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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, 2000
OR
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) |
OF THE SECURITIES EXCHANGE ACT OF 193 4 |
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, NY 11377-7874 |
(718) 204-3300 |
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 | | Outstanding at November 1, 2000 |
Common stock, $5 par value | | 4,599,857 shares |
Page 1
BULOVA CORPORATION
INDEX TO QUARTERLY REPORT ON
FORM 10-Q FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION
For the quarterly period ended September 30, 2000
Item | Part I. Financial Information | Page |
1. | Financial Statements | |
Consolidated Condensed Balance Sheets | 3 | |
4 | ||
5 | ||
6 | ||
2. | Managements Discussion and Analysis of Financial Condition and Results of Operations | 9 |
Part II. Other Information | ||
6. | 11 | |
Exhibit 27-Financial Data Schedule for the nine months ended September 30, 2000 | 12 | |
Page 2
Item 1. Financial Statements
BULOVA CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands)
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September 30, | December 31, | |
Assets | 2000 | 1999 |
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Current Assets: | ||
Cash and cash equivalents | $ 12,681 | $ 22,027 |
Investments | 11,982 | 12,064 |
Accounts and notes receivable-net |
64,411 | 63,371 |
Inventories, principally watches and clocks | 51,402 | 36,787 |
Prepaid expenses | 1,760 | 913 |
Deferred income taxes | 11,099 | 11,289 |
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Total current assets | 153,335 | 146,451 |
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Property, plant and equipment-net | 15,384 | 15,186 |
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Other assets: | ||
Deferred income taxes | 14,618 | 16,981 ; |
Other | 178 | 175 |
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Total other assets | 14,796 | 17,156 |
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Total assets | $ 183,515 | $ 178,793 |
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Liabilities and Shareholders Equity | ||
Current liabilities: | ||
Accounts payable |
$ 5,089 | $ 3,887 |
Accrued expenses | 24,112 |
24,080 |
Accrued federal and foreign income taxes | 618 | 1,051 |
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Total current liabilities | 29,819 | 29,018 |
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Other liabilities and credits: | ||
Postretirement benefits payable | 34,390 | 36,364 |
Pension benefits payable | 1,427 | 2,029 |
Other | 4,633 | |
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Total other liabilities and credits | 35,817 | 43,026 |
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Shareholders equity | 117,879 | 106,749 |
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Total liabilities and shareholders equity | $ 183,515 | $ 178,793 |
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See accompanying Notes to Consolidated Condensed Financial Statements.
Page 3
BULOVA CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
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Three Months Ended | Nine Months Ended | |||
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2000 | 1999 | < B>2000 | 1999 | |
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||||
Net sales | $40,779 | $37,609 | $105,594 | $95,890 |
Cost of sales | 19,469 | 18,024 | 52,071 | 48,077 |
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Gross profit | 21,310 |
19,585 | 53,523 | 47,813 |
Selling, general and administrative expenses | 16,062 |
14,521 | 42,689 | 37,298 |
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Operating income | 5,248 | 5,064 | 10,834 | 10,515 |
Royalties | 649 | 934 | 7,467 | 2,825 |
Interest income, net | 545 |
392 | 1,695 | 1,269 |
Other | 62 | (274) | 111 | (361) |
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Income before income tax expense | 6,504 |
6,116 | 20,107 | 14,248 |
Income tax expense | 2,732 |
2,656 | 8,592 | 6,148 |
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Net income | $ 3,772 | $ 3,460 | $ 11,515 | $ 8,100 |
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Net income per share | $ .82 | $ .75 | $ 2.50 | $ 1.76 |
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Weighted average number of shares outstanding (in thousands) | 4,599 | 4,599 | 4,599 | 4,599 |
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See accompanying Notes to Consolidated Condensed Financial Statements.
