-----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, CqtDq4NTT2/N0TgIjtH+PxJFGX1sDKkze6qXCK3ngpcSMYv3uoTK+s1e8lGE/57f I/AdSWwC7CIlBH82Q2I/6Q== 0000015310-96-000002.txt : 19960328 0000015310-96-000002.hdr.sgml : 19960328 ACCESSION NUMBER: 0000015310-96-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960327 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-00457 FILM NUMBER: 96539100 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-K405 1 ========================================================================= SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1995 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, New York 11377-7874 (Address of principal executive offices) (Zip Code) (718) 204-3300 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock, par value $5.00 per share (Title of Class) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] 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 --------- --------- As at February 29, 1996, 4,599,857 shares of Common Stock of the Registrant were outstanding and the aggregate market value of voting stock held by non-affiliates was approximately $560,000. ========================================================================= 1 BULOVA CORPORATION INDEX TO ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION For The Year Ended December 31, 1995
Item Page No. PART I No. - ---- ---- 1 BUSINESS ..................................................... 3 2 PROPERTIES ................................................... 4 3 LEGAL PROCEEDINGS ............................................ 4 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .......... 4 PART II 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS ......................................... 4 6 SELECTED FINANCIAL DATA ...................................... 5 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ......................... 5 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .................. 9 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ......................... 25 PART III 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ........... 25 11 EXECUTIVE COMPENSATION ....................................... 26 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT .................................................. 27 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ............... 28 PART IV 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K 29
2 PART I Item 1. Business. Bulova Corporation (together with its subsidiaries referred to herein as "Registrant" or the "Company," unless the context otherwise requires) is a New York corporation. Loews Corporation ("Loews") owns approximately 97% of Registrant's outstanding Common Stock. See Item 12 of this Form 10-K. In January 1995 the Company sold its industrial and defense products segment, Bulova Technologies, Inc. ("BTI") for $20,810,000 in cash. The Company applied $18,000,000 of the consideration received to the repayment of the entire debt owed to Loews under the credit agreement described below, and the balance of the consideration was added to working capital. Additionally, the Company assumed BTI's liabilities with respect to pensions and postretirement health care benefits for employees of BTI who had retired prior to the consummation of the sale. Registrant is engaged in the distribution and sale of watches, clocks and timepiece parts for consumer use. The principal watch brands are Bulova, Caravelle, Accutron and Sportstime. Clocks are principally sold under the Bulova brand name. The Registrant's market segment breakdown includes a luxury watch line represented by Accutron, a mid-ranged priced watch brand represented by Bulova, and a lower-priced watch line represented by Caravelle. In addition, the Registrant's Sportstime by Bulova brand, with watches using names and logos of various professional and college athletic teams, is sold at various price levels. Bulova's principal markets are the United States and Canada, which accounted for 87% and 13%, respectively, of sales. In most other areas of the world, Registrant has appointed licensees who market watches under Registrant's trademarks in return for a royalty. For additional information concerning Registrant's sales in foreign markets, see Note 11 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K. Registrant buys complete watches and clocks from foreign suppliers for substantially all of its products. Watch movements, cases and other components are also purchased from foreign suppliers. In the United States, most of Registrant's consumer products are sold directly to retail jewelry and premium outlets through Registrant's commission sales force and outside sales representatives. In Canada, Registrant, through a marketing subsidiary, sells directly to retailers. The customer base is comprised of large retailers, small local chains and local independent jewelry shops. The business is intensely competitive. The principal methods of competition are price, styling, aftersale service, warranty and product performance. In all five categories, Registrant occupies a favorable position of long standing. There are approximately ten major competitors with well established names and positions in the principal markets in which Registrant competes. At least three of these have sales and assets substantially greater than Registrant. In addition, there are an indeterminate number of minor competitors. It is characteristic of Registrant's business and of the watch industry generally that customer receivables from watch sales are carried for relatively long periods. Registrant grants its retailers seasonal credit terms, in one instance up to twelve months, depending on the product and date of sale. In certain circumstances, Registrant also extends credit to its retailers on an interest-bearing basis. Any backlog of orders is not believed to be significant. The business is seasonal; with the greatest sales coming in the third and fourth fiscal quarters in expectation of the holiday selling season. Employees Registrant currently employs approximately 430 persons, approximately 120 of whom are union members, and has experienced satisfactory labor relations. The Company has comprehensive benefit plans for substantially all employees. 3 Item 2. Properties. The Company leases its primary facilities which include an 80,000 square foot plant in Woodside, New York for executive and sales offices, watch distribution, service and warehouse purposes, a 71,000 square foot plant in Maspeth, New York, for clock service and warehouse purposes, and a 25,000 square foot plant in Toronto, Canada, for watch and clock sales and service. Item 3. Legal Proceedings. Pending litigation includes various civil actions for damages. On the basis of the facts presently known to it, management does not believe that these actions will have a material adverse effect upon the financial condition or results of operations of the Company. Item 4. Submission of Matters to a Vote of Security Holders. None. PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters. MARKET PRICES The following table sets forth, for the periods indicated, the high and low bid prices for the Company's Common Stock in the over-the-counter market as reported by Carr Securities Corp. These quotations represent prices between dealers and do not include retail mark-up, mark-down or commissions. They do not represent actual transactions.
