-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IK57fbqmHFBJ9kI3Ud79RTZ+djFPxG3wEaEsxbeQqEzjtn9ZaF1tS4uZKKe/Ka3o oUDH8lzBUtOo0JKkbu/prg== 0000015310-96-000010.txt : 19961118 0000015310-96-000010.hdr.sgml : 19961118 ACCESSION NUMBER: 0000015310-96-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BULOVA CORP CENTRAL INDEX KEY: 0000015310 STANDARD INDUSTRIAL CLASSIFICATION: WATCHES, CLOCKS, CLOCKWORK OPERATED DEVICES/PARTS [3873] IRS NUMBER: 111719409 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00457 FILM NUMBER: 96664275 BUSINESS ADDRESS: STREET 1: ONE BULOVA AVE CITY: WOODSIDE STATE: NY ZIP: 11377-7874 BUSINESS PHONE: 7182043300 MAIL ADDRESS: STREET 1: ONE BULOVA AVE CITY: WOODSIDE STATE: NY ZIP: 11377-7874 FORMER COMPANY: FORMER CONFORMED NAME: BULOVA WATCH CO INC DATE OF NAME CHANGE: 19880811 FORMER COMPANY: FORMER CONFORMED NAME: BULOVA J CO DATE OF NAME CHANGE: 19710627 10-Q 1 ================================================================================ 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, 1996 ------------------ 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 ----- 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, N.Y. 11377-7874 ------------------------------------------------------ (Address of principal executive offices) (Zip Code) (718) 204-3300 ------------------------------------------------------ (Registrant's telephone number, including area code) NOT APPLICABLE ------------------------------------------------------ (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 --------- --------- Class Outstanding at November 1, 1996 - --------------------------- ------------------------------- Common stock, $5 par value 4,599,249 shares ================================================================================ Page 1 INDEX Page No. -------- Part I. Financial Information Item 1. Financial Statements Consolidated Condensed Balance Sheets- September 30, 1996 and December 31, 1995 ................... 3 Consolidated Condensed Statements of Income- Three and nine months ended September 30, 1996 and 1995 .... 4 Consolidated Condensed Statements of Cash Flows- Nine months ended September 30, 1996 and 1995 .............. 5 Notes to Consolidated Condensed Financial Statements .......... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ........................... 9 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K ....................... 11 Exhibit 27--Financial Data Schedule for the nine months ended September 30, 1996 ........................................ 13 Page 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements --------------------
Bulova Corporation and Subsidiaries Consolidated Condensed Balance Sheets (Amounts in thousands) September 30, December 31, 1996 1995 --------------------------- Assets ------ Current assets: Cash ......................................................... $ 11,787 $ 5,963 Investment in U.S. Government securities ..................... 4,914 Accounts and notes receivable-net ............................ 50,482 50,958 Inventories, principally watches and clocks .................. 37,259 38,914 Prepaid expenses ............................................. 3,421 1,453 Deferred income taxes ........................................ 6,846 7,470 ---------------------- Total current assets ..................................... 114,709 104,758 ---------------------- Property, plant and equipment-net .............................. 11,882 12,260 ---------------------- Other assets: Deferred income taxes ........................................ 16,094 16,711 Other ........................................................ 416 398 ---------------------- Total other assets ....................................... 16,510 17,109 ---------------------- Total assets ............................................. $143,101 $134,127 ====================== Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Accounts payable ............................................. $ 4,264 $ 3,351 Accrued expenses ............................................. 13,683 14,142 Accrued federal and foreign income taxes ..................... 1,445 55 Current installments of long-term debt ....................... 200 ---------------------- Total current liabilities ................................ 