Page 4
BULOVA CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
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Nine Months Ended September 30, | ||
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2000 |
1999 | |
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Operating Activities: | ||
Net income | $ 11,515 | $ 8,100 |
Adjustments to reconcile net income to net cash provided by | ||
operating activities | 5,453 | 3,170 |
Changes in assets and liabilities-net: | ||
Receivables | (3,261) | (2,336) |
Inventories | (14,615) | 360 |
Other assets | (850) | 194 |
Accounts payable and accrued expenses | 1,234 | 114 |
Accrued federal and foreign income taxes | (433) |
2,199 |
Other liabilities and credits | (7,594) | (3,073) |
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(8,551) | 8,728 | |
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Investing Activities: | ||
Purchases of short-term investments | (6,954) | (19,551) |
Proceeds from sales of short-term investments | 7,000 | 23,000 |
Purchases of property, plant and equipment | (846) | (711) |
Proceeds from disposal of property, plant and equipment |
5 | |
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(795) | 2,738 | |
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Net change in cash and cash equivalents | (9,346) | 11,466 |
Cash and cash equivalents, beginning of period | 22,027 | 5,720 |
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Cash and cash equivalents, end of period | $ 12,681 | $ 17,186 |
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See accompanying Notes to Consolidated Condensed Financial Statements.
Page 5
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 Companys 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 Benetton to the Company in connection therewith, the Company recognized royalty income of approximately $5,495 ($3,064 net of taxes, or $.67 per share), in the nine months ended September 30, 2000. Other liabilities and credits in the consolidated condensed balance sheets at December 31, 1999, reflected the deferred credit related to the arbitration proceedings. These deferred amounts have been recognized with the settlement of the litigation. |
3. | Under the tax allocation agreement between the Company and its parent, Loews Corporation (Loews), the Company has paid Loews approximately $1,048, $2,053, $3,940 and $4,445 for the three and nine months ended September 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, $665, $2,250, and $1,994 for the three and nine months ended September 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 nine months ended September 30, 2000 and 1999, comprehensive income totaled $3,633, $3,490, $11,130 and $7,749, 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: |
September 30, | December 31, | |
2000 | 1999 | |
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Common stock | $ 22,999 | $ 22,999 |
Additional paid-in capital | 23,197 |
23,197 |
Retained earnings | 74,849 | 63,334 |
Accumulated other comprehensive loss | (3,161) | (2,776) |
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Total | 117,884 | 106,754 |
Less treasury stock, at cost | 5 | 5 |
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Total shareholders equity | $ 117,879 | $ 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 Companys 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 Companys operating results are summarized in the following tables: |
United | ||||
Three Months Ended September 30, 2000 | States | Canada | Total | |
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Sales | $ 37,584 | $ 3,544 | $ 41,128 | |
Intercompany sales | (349) | (349) | ||
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Total net sales | $ 37,235 | $ 3,544 | $ 40,779 | |
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Operating income | $ 4,648 | $ 600 | $ 5,248 | |
Royalties | 649 | 649 | ||
Interest-net | 511 | 34 | 545 | |
Other | 64 | (2) | 62 | |
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Income before tax | $ 5,872 |
$ 632 | $ 6,504 | |
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Three Months Ended September 30, 1999 | ||||
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Sales | $ 34,796 | $ 3,302 | $ 38,098 | |
Intercompany sales | (489) | (489) | ||
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Total net sales | $ 34,307 | $ 3,302 | $ 37,609 | |
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Operating income |
$ 4,790 | $ 274 | $ 5,064 | |
Royalties | 934 | 934 | ||
Interest-net | 379 | 13 | 392 | |
Other | (273) | (1) | (274) | |
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Income before tax | $ 5,830 |
$ 286 | $ 6,116 | |
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Nine Months Ended September 30, 2000 | ||||
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Sales | $ 96,974 | $ 10,002 | $ 106,976 | |
Intercompany sales | (1,382) | (1,382) | ||
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Total net sales | $ 95,592 | $ 10,002 | $ 105,594 | |
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Operating income | $ 9,428 | $ 1,406 | $ 10,834 | |
Royalties | 7,467 | 7,467 | ||
Interest-net | 1,608 | 87 | 1,695 | |
Other | 109 | 2 |
111 | |
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Income before tax | $ 18,612 | $ 1,495 | $ 20,107 | |
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Nine Months Ended September 30, 1999 |
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Sales | $ 88,075 | $ 9,306 | $ 97,381 | |
Intercompany sales | (1,491) | (1,491) | ||
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Total net sales | $ 86,584 | $ 9,306 | $ 95,890 |
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Operating income | $ 9,459 | $ 1,056 | $ 10,515 | |
Royalties | 2,825 |
| 2,825 | |
Interest-net | 1,223 | 46 | 1,269 | |
Other | (365 ) | 4 | (361) | |
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Income before tax | $ 13,142 | $ 1,106 | $ 14,248 | |
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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 September 30, 2000 and December 31, 1999 and the results of operations for the three and nine months ended September 30, 2000 and 1999 and changes in cash flows for the nine months ended September 30, 2000 and 1999, 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. |
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources:
The Company had net cash outflows for operating activities of $8,551,000 for the nine months ended September 30, 2000 as compared to a net cash inflow of $8,728,000 for the same period in 1999. 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 Companys sales forecast, as well as an increase in accounts receivable in the current year period resulting from an increase in sales. Furthermore the timing difference of a tax payment compared to the corresponding period of the prior year also contributed to the net cash usage. The decrease in cash flow was partially offset by an increase in accounts payable and accrued expenses resulting from an actuarially determined increase in the Companys quarterly pension contribution.
