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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 September 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 November 7, 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-
September 30, 1997 and December 31, 1996 .................... 3
Consolidated Condensed Statements of Income-
Three and nine months ended September 30, 1997 and 1996 ...... 4
Consolidated Condensed Statements of Cash Flows-
Nine months ended September 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 ........................ 10
Page 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
<TABLE>
<CAPTION>
Bulova Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(Amounts in thousands)
September 30, December 31,
1997 1996
------------------------------
<S> <C> <C>
Assets
------
Current assets:
Cash ......................................................... $ 3,286 $ 10,665
Investment in U.S. government securities ..................... 19,228 4,978
Accounts and notes receivable-net ............................ 50,125 54,417
Inventories, principally watches and clocks .................. 36,264 37,130
Prepaid expenses ............................................. 2,279 3,174
Prepaid federal income tax ................................... 329
Deferred income taxes ........................................ 7,889 8,232
----------------------------
Total current assets ..................................... 119,400 118,596
----------------------------
Property, plant and equipment-net .............................. 11,587 11,582
----------------------------
Other assets:
Deferred income taxes ........................................ 16,890 17,437
Other ........................................................ 360 839
----------------------------
Total other assets ....................................... 17,250 18,276
----------------------------
Total assets ............................................. $148,237 $148,454
============================
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable ............................................. $ 2,339 $ 3,442
Accrued expenses ............................................. 16,083 17,967
Accrued federal and foreign income taxes ..................... 1,663
----------------------------
Total current liabilities ................................ 18,422 23,072
----------------------------
Other liabilities and credits:
Postretirement benefits payable .............................. 42,152 42,754
Pension benefits payable ..................................... 3,452 4,055
Other ........................................................ 5,995 6,192
----------------------------
Total other liabilities and credits ...................... 51,599 53,001
----------------------------
Shareholders' equity ........................................... 78,216 72,381
----------------------------
Total liabilities and shareholders' equity ............... $148,237 $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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
-----------------------------------------
<S> <C> <C> <C> <C>
Net sales ........................................ $33,049 $32,980 $88,208 $79,992
Cost of sales .................................... 17,840 18,888 49,631 47,836
-----------------------------------------
Gross profit ..................................... 15,209 14,092 38,577 32,156
Selling, general and administrative .............. 11,491 9,985 32,564 28,295
-----------------------------------------
Operating income ................................. 3,718 4,107 6,013 3,861
Other income:
Royalty ........................................ 856 998 2,722 2,855
Interest - net ................................. 423 195 1,033 685
Other .......................................... 93 563 381 696
-----------------------------------------
Income before income tax expense ................. 5,090 5,863 10,149 8,097
Income tax expense ............................... (1,996) (1,980) (4,241) (2,843)
-----------------------------------------
Net income ...................................... $ 3,094 $ 3,883 $ 5,908 $ 5,254
=========================================
Net income per share ............................. $ .67 $ .84 $ 1.28 $ 1.14
=========================================
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)
Nine Months Ended
September 30,
1997 1996
----------------------------
<S> <C> <C>
Operating Activities:
Net income ................................................... $ 5,908 $ 5,254
Adjustments to reconcile net income to net cash provided by
operating activities ........................................ 2,784 3,674
Changes in assets and liabilities-net:
Receivables ................................................ 2,265 (1,771)
Inventories ................................................ 866 1,655
Other assets ............................................... 1,374 (1,986)
Accounts payable and accrued expenses ...................... (2,987) 454
Accrued federal and foreign income taxes ................... (1,992) 1,390
Other liabilities and credits .............................. (1,475) 2,074
----------------------------
6,743 10,744
----------------------------
Investing Activities:
Purchases of U.S. government securities ...................... (33,661) (14,639)
Proceeds from maturities of U.S. government securities ....... 20,000 10,000
Purchases of property, plant and equipment ................... (478) (130)
Proceeds from disposal of property, plant and equipment ...... 17 49
----------------------------
(14,122) (4,720)
----------------------------
Financing Activities:
Principal payments on long-term debt ......................... (200)
----------------------------
Net change in cash ............................................. (7,379) 5,824
Cash, beginning of period ...................................... 10,665 5,963
----------------------------
Cash, end of period ............................................ $ 3,286 $ 11,787
============================
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. During the third quarter of 1996 the Company recorded a credit of
$1,194,000 as a result of amendments to the Company's postretirement
benefit health care plans. Amendments adopted by the Company adjusted the
cost sharing provisions including copayments, deductibles and payment
limits. See Note 5 of the Notes to Consolidated Financial Statements in the
Annual Report on Form 10-K for the year ended December 31, 1996.