19,392 17,748 ---------------------- Other liabilities and credits: Postretirement benefits payable .............................. 41,946 43,143 Pension benefits payable ..................................... 4,109 4,712 Other ........................................................ 7,070 3,061 ---------------------- Total other liabilities and credits ...................... 53,125 50,916 ---------------------- Shareholders' equity ........................................... 70,584 65,463 ---------------------- Total liabilities and shareholders' equity ............... $143,101 $134,127 ====================== 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 Nine Months Ended September 30, September 30, 1996 1995 1996 1995 ----------------------------------------- Revenues: Net sales ...................................... $32,980 $25,857 $79,992 $68,903 Interest, royalties and other .................. 1,761 1,257 4,256 7,680 ----------------------------------------- Total revenues ............................. 34,741 27,114 84,248 76,583 ----------------------------------------- Expenses: Cost of sales .................................. 18,888 15,805 47,836 43,862 Selling, general and administrative ............ 9,990 9,936 28,315 27,462 ----------------------------------------- Total expenses ............................. 28,878 25,741 76,151 71,324 ----------------------------------------- Income from operations before income tax expense . 5,863 1,373 8,097 5,259 Income tax expense ............................... (1,980) (508) (2,843) (3,642) ----------------------------------------- Income from operations ........................... 3,883 865 5,254 1,617 Gain on disposal of discontinued operations of BTI (net of tax of $195) ............................ 363 ----------------------------------------- Net income ....................................... $ 3,883 $ 865 $ 5,254 $ 1,980 ========================================= Net income per share: Income from continuing operations .............. $ .84 $ .19 $ 1.14 $ .35 Gain of disposal of discontinued operations of BTI ........................................... .08 ----------------------------------------- Net income ....................................... $ .84 $ .19 $ 1.14 $ .43 ========================================= Weighted average number of shares outstanding .... 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) Nine Months Ended September 30, 1996 1995 --------------------------- Operating Activities: Net income ................................................... $ 5,254 $ 1,980 Adjustments to reconcile net income to net cash provided by operating activities ..................................... 3,674 5,105 Changes in assets and liabilities-net: Receivables ................................................ (1,771) 5,446 Inventories ................................................ 1,655 (6,874) Prepaid expenses ........................................... (1,968) (1,975) Other assets ............................................... (18) (98) Accounts payable and accrued expenses ...................... 454 (1,791) Accrued federal and foreign income taxes ................... 1,390 (656) Other liabilities and credits .............................. 2,074 978 ---------------------- 10,744 2,115 ---------------------- Investing Activities: Purchases of U.S. Government securities ...................... (14,639) (5,655) Proceeds from sale of U.S. Government securities ............. 10,000 775 Purchases of property, plant and equipment ................... (130) (154) Proceeds from disposal of property, plant and equipment ...... 49 Proceeds from disposal of BTI ................................ 20,810 ---------------------- (4,720) 15,776 ---------------------- Financing Activities: Principal payments on long-term debt ......................... (200) (200) Principal payments on debt to affiliate....................... (19,000) ---------------------- (200) (19,200) ---------------------- Net change in cash ............................................. 5,824 (1,309) Cash, beginning of period ...................................... 5,963 3,857 ---------------------- Cash, end of period ............................................ $ 11,787 $ 2,548 ====================== See accompanying Notes to Consolidated Condensed Financial Statements.