1995 1994 ------------------------------------------------ High Low High Low - -------------------------------------------------------------------------------- First Quarter ................. 3 3/4 3 3 1/4 2 3/4 Second Quarter ................ 4 3 3/4 3 1/4 2 5/8 Third Quarter ................. 4 4 3 1/4 3 Fourth Quarter ................ 4 1/4 4 3 1/4 3 1/4
DIVIDEND INFORMATION The Company paid no dividends for the years ended December 31, 1995 and 1994. APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS There were approximately 1,500 holders of record of common stock of the Company at February 29, 1996. 4 Item 6. Selected Financial Data.
Year Ended December 31 ---------------------------------------------- 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------- (In thousands, except per share data) Results of Operations: Revenues....................... $109,223 $100,046 $101,303 $ 98,841 $101,001 Income (loss) from continuing operations.................... 2,269 532 1,911 (1,342) (486) Per share...................... .49 .11 .41 (.29) (.11) Income before extraordinary credit and cumulative effect of accounting changes......... 2,632 834 2,514 4,793 65 Per share...................... .57 .18 .54 1.04 .01 Income before cumulative effect of accounting changes 2,632 834 2,514 4,793 1,947 Per share...................... .57 .18 .54 1.04 .42 Net income (loss).............. 2,632 834 2,514 (13,189) 1,947 Per share...................... .57 .18 .54 (2.87) .42 Financial Position: Total assets................... 134,127 151,035 149,865 165,489 143,971 Discontinued operations-net.... - 20,082 15,445 11,245 29,435 Long-term debt................. - 200 600 1,000 1,400 Debt to affiliate.............. - 19,000 16,000 31,000 36,000 Shareholders' equity........... 65,463 62,930 64,101 61,893 76,067 Dividends per share............ None None None None None
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Not covered by Independent Auditors' Report) Liquidity and Capital Resources: Cash Flow In January 1995 the Company sold its industrial and defense products segment, Bulova Technologies, Inc. ("BTI") for $20,810,000 in cash. The Company applied $18,000,000 of the consideration received to the repayment of the entire debt owed to its parent, Loews Corporation ("Loews") under the credit agreement described below, and the balance of the consideration was added to working capital. Additionally, the Company assumed BTI's liabilities with respect to pensions and postretirement health care benefits for employees of BTI who had retired prior to the consummation of the sale. On August 3, 1995, the Company collected $10,554,000, including $4,200,000 of interest from Loews related to a tax audit adjustment from the examination of Loews's tax returns for 1984 through 1990. 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 has 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, 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, 1997. The largest amount outstanding under the Credit Agreement during 1995 of $19,000,000 was entirely paid in January, as noted above. Since that time, the Company has not required any additional working capital advances from Loews. In addition, management believes it has sufficient working capital to meet 5 inventory purchases and operating expenses for the upcoming year. At December 31, 1994 loans aggregating $19,000,000 were outstanding under the Credit Agreement. The largest amount outstanding under the Credit Agreement during 1994 was $20,000,000. The Company from time to time may require borrowings from Loews to meet its working capital needs, including normal inventory purchases. While Loews has no obligation to enter into or maintain arrangements for any further borrowing, the Company anticipates that its working capital needs will be provided by Loews under the Credit Agreement. See Note 2 of the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K. The Company continues to be adversely affected by competition and oversupply of watch and clock products. The Company has reduced costs to improve gross profit, and continues its effort to closely monitor inventory purchasing to ensure appropriate levels of inventory are maintained. Cash Flow From Operations Cash flow from operations includes cash utilization related to discontinued operations of $4,637,000 and $4,200,000, for 1994 and 1993, respectively. Exclusive of discontinued operations, the Company generated net cash flow from operations of $528,000, $706,000 and $14,472,000 for the years ended December 31, 1995, 1994 and 1993, respectively. The decrease in net cash flows is primarily attributable to an increase in inventory purchases, partially offset by the tax settlement noted above, increased collections from customers, and the reduction of interest payments due to the reduced borrowing from Loews. Cash Flow From Investing Activities The increase in cash flow is due primarily to the cash received from the sale of BTI as discussed above. The Company does not anticipate any significant capital expenditures in 1996. Cash Flow From Financing Activities Cash flow utilized in financing activities primarily represents payments of the amounts due to Loews under the Credit Agreement discussed above. Contingencies During the third quarter of 1995, the Company provided for a liability of $150,000 in relation to an environmental condition at a former Jackson Heights, N.Y. watch manufacturing facility which the Company agreed to remediate in October 1995. During the fourth quarter of 1995, the Company became aware of an environmental condition at its Woodside, N.Y. facility. Testing and evaluation of the site remain in its preliminary stages. Based upon the information available, the Company provided $100,000 during the fourth quarter of 1995 for the estimated clean up expense required. Additional testing and further evaluation is required before a definitive cost of ultimate clean up can be determined. Therefore, the liability accrued may require future revisions. Material contingencies recognized during 1994 consist of environmental claims relating to a former Sag Harbor, N.Y. watch manufacturing facility, for which the Company provided $484,000, and a former Valley Stream, N.Y. defense manufacturing facility, which the Company provided $250,000. The impact of environmental clean-up will directly affect cash flow, and it is expected that to the extent the Company does not have sufficient liquidity, cash needs will be funded through the Credit Agreement with Loews. 