4. During the third quarter of 1996 the Company revised its estimated
liability related to the Executive Life shortfall and, as a result,
recorded a credit of $430,000. 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.
5. Under the tax allocation agreement between the Company and its parent,
Loews Corporation ("Loews"), the Company has paid Loews approximately
$786,000, $1,334,000, $2,359,000 and $1,575,000 for the three and nine
months ended September 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.
6. Loews provides administrative and managerial services for which the Company
was charged $516,000, $183,000, $1,548,000 and $548,000 for the three and
nine months ended September 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
7. Shareholders' equity:
<TABLE>
<CAPTION>
September 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 ......................... 33,686 27,778
Cumulative translation adjustment ......... (1,324) (1,251)
Pension liability adjustment .............. (337) (337)
------------------------
Total .................................. 78,221 72,386
Less treasury stock, at cost .............. 5 5
------------------------
Total shareholders' equity ............. $78,216 $72,381
========================
</TABLE>
8. The Company is responsible for the clean-up of certain environmental
conditions at its current facility as well as certain former manufacturing
facilities. The remaining liability recognized in the Company's financial
statements of $455,000 represents the Company's estimate of costs to be
incurred in these environmental remediation matters, the upper limit of
that range is approximately $1,055,000.
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.
9. In the opinion of Management, the accompanying consolidated condensed
financial statements reflect all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as
of September 30, 1997 and December 31, 1996 and the results of operations
for the three and nine months ended September 30, 1997 and 1996 and changes
in cash flows for the nine months ended September 30, 1997 and 1996,
respectively.
Results of operations for the third quarter and first nine months of each
of the years is not necessarily 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
---------------------------------------------------------------
Liquidity and Capital Resources:
The Company generated cash flow from operations of $6,743,000 and $10,744,000
for the nine months ended September 30, 1997 and 1996, respectively. The
decrease in net cash flow is due primarily to the collection of the arbitral
award discussed below.
In the first quarter of 1996, the Company received approximately $3,857,000 in
cash which represented damages, costs and interest, as a result of the
arbitration proceedings from Benetton International, N.V. regarding premature
termination of a licensing agreement with the Company. See Note 2 of the Notes
to Consolidated Condensed Financial Statements.
In previous years, the Company has relied on Loews, which owns approximately 97%
of the Company's common stock, to meet working capital needs which the Company
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 operations 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 $67,000
and $478,000 for the three and nine months ended September 30, 1997. In
addition, as of September 30, 1997 the Company has outstanding purchase
commitments related to capital expenditures amounting to approximately
$500,000.
The Company invests its excess cash in U.S. government securities. During the
first quarter of 1997, the Company purchased U.S. Treasury bills for $14,628,000
in cash, which are classified as available for sale.
Results of Operations:
Net sales increased $69,000, or 0.2%, and $8,216,000, or 10.3%, for the three
and nine months ended September 30, 1997, as compared to 1996. The increase is
due to overall higher unit prices and sales volume. Unit volume increased 2.1%,
while unit prices increased 8.0%, 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 $831,000, or 4.5%, and $6,889,000,
or 15.0%, partially offset by decreases in Caravelle of $721,000, or 11.8%, and
$229,000, or 1.6%, for the three and nine months ended September 30, 1997, as
compared to the prior year.
In the third quarter of 1996, the Company recorded a credit of $367,000 in cost
Page 8
of sales related to changes adopted to its postretirement benefit health care
plan. (See Note 3 of the Notes to Consolidated Condensed Financial Statements).