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, 1995 filed with the Securities and Exchange Commission on March 27, 1996. 2. There have been no changes in significant accounting policies since December 31, 1995. In addition, certain amounts applicable to prior periods have been reclassified to conform to classifications followed in 1996. 3. 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 damages 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 thereunder 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. 4. As discussed in Note 9 of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 1995, the Company maintains postretirement benefit health care plans. The Company adopted certain amendments to its plans. These amendments adjusted the cost sharing provisions including copayments, deductibles and payment limits. As a result of the amendments adopted by the Company and a revised actuarial estimate received in the third quarter, a credit of $1,194,000 was recorded. 5. During the third quarter the Company revised its estimated liability related to the Executive Life shortfall and, as a result, recorded a credit of $430,000. See Note 13 of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 1995. 6. On January 17, 1995 the Company sold its industrial and defense manufacturing business, Bulova Technologies, Inc. ("BTI") for $20,810,000 in cash. The sale resulted in a pre-tax and after tax gain of $558,000 and $363,000, respectively, which was recorded in the first quarter of 1995. The Company applied $18,000,000 of the consideration received to the repayment of the debt to affiliate. 7. Income taxes for the three and nine months ended September 30, 1996 and 1995 include federal tax expense (benefit) to the Company of $1,445,000, ($336,000), $1,686,000 and $2,906,000, respectively, related to the tax allocation agreement between the Company and its parent, Loews Corporation ("Loews"). Additionally, during the second quarter of 1995, the Company reached a tax settlement in connection with the examination of the Loews consolidated tax returns for the 1984 through 1990 tax years. As a result of the settlement, the Company received $4,200,000 of interest income and recorded $1,772,000 of tax expense caused by the limitation on the utilization of certain tax Page 6 attributes. This transaction resulted in pre-tax and after tax income of $4,200,000 and $958,000, respectively, for the nine months ended September 30, 1995. All amounts due from Loews in connection with tax receivables through 1990 were received by the Company in August 1995. See Note 8 of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 1995. 8. Loews provides administrative and managerial services for which the Company was charged $183,000, $175,000, $548,000 and $525,000 for the three and nine months ended September 30, 1996 and 1995, 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. If the Company incurred these costs on a stand-alone basis, it believes the costs incurred could aggregate between $548,000 and $750,000 for the nine months ended September 30, 1996. 9. Shareholders' equity:
September 30, December 31, 1996 1995 -------------------------- (In thousands) Common stock ................................. $22,999 $22,999 Additional paid-in capital ................... 23,197 23,197 Retained earnings ............................ 26,031 20,777 Cumulative translation adjustment ............ (1,214) (1,081) Pension liability adjustment ................. (424) (424) ---------------------- Total .................................... 70,589 65,468 Less treasury stock, at cost ................. 5 5 ---------------------- Total shareholders' equity ............... $70,584 $65,463 ======================
10. During the third quarter of 1995, the Company provided for a liability of $150,000 in relation to an environmental condition at its former Woodside, N.Y. watch manufacturing facility which the Company agreed to remediate in October 1995. 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 $2,584,000 represents the minimum of the Company's estimated range of equally likely outcomes, the upper limit of that range is approximately $3,184,000. See Note 13 of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 1995. 11. 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, 1996 and December 31, 1995 and the results of operations for the three and nine months and changes in cash flows for the nine months Page 7 ended September 30, 1996 and 1995, respectively. Results of operations for the third quarter and first nine months of each of the years is not necessary indicative of results of operations for that entire year. Page 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. - -------------------------------------------------------------------------------- Liquidity and Capital Resources: Cash Flow 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 3 of the Notes to Consolidated Condensed Financial Statements. For a number of 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 had not been 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 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. In 1995 the Company repaid its debt to Loews from the proceeds of its sale of BTI in January 1995. See Note 6 of the Notes to Consolidated Condensed Financial Statements. It is expected that working capital needs will be