8,066 8,232
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Total current assets ..................................... 116,399 118,596
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Property, plant and equipment-net .............................. 11,672 11,582
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Other assets:
Deferred income taxes ........................................ 17,196 17,437
Other ........................................................ 431 839
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Total other assets ....................................... 17,627 18,276
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Total assets ............................................. $145,698 $148,454
========================
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable ............................................. $ 2,260 $ 3,442
Accrued expenses ............................................. 16,102 17,967
Accrued federal and foreign income taxes ..................... 1,663
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Total current liabilities ................................ 18,362 23,072
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Other liabilities and credits:
Postretirement benefits payable .............................. 42,352 42,754
Pension benefits payable ..................................... 3,653 4,055
Other ........................................................ 6,206 6,192
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Total other liabilities and credits ...................... 52,211 53,001
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Shareholders' equity ........................................... 75,125 72,381
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Total liabilities and shareholders' equity ............... $145,698 $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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
-----------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Net sales ...................................... $26,611 $22,666 $55,159 $47,012
Interest, royalties and other .................. 1,251 1,297 2,775 2,495
-----------------------------------------
Total revenues ............................. 27,862 23,963 57,934 49,507
-----------------------------------------
Expenses:
Cost of sales .................................. 15,342 13,903 31,791 28,948
Selling, general and administrative ............ 10,372 9,027 21,084 18,325
-----------------------------------------
Total expenses ............................. 25,714 22,930 52,875 47,273
-----------------------------------------
Income before income tax expense ................. 2,148 1,033 5,059 2,234
Income tax expense ............................... (928) (363) (2,245) (863)
-----------------------------------------
Net income ...................................... $ 1,220 $ 670 $ 2,814 $ 1,371
=========================================
Net income per share ............................. $ .26 $ .15 $ .61 $ .30
=========================================
Weighted average number of shares outstanding .... 4,599 4,599 4,599 4,599
=========================================
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
Page 4
<TABLE>
<CAPTION>
Bulova Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Amounts in thousands)
Six Months Ended
June 30,
1997 1996
-----------------------
<S> <C> <C>
Operating Activities:
Net income ................................................... $ 2,814 $ 1,371
Adjustments to reconcile net income to net cash provided by
operating activities ........................................ 1,742 1,768
Changes in assets and liabilities-net:
Receivables ................................................ 13,511 10,312
Inventories ................................................ (1,100) (586)
Other assets ............................................... 408 (30)
Accounts payable and accrued expenses ...................... (3,047) (682)
Accrued federal and foreign income taxes ................... (1,898) 186
Other liabilities and credits .............................. (856) 2,837
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11,574 15,176
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Investing Activities:
Purchases of U.S. government securities ...................... (14,628) (9,770)
Proceeds from maturities of U.S. government securities ....... 5,000
Purchases of property, plant and equipment ................... (411) (72)
Proceeds from disposal of property, plant and equipment ...... 14 34
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(10,025) (9,808)
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Financing Activities:
Principal payments on long-term debt ......................... (200)
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Net change in cash ............................................. 1,549 5,168
Cash, beginning of period ...................................... 10,665 5,963
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Cash, end of period ............................................ $ 12,214 $11,131
=======================
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 has paid Loews approximately
$786,000, $175,000, $1,573,000 and $241,000 for the three and six months
ended June 30, 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, $190,000, $1,032,000 and $365,000 for the three and
six months ended June 30, 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>
June 30, 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 ............................ 30,592 27,778
Cumulative translation adjustment ............ (1,321) (1,251)
Pension liability adjustment ................. (337) (337)
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Total .................................... 73,130 72,386
Less treasury stock, at cost ................. 5 5
----------------------
Total shareholders' equity ............... $75,125 $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 $496,000 represents the minimum of the
Company's estimated range of equally likely outcomes, the upper limit of
that range is approximately $1,096,000.
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
June 30, 1997 and December 31, 1996 and the results of operations for the
three and six months ended June 30, 1997 and 1996 and changes in cash flows
for the six months ended June 30, 1997 and 1996, respectively.
