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BULOVA CORP
10-Q, 2000-08-08
WATCHES, CLOCKS, CLOCKWORK OPERATED DEVICES/PARTS

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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, 2000

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

     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       

Class Common stock, $5 par value

Outstanding at August 4, 2000 4,599,857 shares

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BULOVA CORPORATION

INDEX TO QUARTERLY REPORT ON
FORM 10-Q FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION

For the quarterly period ended June 30, 2000

Item		Page
No.                                                       Part I. Financial Information		No.
1.           Financial Statements
Consolidated Condensed Balance Sheets
June 30, 2000 and December 31, 1999		3
Consolidated Condensed Statements of Income
Three and six months ended June 30, 2000 and 1999		4
Consolidated Condensed Statements of Cash Flows
Six months ended June 30, 2000 and 1999		5
Notes to Consolidated Condensed Financial Statements		6
2.            Management’s Discussion and Analysis of Financial Condition and
Results of Operations		9
Part II. Other Information
6.           Exhibits and Reports on Form 8-K		11
Exhibit 27-Financial Data Schedule for the six months ended June 30,
2000		12

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BULOVA CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Amounts in thousands)
Assets			June 30, 2000		December 31, 1999
Current Assets:
Cash and cash equivalents			$	27,299		$	22,027
Investments				11,982			12,064
Accounts and notes receivable-net				49,770			63,371
Inventories, principally watches and clocks				43,119			36,787
Prepaid expenses				1,923			913
Deferred income taxes				11,651			11,289
Total current assets				145,744			146,451
Property, plant and equipment-net				15,155			15,186
Other assets:
Deferred income taxes				14,828			16,981
Other				191			175
Total other assets				15,019			17,156
Total assets			$	175,918		$	178,793
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable			$	2,598		$	3,887
Accrued expenses				21,981			24,080
Accrued federal and foreign income taxes				418			1,051
Total current liabilities				24,997			29,018
Other liabilities and credits:
Postretirement benefits payable				35,048			36,364
Pension benefits payable				1,627			2,029
Other							4,633
Total other liabilities and credits				36,675			43,026
Shareholders’ equity				114,246			106,749
Total liabilities and shareholders’ equity			$	175,918		$	178,793

See accompanying Notes to Consolidated Condensed Financial Statements.

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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,
			2000			1999			2000			1999
Net sales			$	29,538		$	29,404		$	64,815		$	58,281
Cost of sales				14,658			14,872			32,602			30,053
Gross profit				14,880			14,532			32,213			28,228
Selling, general and administrative   expenses				13,065			12,031			26,627			22,777
Operating income				1,815			2,501			5,586			5,451
Royalties				6,234			952			6,818			1,891
Interest income, net				683			475			1,150			877
Other				11			(35	)		49			(87	)
Income before income tax expense				8,743			3,893			13,603			8,132
Income tax expense				3,755			1,576			5,860			3,492
Net income			$	4,988		$	2,317		$	7,743		$	4,640
Net income per share			$	1.08		$	.50		$	1.68		$	1.01
Weighted average number of shares   outstanding (in thousands)				4,599			4,599			4,599			4,599

See accompanying Notes to Consolidated Condensed Financial Statements.

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BULOVA CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Amounts in thousands)
			Six Months Ended June 30,
			2000			1999
Operating Activities:
Net income			$	7,743		$	4,640
Adjustments to reconcile net income to net cash provided
by operating activities				3,470			1,856
Changes in assets and liabilities-net:
Receivables				12,383			11,416
Inventories				(6,332	)		(3,124	)
Other assets				(16	)		5
Accounts payable and accrued expenses				(3,388	)		(3,942	)
Accrued federal and foreign income taxes				(633	)		68
Other liabilities and credits				(7,607	)		(1,652	)
				5,620			9,267
Investing Activities:
Purchases of short-term investments				(6,954	)		(19,635	)
Proceeds from sales of short-term investments				7,000			13,000
Purchases of property, plant and equipment				(399	)		(663	)
Proceeds from disposal of property, plant and equipment				5
				(348	)		(7,298	)
Net change in cash and cash equivalents				5,272			1,969
Cash and cash equivalents, beginning of period				22,027			5,720
Cash and cash equivalents, end of period			$	27,299		$	7,689

See accompanying Notes to Consolidated Condensed Financial Statements.