provided from internally generated funds through 1997. During 1995 the Company reported the collection of $10,554,000 from Loews, which included $4,200,000 of interest, related to a tax audit adjustment from the examination of Loews's tax returns for the years 1984 through 1990. The Company generated net cash flow from operations of $10,744,000 and $2,115,000 for the nine months ended September 30, 1996 and 1995, respectively. This increase is due primarily to higher sales, increased collections from customers and the arbitration judgment discussed above, partially offset by proceeds from the tax audit adjustment received in 1995. The Company purchased U.S. Treasury bills for $9,770,000 in cash during the first quarter of 1996. The securities matured in August 1996 in the amount of $10,000,000. The Company used a portion of the proceeds to purchase additional U.S. Treasury bills for $4,869,000 in cash. The securities mature in January 1997 and are classified as available for sale. Results of Operations: The following discussion and analysis is exclusive of the following items: (i) The Company adopted amendments to its postretirement benefit health care plans and recorded a credit of $1,194,000 during the third quarter of 1996 in relation thereto. (See Note 4 of the Notes to Consolidated Condensed Financial Statements.) (ii) The Company recorded a credit of $430,000 during the third quarter related to an adjustment to the Remaining Shortfall of the Executive Life annuity. (See Note 5 of the Notes to Consolidated Condensed Financial Statements.) (iii) During the second quarter of 1995 the Company recognized $4,200,000 of interest income related to the tax audit adjustment discussed above. (See Note 7 of the Notes to Consolidated Condensed Financial Statements.) Page 9 Total revenues increased $7,197,000, or 26.5%, and $11,435,000, or 15.8%, for the three and nine months ended September 30, 1996 as compared to the prior year. Watch and clock revenues increased $7,123,000, or 27.5%, and $11,089,000, or 16.1%, for the three and nine months ended September 30, 1996, as compared to 1995. The increase is attributed to a 9.5% growth in unit sales, principally of the Company's Bulova and Caravelle brands. In addition, effective January 1, 1996, the Company increased prices, primarily on the Bulova brand, which contributed to the increased revenues. Royalties, interest and other revenues increased $74,000, or 5.9%, and $346,000, or 9.9% for the three and nine months ended September 30, 1996, as compared to 1995. The Company recognized $998,000, $882,000, $2,855,000 and $2,502,000 in royalty income for the three and nine months ended September 30, 1996 and 1995, respectively. Royalty income represents payments by a distributor and licensees in Europe, the Far East and South America. Gross profit on net sales for the three and nine months ended September 30, 1996 was 41.6% and 39.7%, as compared to 38.9% and 36.3% for the corresponding periods of the prior year. This increase is attributed to the price increase discussed above, in conjunction with a favorable change in the product sales mix. Selling, general and administrative expenses as a percentage of net sales for the three and nine months ended September 30, 1996 was 32.8% and 36.4% as compared to 38.4% and 39.9% for the corresponding periods of the prior year. This decrease is a result of higher sales and management's continued efforts to control discretionary costs. Income from continuing operations before income taxes increased $2,866,000 and $5,414,000 for the three and nine months ended September 30, 1996 as compared to the prior year. Income taxes for the nine months ended September 30, 1995 include $1,772,000 expense caused by the limitation on the utilization of certain tax attributes in connection with the tax audit adjustment. 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 and nine months ended September 30, 1996 and 1995. 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 paid $183,000, $175,000, $548,000 and $525,000 for the three and nine months ended September 30, 1996 and 1995. The cost allocated to the Company is estimated to be the incremental cost incurred by Loews in providing these services to the Company. Management believes that these costs, if incurred on a stand-alone basis, could aggregate between $548,000 and $750,000 for the nine months ended September 30, 1996. Loews is currently re-evaluating the services and costs which are allocated to the Company. It is expected that the Company will experience an increase in such costs in 1997, the amount of which has not been determined as of this date. Page 10 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, 1996. (b) Current reports on Form 8-K -- There were no reports on Form 8-K filed for the three months ended September 30, 1996. Page 11 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, 1996 By: /s/ Paul S. Sayegh ----------------------- PAUL S. SAYEGH Chief Operating Officer (Duly authorized officer and principal financial officer) Page 12 EX-27 2 FINANCIAL DATA SCHEDULE FOR SEPTEMBER 30, 1996 FORM 10-Q
5 1,000 9-MOS DEC-31-1996 SEP-30-1996 11,787 4,914 54,667 4,185 37,259 114,709 20,356 8,474 143,101 19,392 0 22,999 0 0 47,585 143,101 79,992 84,248 47,836 47,836 27,159 1,136 20 8,097 2,843 5,254 0 0 0 5,254 1.14 0
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