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. 6 Additionally, in 1994 the Company provided $811,000 to cover legal and settlement costs related to actions which were settled in 1995. Management does not believe that the foregoing matters will have a material adverse effect on the Company's financial condition or results of operations of the Company. Management believes that liabilities accrued by the Company represent a reasonable estimate for various legal and environmental matters for which it believes it is probable that a liability exists or a settlement will be negotiated. See Note 13 of the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K for further discussion. Results of Operations Total revenues increased $9,177,000 and $7,920,000, or 9.2% and 7.8%, as compared to 1994 and 1993, respectively. Watch and clock revenues increased $6,725,000 and $6,555,000, or 7.2% and 7.0%, over 1994 and 1993, respectively. The increase is due to overall higher unit prices and sales volume, and a favorable change in the product sales mix. Unit prices increased 4.5% and 4.0%, while unit volume increased 2.6% and 2.9% as compared to 1994 and 1993, respectively. The revenue increase reflects increased sales of the Bulova watch brand, which posted increases of $4,171,000 and $10,152,000, or 8.5% and 23.5%, as compared to 1994 and 1993, respectively. The expansion of the Marine Star sport watch collection, dress bracelet product, and diamond collection are responsible for the growth of the Bulova brand. Revenue increases were partially offset by declines in the Sportstime watch line of $809,000 and $1,107,000, or 22.1% and 27.9%, which management believes is attributable to the effects of the fall 1994 baseball and hockey strikes. Royalties, interest and other revenues were primarily affected by the $4,200,000 of interest income recognized during the second quarter of 1995, related to the tax audit adjustment discussed above. The Company recorded a favorable foreign currency adjustment of $1,472,000 in 1994 related to the shut- down of its European facilities, and during 1993 recorded gains relating to the disposition of a former defense manufacturing facility and Hong Kong Office in the amount of $3,154,000. Exclusive of the above transactions, royalties, interest and other revenues decreased by $276,000 and increased by $319,000 as compared to 1994 and 1993. The decrease as compared to 1994 is related to reduced royalties, partially offset by increased interest income. The increase as compared to 1993 is attributable to increased interest income, partially offset by reduced royalties. The Company recognized $3,197,000, $3,780,000, and $3,535,000 in royalty income in 1995, 1994, and 1993, respectively, which includes $106,000, $1,484,000 and $2,162,000 of royalties under the "Benetton by Bulova" license agreement for years ended 1995, 1994 and 1993, respectively. The license agreement with Benetton expired September 30, 1994. The remaining royalty income represents payments by a distributor and licensees in Europe, the Far East and South America. Cost of sales as a percentage of net sales decreased 0.3% and 2.4% as compared to 1994 and 1993, respectively. The decrease is attributable to a change in the product sales mix and improved procurement practices. Environmental costs of $250,000 and $1,545,000 were included in selling, general and administrative expenses for 1995 and 1994, respectively. Exclusive of these items, selling, general and administrative expenses as a percentage of net sales decreased 1.7% and 0.6% as compared to 1994 and 1993, respectively. This decrease represents management's continued efforts to control discretionary costs. Income from continuing operations before income taxes increased $5,973,000 and $5,048,000 as compared to 1994 and 1993 respectively. The increase is primarily attributable to the recognition of the $4,200,000 of interest income from the tax audit adjustment discussed above and increased sales, partially offset by reduced royalty income. 7 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 years ended December 31, 1995, 1994 and 1993. 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 $700,000, $1,200,000 and $1,000,000 for the years ended December 31, 1995, 1994, and 1993, respectively. 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 $700,000 and $1,000,000. The additional cost would reduce income and cash flow. See Note 2 of the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K. Taxes - For the year ended December 31, 1995, income taxes include a charge of $1,772,000 caused by the limitation on the utilization of certain tax attributes in connection with the tax audit adjustment. For the year ended December 31, 1993 the Company recorded a tax benefit of $847,000 resulting from the Omnibus Budget Reconciliation Act of 1993, enacted August 1993, which among other things, increased the corporate tax rate from 34% to 35% effective January 1, 1993. In accordance with Statement of Financial Accounting Standards No. 109, net deferred tax assets were adjusted for the effect of the change in tax rates in the period enacted. See Note 8 of the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K. Other - As previously discussed, in January 1995 the Company sold its industrial and defense manufacturing business, 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, and reported as results from discontinued operations. 8 Item 8. Financial Statements and Supplementary Data. CONSOLIDATED BALANCE SHEETS