Exclusive of that transaction, gross profit as a percentage of net sales for the
three and nine months ended September 30, 1997 was 46.0% and 43.7%, as compared
to 41.6% and 39.7%, for the three and nine months ended September 30, 1996,
respectively. This increase is due to higher overall prices and a favorable
sales mix.
In the third quarter of 1996, the Company recorded a credit of $827,000 in
administrative expenses related to changes adopted to the Company's
postretirement benefit health care plan. (See Note 3 of the Notes to
Consolidated Condensed Financial Statements). Exclusive of that transaction,
selling, general and administrative expenses as a percentage of net sales for
the three and nine months ended September 30, 1997 was 34.8% and 36.9%,
as compared to 32.8% and 36.4% for the three and nine months ended September
30, 1996, respectively. This increase is the result of the Company's increased
investment in brand support advertising and higher charges for
administrative and managerial services provided by Loews.
Royalty income has declined $142,000, or 14.2%, and $133,000, or 4.7%, for the
three and nine months ended September 30, 1997, as compared to 1996,
respectively. Royalty income represents payments by a distributor and licensees
in Europe, the Far East, and South America. The decline in royalty income
reflects the effects of two agreements which were renegotiated in 1996.
Interest income increased $228,000, or 116.9%, and $348,000, or 50.8%, for the
three and nine months ended September 30, 1997. This increase is the result of
an increased level of invested assets.
Other income was primarily affected by the $430,000 credit recorded during the
third quarter of 1996 related to an adjustment to the Remaining Shortfall of the
Executive Life annuity. ( See Note 4 of the Notes to Consolidated Condensed
Financial Statements). Exclusive of that transaction, other income decreased
$40,000, or 30.1%, for the three months ended September 30, 1997, and increased
$115,000, or 43.2%, for the nine months September 30, 1997, as compared to the
corresponding periods of the prior year. Other income primarily represents
proceeds from the sale of promotional and display materials.
Income from operations before income taxes was affected by the credits recorded
during the third quarter of 1996 related to changes to the Company's
postretirement benefit health care plan and the Executive Life annuity as
discussed above. Exclusive of those transactions, income from operations before
income taxes increased $851,000 and $3,676,000 for the three and nine months
ended September 30, 1997, as compared to the prior year, resulting from the
sales increase discussed above, partially offset by higher brand support
advertising and increased charges for 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
5% of the Company's purchases are denominated in Japanese yen. Substantially all
of the remaining purchases are denominated in U.S. dollars with vendors from
Hong Kong and the Pacific Rim. As a result of hedging practices adopted by the
Company, foreign currency fluctuations have not had a material impact on the
results of operations for the three and nine months ended September 30, 1997 and
1996. Future foreign currency fluctuations, however, could impact gross profit,
income, and cash flow.
Page 9
Corporate
Related Parties - Loews has provided administrative services for which the
Company was charged $516,000, $183,000, $1,548,000 and $548,000 for the three
and nine months ended September 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 nine months ended
September 30, 1997.
(b) Current reports on Form 8-K -- There were no reports on Form 8-K filed for
the three months ended September 30, 1997.
Page 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BULOVA CORPORATION
------------------
(Registrant)
Dated: November 14, 1997 By: /s/Paul S. Sayegh
-----------------------
PAUL S. SAYEGH
Chief Operating Officer
(Duly authorized
officer and principal
financial officer)
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,286
<SECURITIES> 19,228
<RECEIVABLES> 54,469
<ALLOWANCES> 4,344
<INVENTORY> 36,264
<CURRENT-ASSETS> 119,400
<PP&E> 20,757
<DEPRECIATION> 9,170
<TOTAL-ASSETS> 148,237
<CURRENT-LIABILITIES> 18,422
<BONDS> 0
0
0
<COMMON> 22,999
<OTHER-SE> 55,217
<TOTAL-LIABILITY-AND-EQUITY> 148,237
<SALES> 88,208
<TOTAL-REVENUES> 92,359
<CGS> 49,631
<TOTAL-COSTS> 49,631
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 805
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> 10,149
<INCOME-TAX> 4,241
<INCOME-CONTINUING> 5,908
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,908
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 0
</TABLE>