Results of operations for the second quarter and first six months of each of
the years is not necessary indicative of results of operations for that
entire year.
Page 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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Liquidity and Capital Resources:
The Company generated cash flow from operations of $11,574,000 and $15,176,000
for the six months ended June 30, 1997 and 1996, respectively. The decrease in
net cash flow is due primarily to the collection of the arbitral award discussed
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 (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, 1999.
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 $411,000 for
the six months ended June 30, 1997. In addition, as of June 30, 1997 the Company
has outstanding purchase commitments related to capital expenditures amounting
to approximately $527,000.
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 purchased U.S. Treasury bills for $14,628,000 in cash during the
three months ended March 31, 1997, which are classified as available for sale.
Results of Operations:
Total revenues increased $3,899,000, or 16.3%, and $8,427,000, or 17.0% for the
three and six months ended June 30, 1997, as compared to the prior year.
Watch and clock net sales increased $3,945,000, or 17.4%, and $8,147,000, or
17.3% for the three and six months ended June 30, 1997, as compared to 1996. The
increase is due to overall higher unit prices and sales volume. Unit volume and
unit prices increased 8.8% and 7.9%, respectively, as compared to 1996.
The watch and clock revenue increase is primarily attributable to the continued
growth of the core Bulova watch brand, which posted increases of $3,017,000, or
Page 8
23.0%, and $6,058,000, or 22.0%, for the three and six months ended June 30,
1997, as compared to the prior year. The increase is the result of the Bulova
brand's 21.4% and 20.1% increase in unit volume over the prior year, as compared
to increases of 1.7% and 3.0% for the Caravelle brand for the three and six
months June 30, 1997 and 1996, respectively.
Interest, royalties and other revenues decreased $46,000, or 3.5%, and increased
$280,000, or 11.2%, for the three and six months ended June 30, 1997, as
compared to 1996. The Company recognized $813,000, $941,000, $1,866,000 and
$1,857,000 in royalty income for the three and six months ended June 30, 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 $13,000, or 4.6%, and $120,000, or 24.5%, for the three and six months
ended June 30, 1997, as compared to the prior year, due to increased levels of
invested assets.
Selling, general and administrative expenses as a percentage of net sales for
the three and six months ended June 30, 1997 was 39.0% and 38.2% as compared to
39.8% and 39.0% for the prior year. This decrease is the result of higher sales
and management's continued efforts to control discretionary costs, partially
offset by increased advertising costs. Based upon the Company's improved
performance, management plans a significant increase in brand support
advertising of approximately $4,000,000.
Net income increased $550,000 and $1,443,000 for the three and six months ended
June 30, 1997, as compared to the prior year, resulting from the sales increase
discussed above, as well as a decrease in postretirement expenses, partially
offset by higher administrative and managerial services provided 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. Foreign currency
fluctuations have not had a material impact on the results of operations for the
three and six months ended June 30, 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, $190,000, $1,032,000 and $365,000 for the three
and six months ended June 30, 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 six months ended June 30,
1997.
(b) Current reports on Form 8-K -- There were no reports on Form 8-K filed for
the three months ended June 30, 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: August 12, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 12,214
<SECURITIES> 14,949
<RECEIVABLES> 43,910
<ALLOWANCES> 4,375
<INVENTORY> 38,230
<CURRENT-ASSETS> 116,399
<PP&E> 20,701
<DEPRECIATION> 9,029
<TOTAL-ASSETS> 145,698
<CURRENT-LIABILITIES> 18,362
<BONDS> 0
0
0
<COMMON> 22,999
<OTHER-SE> 52,126
<TOTAL-LIABILITY-AND-EQUITY> 145,698
<SALES> 55,159
<TOTAL-REVENUES> 57,934
<CGS> 31,791
<TOTAL-COSTS> 31,791
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 634
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> 5,059
<INCOME-TAX> 2,245
<INCOME-CONTINUING> 2,814
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,814
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0
</TABLE>