December 31 --------------------------- 1995 1994 - -------------------------------------------------------------------------------- Assets: Current assets: Cash ........................................... $ 5,963,000 $ 3,857,000 Receivables-net (Notes 1 and 5) ................ 50,958,000 51,254,000 Inventories (Notes 1 and 6) .................... 38,914,000 35,750,000 Prepaid expenses ............................... 1,453,000 329,000 Deferred income taxes (Notes 1 and 8) .......... 7,470,000 10,004,000 Net assets of discontinued operations (Note 4).. 20,082,000 --------------------------- Total current assets ........................ 104,758,000 121,276,000 --------------------------- Property, plant and equipment, at cost (Notes 1 and 10): Land, buildings and improvements ............... 14,090,000 14,083,000 Machinery and equipment ........................ 2,571,000 2,502,000 Furniture, fixtures and leasehold improvements . 3,597,000 3,513,000 --------------------------- 20,258,000 20,098,000 Less accumulated depreciation and amortization . 7,998,000 7,348,000 --------------------------- 12,260,000 12,750,000 --------------------------- Other assets: Deferred income taxes (Notes 1 and 8) .......... 16,711,000 16,744,000 Other assets ................................... 398,000 265,000 --------------------------- 17,109,000 17,009,000 --------------------------- Total assets ................................ $134,127,000 $151,035,000 ===========================
See Notes to Consolidated Financial Statements. 9
December 31 -------------------------- 1995 1994 ------------------------------------------------------------------------------ Liabilities and Shareholders' Equity: Current liabilities: Accounts payable ............................... $ 3,351,000 $ 5,569,000 Accrued expenses: Salaries, wages and commissions .............. 2,462,000 2,116,000 Pension (Note 9) ............................. 1,328,000 Postretirement benefits (Note 9) ............. 1,746,000 1,298,000 Advertising .................................. 1,706,000 1,759,000 Warranty ..................................... 1,324,000 1,560,000 Other ........................................ 6,904,000 3,692,000 Accrued federal and foreign income taxes (Notes 1 and 8) ............................... 55,000 518,000 Current installments of long-term debt (Note 10) 200,000 400,000 -------------------------- Total current liabilities .................... 17,748,000 18,240,000 -------------------------- Obligations under capital leases (Note 10) ....... 200,000 -------------------------- Other liabilities and credits: Postretirement benefits payable (Note 9) ....... 43,143,000 43,183,000 Pension benefits payable (Note 9) .............. 4,712,000 2,581,000 Other .......................................... 3,061,000 4,901,000 -------------------------- 50,916,000 50,665,000 -------------------------- Debt to affiliate: 10% note payable (Notes 1 and 2) ............... 19,000,000 -------------------------- Commitments and contingent liabilities (Notes 2, 4, 8, 9, 10 and 13) Shareholders' equity (Note 1): Common stock, $5 par value: Authorized: 7,500,000 shares Issued: 4,600,000 shares ..................... 22,999,000 22,999,000 Additional paid-in capital ..................... 23,197,000 23,197,000 Retained earnings .............................. 20,777,000 18,145,000 Cumulative translation adjustment .............. (1,081,000) (1,406,000) Pension liability adjustment ................... (424,000) -------------------------- 65,468,000 62,935,000 Less 1,000 shares of common stock held in treasury, at cost ............................. 5,000 5,000 -------------------------- Total shareholders' equity ................... 65,463,000 62,930,000 -------------------------- Total liabilities and shareholders' equity.... $134,127,000 $151,035,000 ==========================
10 Bulova Corporation and Subsidiaries STATEMENTS OF CONSOLIDATED INCOME
Year Ended December 31 -------------------------------------- 1995 1994 1993 - ------------------------------------------------------------------------------- Revenues: Net sales .......................... $100,449,000 $ 93,724,000 $ 93,894,000 Royalties, interest and other (Notes 3, 7 and 8) ................ 8,774,000 6,322,000 7,409,000 -------------------------------------- Total revenues .................. 109,223,000 100,046,000 101,303,000 -------------------------------------- Expenses: Cost of sales ...................... 63,160,000 59,267,000 61,279,000 Selling, general and administrative (Notes 2, 9 and 10) ............... 39,149,000 39,416,000 36,895,000 Interest: Affiliate (Note 2) ............... 75,000 467,000 1,357,000 Others ........................... 83,000 113,000 64,000 -------------------------------------- Total expenses .................. 102,467,000 99,263,000 99,595,000 -------------------------------------- Income from continuing operations before income taxes ................. 6,756,000 783,000 1,708,000 Income tax (expense) benefit (Notes 1 and 8) .............................. (4,487,000) (251,000) 203,000 -------------------------------------- Income from continuing operations .... 2,269,000 532,000 1,911,000 Discontinued operations of BTI (net of tax of $195,000, $155,000 and $254,000) (Note 4) .................. 363,000 302,000 603,000 -------------------------------------- Net income ...................... $ 2,632,000 $ 834,000 $ 2,514,000 ====================================== Income per share (Note 1): Income from continuing operations .. $.49 $.11 $.41 Discontinued operations of BTI ..... .08 .07 .13 -------------------------------------- Net income ...................... $.57 $.18 $.54 ======================================