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BULOVA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

1.

See Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 1999 filed with the Securities and Exchange Commission on March 27, 2000.

There have been no changes in significant accounting policies since December 31, 1999. In addition, certain amounts applicable to prior periods have been reclassified to conform to classifications followed in 2000.

2.

Arbitral Award - On April 26, 2000 the Company and Benetton International N.V. (“Benetton”) settled all claims relating to the arbitration proceedings and license agreement referred to in Note 8 of the Notes to Consolidated Financial Statements included in Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1999 and, accordingly, the litigation with Benetton has been concluded. As a result of this settlement and cash payments by Ben

3.

Under the tax allocation agreement between the Company and its parent, Loews Corporation (“Loews”), the Company has paid Loews approximately $1,755, $1,080, $2,892 and $2,392 for the three and six months ended June 30, 2000 and 1999, respectively.

See Note 3 of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 1999.

4.

Loews provides administrative and managerial services for which the Company was charged $750, $664, $1,500, and $1,329 for the three and six months ended June 30, 2000 and 1999, 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.

5.

For the three and six months ended June 30, 2000 and 1999, comprehensive income totaled $4,778, $2,512, $7,497 and $4,259, respectively. Comprehensive income includes all changes to shareholders’ equity, except those resulting from investments by owners and distributions to owners. Comprehensive income includes net income, foreign currency translation gains or losses, unrealized appreciation (depreciation) on marketable securities and pension liability adjustments.

6.

Shareholders’ equity:

			June 30, 2000		December 31, 1999
Common stock			$	22,999		$	22,999
Additional paid-in capital				23,197			23,197
Retained earnings				71,077			63,334
Accumulated other comprehensive loss				(3,022	)		(2,776	)
Total				114,251			106,754
Less treasury stock, at cost				5			5
Total shareholders’ equity			$	114,246		$	106,749

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7.  Geographic Information:

The Company operates in a single industry segment, the distribution and sale of watches and clocks under the brand names of Bulova, Caravelle and Accutron. Substantially all of the Company’s sales are in the United States and Canada. The Company evaluates performance based on operating earnings of the respective geographic area and the geographic distribution of the Company’s operating results are summarized in the following tables:

            

Three Months Ended June 30, 2000		United States				Canada			Total
Sales			$	26,867		$	3,086		$	29,953
Intercompany sales				(415	)					(415	)
Total net sales			$	26,452		$	3,086		$	29,538
Operating income			$	1,400		$	415		$	1,815
Royalties				6,234						6,234
Interest-net				649			34			683
Other				12			(1	)		11
Income before tax			$	8,295		$	448		$	8,743
Three Months Ended June 30, 1999
Sales			$	27,107		$	2,982		$	30,089
Intercompany sales				(685	)					(685	)
Total net sales			$	26,422		$	2,982		$	29,404
Operating income			$	2,236		$	265		$	2,501
Royalties				952						952
Interest-net				459			16			475
Other				(35	)					(35	)
Income before tax			$	3,612		$	281		$	3,893
Six Months Ended June 30, 2000
Sales			$	59,390		$	6,458		$	65,848
Intercompany sales				(1,033	)					(1,033	)
Total net sales			$	58,357		$	6,458		$	64,815
Operating income			$	4,780		$	806		$	5,586
Royalties				6,818						6,818
Interest-net				1,097			53			1,150
Other				45			4			49
Income before tax			$	12,740		$	863		$	13,603
Six Months Ended June 30, 1999
Sales			$	53,279		$	6,004		$	59,283
Intercompany sales				(1,002	)					(1,002	)
Total net sales			$	52,277		$	6,004		$	58,281
Operating income			$	4,669		$	782		$	5,451
Royalties				1,891						1,891
Interest-net				844			33			877
Other				(92	)		5			(87	)
Income before tax			$	7,312		$	820		$	8,132

 

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8.