The Companys investments consist primarily of U.S. Treasury notes. Cash and cash equivalents, and investments amounted to $24,663,000 at September 30, 2000, as compared to $34,091,000 at December 31, 1999. Cash flow for operating activities has been funded by existing cash and investment balances. The Company expects these balances and cash flow from operations will be sufficient to fund anticipated working capital requirements.
Results of Operations:
Net sales increased $3,170,000 and $9,704,000, for the three and nine months ended September 30, 2000, respectively, as compared to the corresponding periods of the prior year. Income before taxes increased $388,000 and $5,859,000 for the three and nine months ended September 30, 2000, respectively, as compared to the corresponding periods of the prior year. Income before taxes for the nine months ended September 30, 2000, includes $5,495,000 related to the settlement of the arbitration proceedings with Benetton. See Note 2 of the Notes to Consolidated Condensed Financial Statements.
The increase in net sales for the nine months ended September 30, 2000, as compared to the same period in the prior year, is primarily attributable to the unit volume increase of the Companys Bulova and Accutron watch brands of 18.3% and 7.1%, respectively, partially offset by a decrease in clock unit volume of 4.1%. The unit volume growth for Bulova and Accutron resulted in a combined increase to net sales of $10,336,000 for the nine month period ended September 30, 2000, as compared to the corresponding period in 1999. This unit volume growth is partially offset by a decrease in watch unit prices which is primarily attributed to style/sales mix within the brands.
The increase in net sales for the quarter ended September 30, 2000, is primarily attributable to the unit volume increase of the Companys Bulova and Accutron watch brands of 6.9%, and 9.1%, which resulted in a combined increase to net sales of $3,273,000, as compared to the corresponding period in 1999. This increase was partially offset by a decrease in watch unit prices which is primarily attributed to style/sales mix within the brands.
The Companys 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 52.3% and 50.7% for the three and nine months ended September 30, 2000, respectively, as compared to 52.1% and 49.9% for the prior year. This increase reflects the Companys efforts to achieve its price targets.
Operating expenses as a percentage of net sales for the three and nine months ended September 30, 2000, was 39.4% and 40.4%, respectively, as compared to 38.6% and 38.9% for the corresponding periods of the prior year. The increase reflects an increased level of brand support and advertising expenses. This increase was planned and reflects the Companys efforts 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 $285,000 and $853,000 for the three and nine months ended September 30, 2000, respectively, as compared to the corresponding periods of the prior year, due to the expiration of an agreement with the Companys 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 within these territories. The Company cannot predict the outcome of these discussions. Any reduction in license fees would negatively impact results of operations and cash flow.
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Interest income increased by $153,000 and $429,000 for the three and nine months ended September 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, partially offset by a decrease in the level of invested assets.
Foreign Currency
The Company imports most of its watch and clock products. During the first nine months of 2000 approximately 9% of the Companys purchases were denominated in Japanese yen. The remaining purchases were primarily denominated in U.S. 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 nine months ended September 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 economic and business conditions, changes in financial markets, significant changes in consumer spending patterns, competition in the Companys product areas, changes in foreign currency valuations in relation to the U.S. dollar, the results of negotiations with foreign distributors and licensees, changes in foreign, political, social and economic conditions, and various other matters, many of which are beyond the Companys control. These forward-looking statements speak only as of the date of this report. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in the Companys expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
(27) Financial Data Schedule for the nine months ended September 30, 2000.
(b) Current reports on Form 8-K - There were no reports on Form 8-K filed for the
three months ended September 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: November 13, 2000 | By: | /s/ Paul S. Sayegh |
PAUL S. SAYEGH | ||
Chief Operating Officer | ||
(Duly authorized officer | ||
and principal financial officer) | ||
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