See Notes to Consolidated Financial Statements. 11 Bulova Corporation and Subsidiaries STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Shareholders' Equity ------------------------------------------------------------------------- Additional Cumulative Pension Common Paid-in Retained Translation Liability Treasury Stock Capital Earnings Adjustment Adjustment Stock - -------------------------------------------------------------------------------------------------- (In thousands) Balance, Dec. 31, 1992 $22,999 $23,197 $14,797 $ 905 $(5) Net income ........... 2,514 Exchange rate changes during the year (net of income taxes of $165) ............... (306) ------------------------------------------------------------------------- Balance, Dec. 31, 1993 22,999 23,197 17,311 599 (5) Net income ........... 834 Exchange rate changes during the year (net of income taxes of $287) ............... (533) Foreign currency adjustment .......... (1,472) ------------------------------------------------------------------------- Balance, Dec. 31, 1994 22,999 23,197 18,145 (1,406) (5) Net income ........... 2,632 Exchange rate changes during the year (net of income tax benefit of $175) ............ 325 Pension liability adjustment (Note 9) . $(424) ------------------------------------------------------------------------- Balance, Dec. 31, 1995 $22,999 $23,197 $20,777 $(1,081) $(424) $(5) =========================================================================
See Notes to Consolidated Financial Statements. 12 Bulova Corporation and Subsidiaries STATEMENTS OF CONSOLIDATED CASH FLOWS
Year Ended December 31 --------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------------- Operating activities: Net income ........................... $ 2,632,000 $ 834,000 $ 2,514,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Amortization of investments ........ (345,000) Depreciation and amortization ...... 667,000 608,000 1,127,000 (Gain) loss on disposition of assets ............................ (558,000) 165,000 (3,446,000) Provision for losses and cash discounts on accounts receivable .. 2,174,000 2,577,000 3,262,000 Deferred income taxes .............. 2,567,000 39,000 1,995,000 Changes in operating assets and liabilities-net: Receivables ........................ (1,878,000) (6,099,000) (850,000) Inventories ........................ (3,164,000) 4,528,000 9,728,000 Prepaid expenses ................... (1,124,000) 191,000 324,000 Net assets of discontinued operations ........................ (4,637,000) (4,200,000) Other assets ....................... (133,000) 127,000 (22,000) Accounts payable and accrued expenses .......................... 1,000 730,000 1,060,000 Accrued federal and foreign income taxes ............................. (463,000) (637,000) 173,000 Other-net .......................... 152,000 (2,357,000) (1,393,000) -------------------------------------- 528,000 (3,931,000) 10,272,000 -------------------------------------- Investing activities: Proceeds from disposal of BTI ....... 20,810,000 Purchases of U.S. government securities ......................... (5,655,000) Proceeds from sale of U.S. government securities ......................... 6,000,000 Proceeds from disposal of property, plant and equipment ................ 5,203,000 Purchases of property, plant and equipment .......................... (177,000) (451,000) (524,000) -------------------------------------- 20,978,000 (451,000) 4,679,000 -------------------------------------- Financing activities: Proceeds from debt to affiliate ..... 23,000,000 16,000,000 Principal payments on debt to affiliate .......................... (19,000,000)(20,000,000) (31,000,000) Principal payments on long-term debt (400,000) (400,000) (400,000) -------------------------------------- (19,400,000) 2,600,000 (15,400,000) -------------------------------------- Net change in cash .................... 2,106,000 (1,782,000) (449,000) Cash, beginning of year ............... 3,857,000 5,639,000 6,088,000 -------------------------------------- Cash, end of year ..................... $ 5,963,000 $ 3,857,000 $ 5,639,000 ======================================
See Notes to Consolidated Financial Statements. 13 Bulova Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies: (a) Affiliation: Loews Corporation ("Loews") owns approximately 97% of the Company's outstanding voting stock. (b) Principles of Consolidation: The consolidated financial statements include all of its subsidiaries, which are 100% owned, and all material intercompany accounts and transactions have been eliminated. (c) Accounting Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (d) Accounts Receivable: Watches and clocks are sold to retail outlets throughout the United States and Canada. The Company grants its retailers seasonal credit terms as well as extends credit on an interest-bearing basis. For the years ended December 31, 1995 and 1994, accounts receivable were substantially comprised of balances due from retailers. (e) Inventories: Substantially all inventory is computed on a first-in, first-out basis and are valued at lower of cost or market. (f) Property, Plant and Equipment: Depreciation is calculated on the straight-line method over the estimated useful lives of the various classes of assets. Leasehold improvements are, if such period is shorter, amortized over the life of the lease. Asset lives range from 2 to 12 years for machinery, equipment, and furniture and fixtures and from 15 to 40 years for buildings and improvements. (g) Income Taxes: The Company is included in Loews consolidated tax return. Under the tax allocation agreement, the Company is required to provide a current tax provision calculated on a stand-alone basis. No provision is required for undistributed earnings of subsidiaries, since substantially all of these earnings may be remitted to the Company with little or no tax becoming payable. (h) Net Income Per Share and Shareholders' Equity: Net income per share has been computed on the basis of the weighted average