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, 2000 and December 31, 1999 and the results of operations for the three and six months ended June 30, 2000 and 1999 and changes in cash flows for the six months ended June 30, 2000 and 1999, respectively.

Results of operations for the second quarter and first six months of each of the years is not necessarily indicative of results of operations for that entire year.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources:

The Company generated net cash flow from operations of $5,620,000 and $9,267,000 for the six months ended June 30, 2000 and 1999, respectively. The decrease in net cash flow compared to the corresponding period of the prior year is primarily the result of an increase in inventory purchases necessary to meet the Company’s sales forecast, and an increase in payments related to income taxes, partially offset by a higher collection of accou

The Company’s investments consist primarily of U.S. Treasury notes. Cash and cash equivalents, and investments amounted to approximately $39,281,000 at June 30, 2000, as compared to approximately $34,091,000 at December 31, 1999. The Company expects existing cash and investment balances and cash flow from operations will be sufficient to fund anticipated working capital requirements.

Results of Operations:

Net sales increased $134,000 and $6,534,000, for the three and six months ended June 30, 2000, respectively, as compared to the prior year. Income before taxes increased $4,850,000 and $5,471,000 for the three and six months ended June 30, 2000, respectively, as compared to the prior year. The increase in net sales for the six months ended June 30, 2000, as compared to the same period in the prior year, is primarily attributable to the unit

The Company’s overall gross margins are primarily affected by three major factors: sales mix, product pricing strategy and efficient procurement practices. Gross profit as a percentage of net sales increased to 50.4% and 49.7% for the three and six months ended June 30, 2000, respectively, as compared to 49.4% and 48.4% for the prior year. This increase reflects the Company’s efforts to achieve its price targets, as well as maintai

The Company’s operating expenses consist primarily of advertising, selling, general and administrative expenses. Operating expenses as a percentage of net sales for the three and six months ended June 30, 2000, was 44.2% and 41.1%, respectively, as compared to 40.9% and 39.1% for the corresponding prior year period. The increase reflects an increased level of brand support and advertising expenses. This increase was planned and reflects fforts to maintain brand image and identity.

Royalty income represents payments by licensees in Europe and the Far East. Royalty income, excluding the Benetton settlement decreased by $213,000 and $568,000 for the three and six months ended June 30, 2000, respectively, as compared to the corresponding period of the prior year, due to the expiration of an agreement with the Company’s South American distributor.

The European and Far East license agreements expire on December 31, 2001. These licensees are based in Hong Kong and are affiliated companies. The Company has commenced discussions with the licensees and others with regard to the current and future status of the license agreements in these territories. The Company cannot predict the outcome of these discussions. Any reduction in license fees would negatively impact results of operations and

Interest income increased by $213,000 and $276,000 for the three and six months ended June 30, 2000, as compared to the corresponding period in 1999, respectively, due primarily to an increase in the effective rate of return earned on the invested assets as well as an increased level of invested assets.

Foreign Currency

The Company imports most of its watch and clock products. During the first six months of 2000 approximately 10% of the Company’s purchases were denominated in Japanese yen. The remaining purchases

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were primarily denominated in US dollars and acquired from vendors located in Europe, Hong Kong and other Asian countries. Foreign currency fluctuations have not had a material impact on the results of operations for the quarter and six months ended June 30, 2000 and 1999. Future foreign currency fluctuations, however, could impact gross profit, income, and cash flow.

Forward-Looking Statements

When included in this Report, the words “believes,” “expects,” “intends,” “anticipates,” “estimates” and analogous expressions are intended to identify forward-looking statements. Such statements inherently are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include, among others, general e

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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, 2000.

(b)

Current reports on Form 8-K – There were no reports on Form 8-K filed for the three months ended June 30, 2000.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		BULOVA CORPORATION (Registrant)
Dated: August 8, 2000	By:	/s/ Paul S. Sayegh                 PAUL S. SAYEGH   Chief Operating Officer   (Duly authorized officer   and principal financial officer)

 

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