number of shares outstanding during the periods (4,599,000 for each of the three years ended December 31, 1995). In addition to its common stock, the Company has authorized 500,000 shares of preferred stock. (i) Foreign Currency Adjustment: The effect of changes in exchange rates in translating foreign currency financial statements is accumulated in a separate component of shareholders' equity. (j) Fair Value of Financial Instruments: The carrying amount of receivables and long-term debt other than from affiliate, approximates fair value. The Company does not maintain any significant banking relationships apart from Loews. A discount rate therefore, commensurate with the credit, interest rate and prepayment risks involved, which could be used to estimate fair value of the 14 affiliate receivable and payable cannot be practicably determined. Therefore, management is not able to estimate the fair value of the affiliate receivable and payable. (k) Forward Exchange Contracts: In connection with purchases of inventory, the Company has entered into forward exchange contracts in order to hedge its exposure to fluctuations in foreign currency exchange rates. These agreements generally involve the exchange of one currency for a second currency at some future date. Counterparties to these agreements are major international financial institutions. As of December 31, 1995, the U.S. dollar equivalent of foreign currency contracts approximate $443,000. These agreements mature through March 1996. As of December 31, 1994, there were no foreign currency contracts outstanding. (l) Reclassifications: Certain amounts applicable to prior periods have been reclassified to conform to the classifications followed in 1995. Note 2. Related Parties: 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 with interest at 10% per annum. The Credit Agreement initially expired in 1980, but the expiration date has been periodically extended by the Company and Loews. It currently expires June 30, 1997. In January 1995, the balance was paid in full with the proceeds from the sale of BTI (see Note 4). Loews has provided administrative services for which the Company paid $700,000, $1,200,000 and $1,000,000 for the years ended December 31, 1995, 1994 and 1993, respectively. In 1994 and 1993, the Company allocated $800,000 of these administrative charges to BTI. The cost allocated to the Company is estimated to be the incremental cost incurred by Loews in providing administrative services to the Company. If the Company incurred these costs on a stand-alone basis, it believes the costs incurred could aggregate between $700,000 and $1,000,000 for the year ended December 31, 1995, and for the years ended December 31, 1994 and 1993, between $1,200,000 and $1,500,000 and $1,000,000 and $1,300,000, respectively. Note 3. Asset Dispositions: In 1993 the Company sold a former defense manufacturing facility and its former Hong Kong office. These transactions resulted in pre-tax and after tax gains of approximately $3,154,000 and $2,050,000, respectively, for the year ended December 31, 1993. Note 4. Discontinued Operations: On January 17, 1995, Bulova Technologies, Inc. ("BTI"), the Company's industrial and defense manufacturing business, was sold for $20,810,000 in cash. The sale resulted in a pre-tax and after tax gain of approximately $558,000 and $363,000, respectively. The Company applied $18,000,000 of the consideration received to the repayment of the entire debt to affiliate. The operating results of BTI have been reported separately as discontinued operations in the Consolidated Financial Statements. The operating results for the year ended December 31, 1995 were not material. 15 Summarized financial information of BTI is as follows:
Year Ended December 31 --------------------------- 1994 1993 --------------------------- Net sales ........................................ $ 52,600,000 $ 52,421,000 Cost of sales .................................... (45,117,000) (44,359,000) Selling, general and administrative .............. (5,849,000) (5,920,000) Interest expense ................................. (1,177,000) (1,285,000) --------------------------- Income before income taxes ................... 457,000 857,000 Income taxes ..................................... (155,000) (254,000) --------------------------- Income from discontinued operations .......... $ 302,000 $ 603,000 =========================== December 31, 1994 ----------------- Cash ......................................................... $ 428,000 Accounts receivable .......................................... 6,699,000 Inventories .................................................. 16,246,000 Property, plant and equipment-net ............................ 7,834,000 Other assets ................................................. 623,000 ----------- Total assets .............................................. 31,830,000 ----------- Accounts payable ............................................. 3,761,000 Accrued expenses ............................................. 3,501,000 Current installment of long-term debt ........................ 408,000 Long-term debt ............................................... 2,288,000 Other long-term liabilities .................................. 1,790,000 ----------- Total liabilities ......................................... 11,748,000 ----------- Net assets of discontinued operations ..................... $20,082,000 ===========
During 1994 and 1993, the Company settled defense contract claims with the U.S. government for approximately $2,370,000 and $1,950,000, respectively, which amounts are included in net sales in the table above. In 1993, the Company accrued $500,000 to settle a 1992 BTI customer dispute. This charge is included in cost of sales in the table above. Note 5. Accounts Receivable:
December 31 ---------------------------- 1995 1994 ---------------------------- Trade accounts and notes receivable ............ $53,316,000 $45,311,000 Other, including $8,126,000 due from affiliate in 1994 (Note 8) .............................. 788,000 9,420,000 ---------------------------- 54,104,000 54,731,000 Less allowance for doubtful receivables and cash discounts ................................ 3,146,000 3,477,000 ---------------------------- Receivables-net .............................. $50,958,000 $51,254,000 ============================
16 Note 6. Inventories:
December 31 ---------------------------- 1995 1994 ---------------------------- Watches and clocks ............................. $35,914,000 $32,924,000 Jewelry ........................................ 135,000 430,000 Precious metals ................................ 328,000 450,000 Other .......................................... 2,537,000 1,946,000 ---------------------------- $38,914,000 $35,750,000 ============================
Note 7. Quarterly Financial Data (Unaudited):
1995 Quarters Ended 1994 Quarters Ended ----------------------------------------------------------------- Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31 ----------------------------------------------------------------- (In thousands, except per share data) Total revenues..$32,640 $27,114 $25,512 $23,957 $30,727 $27,220 $21,012 $21,087 Cost of sales... 19,298 15,805 13,703 14,354 17,553 16,219 13,037 12,458 Income (loss) from continuing operations .... 652 865 687 65 732 81 (469) 188 Per share ...... .14 .19 .15 .01 .16 .02 (.10) .04 Income (loss) from discontinued operations .... 363 76 (30) 565 (309) Per share ...... .08 .02 (.01) .12 (.07) Net income (loss)......... 652 865 687 428 808 51 96 (121) Per share....... .14 .19 .15 .09 .18 .01 .02 (.03)
In the fourth quarter of 1994, the Company increased its estimated legal and settlement costs by $811,000 (see Note 13). In addition, the Company recorded a favorable foreign currency adjustment of $1,472,000 related to the shut-down of its European facilities, included in other income. Note 8. Income Taxes: The Company and Loews have a tax allocation agreement with respect to the filing by Loews of consolidated federal income tax returns, which include the Company and its subsidiaries. Under the agreement, the Company will (i) be paid by Loews the amount, if any, by which Loews's consolidated federal income tax is reduced by virtue of the inclusion of the Company and its subsidiaries in the return, or (ii) pay to Loews an amount, if any, equal to federal income tax which would have been payable by the Company if the Company and its subsidiaries had filed a separate consolidated return. Under this agreement, the federal income tax benefit to be received by the Company for the years ended December 31, 1995, 1994 and 1993 amounted to $831,000, $74,000 and $2,451,000, respectively. Pursuant to this agreement, there was $55,000 payable to Loews as of December 31, 1995. This agreement may be canceled by the Company or Loews upon thirty days written notice. 17 Income before income tax (expense) benefit consisted of the following for continuing operations:
Year Ended December 31 ------------------------------------------- 1995 1994 1993 ------------------------------------------- Income before income taxes: Domestic....................... $ 5,933,000 $ 382,000 $1,075,000 Foreign........................ 823,000 401,000 633,000 ------------------------------------------- Total........................ $ 6,756,000 $ 783,000 $1,708,000 =========================================== Income tax (expense) benefit: Federal: Current...................... $ (746,000) $ 289,000 $ 693,000 Deferred..................... (2,790,000) (116,000) (18,000) State and local-current........ (700,000) (65,000) (132,000) Foreign: Current...................... (245,000) (310,000) (370,000) Deferred..................... (6,000) (49,000) 30,000 ------------------------------------------- $(4,487,000) $(251,000) $ 203,000 ===========================================
In 1993 the Company increased its deferred tax asset by $847,000 due to a 1% increase in the corporate tax rate. Deferred tax assets are as follows:
December 31 ---------------------------- 1995 1994 ---------------------------- Employee benefits............................... $23,078,000 $24,055,000 Inventory....................................... 5,856,000 8,161,000 Accrued expenses................................ 1,963,000 2,353,000 Accounts receivable............................. 1,116,000 1,261,000 Tax loss carryforward........................... 785,000 902,000 ---------------------------- 32,798,000 36,732,000 Valuation allowance............................. (8,617,000) (9,984,000) ---------------------------- $24,181,000 $26,748,000 ============================
The valuation allowance relates to state and local temporary differences and loss carryforwards. Income taxes differ from that computed at the U.S. statutory rate for the following reasons:
Year Ended December 31 ------------------------------------------- 1995 1994 1993 ------------------------------------------- Income taxes computed at statutory rate.................. $2,365,000 $ 274,000 $ 598,000 Increase (decrease) in taxes resulting from: Tax rate change ............... (847,000) State and local taxes, net of federal benefit ........... 455,000 42,000 86,000 Foreign taxes, net of foreign tax credit ................... (43,000) (38,000) 35,000 Permanent differences ......... 38,000 (482,000) (13,000) Tax settlement ................ 1,772,000 (Benefit) expense related to prior years' losses .......... (177,000) 292,000 (25,000) Other ......................... 77,000 163,000 (37,000) ------------------------------------------- Income tax expense (benefit) . $4,487,000 $ 251,000 $(203,000) ===========================================
18 Federal, foreign, state and local income tax (refunds) payments amounted to approximately $(6,022,000), $(2,314,000) and $1,814,000 for the years ended December 31, 1995, 1994 and 1993, respectively. At December 31, 1995 the Company had state and local operating loss carryforwards of approximately $6,697,000 which expire between 1999 and 2002. Federal income tax returns have been settled through 1990 and the years 1991 through 1994 are currently under examination. While tax liabilities for subsequent years are subject to audit and final determination, in the opinion of management the amount accrued in the consolidated balance sheet is believed to be adequate to cover any additional assessments which may be made by federal, state and local tax authorities and should not have a material effect on the financial position and results of operations of the Company. 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 and recorded $1,772,000 of tax expense caused by the limitation on the utilization of certain tax attributes. This transaction resulted in pre-tax and after tax income of $4,200,000 and $958,000, respectively. The Company's Canadian tax returns for the years 1984 through 1992 are currently under examination. The Company is contesting significant assessments with respect to these examinations. In the opinion of the Company, the additional tax and interest, if any, resulting from these assessments should not have a material effect on its consolidated financial position or results of operations. Note 9. Retirement Plans: Pension Plans: The Company maintains non-contributory pension plans for all of its employees in the United States. Separate retirement plans are maintained by the Company's Canadian subsidiary, which are not material. Pension cost of the U.S. plans includes the following components:
Year Ended December 31 ------------------------------------------- 1995 1994 1993 ------------------------------------------- Service cost-benefits earned .... $ 517,000 $ 740,000 $ 657,000 Interest cost ................... 1,761,000 1,652,000 1,609,000 Return on assets-(gain) loss..... (3,271,000) 424,000 (1,029,000) Net amortization and deferrals .. 1,564,000 (1,764,000) (489,000) ------------------------------------------- Net pension cost ............ $ 571,000 $ 1,052,000 $ 748,000 =========================================== 19 The status of the underfunded U.S. plans were as follows: December 31 --------------------------- 1995 1994 --------------------------- Actuarial present value of benefit obligations: Accumulated benefit obligation............... $23,618,000 $18,590,000 ========================== Accumulated vested benefit obligation ....... $22,864,000 $18,031,000 ========================== Projected benefit obligation .................. $26,424,000 $20,684,000 Plan assets at fair value ..................... 19,575,000 14,194,000 -------------------------- Projected benefit obligation over plan assets . 6,849,000 6,490,000 Unrecognized net asset at January 1 ........... 2,392,000 2,870,000 Unrecognized net loss ......................... (5,850,000) (3,165,000) Unrecognized prior service cost ............... (40,000) (45,000) Additional minimum liability .................. 693,000 -------------------------- Accrued pension cost ........................ $ 4,044,000 $ 6,150,000 ========================== The rates used in the actuarial assumptions were: Year Ended December 31 ------------------------------------------- 1995 1994 1993 ------------------------------------------- Discount rate .................... 7.00% 8.75% 7.50% Rate of compensation increase .... 5.50% 6.25% 5.75% Expected long-term rate of return on assets ....................... 8.75% 7.50% 8.50%
The Company's funding policy is to make contributions in accordance with applicable governmental requirements. The assets of the plans are invested primarily in interest-bearing obligations. Benefits are determined based on compensation during each year of credited service. Included in prepaid expense is $668,000 of contributions in excess of the minimum funding requirement. At December 31, 1995, the Company's minimum pension liability exceeded its unrecognized prior service cost and net transition obligation by $693,000. This excess is recorded as a reduction to shareholders' equity of $424,000, net of tax benefits of $229,000 and intangible assets of $40,000. Other Postretirement Benefit Plans: The Company maintains postretirement health care plans covering eligible employees and retirees. Participants generally become eligible upon retirement at age 55 and 10 years of service or upon completion of 20 years of service. Another plan covers certain employees who had accumulated 10 years of service and were age 55 or who had 20 years of service as of October 1, 1987. The benefits provided by the Company are basically health, and for certain retirees, life insurance type benefits. The rates used in the actuarial assumptions were:
December 31 ----------------------------- 1995 1994 ----------------------------- Net periodic postretirement benefit cost ....... 8.75% 7.50% Accumulated postretirement benefit liability ... 7.00% 8.75% 20 The following table sets forth the postretirement plan's status: December 31 ---------------------------- 1995 1994 ---------------------------- Accumulated postretirement benefit obligation: Retirees ..................................... $22,624,000 $22,887,000 Fully eligible active plan participants ...... 4,028,000 4,214,000 Other active plan participants ............... 3,428,000 2,950,000 ---------------------------- 30,080,000 30,051,000 Unrecognized prior service cost .............. 679,000 91,000 Unrecognized net gain ........................ 14,130,000 14,339,000 ---------------------------- Accrued postretirement benefit liability .... $44,889,000 $44,481,000 ============================ Postretirement benefit cost includes the following components: Year Ended December 31 ------------------------------------------ 1995 1994 1993 ------------------------------------------ Service costs .................. $ 438,000 $ 562,000 $ 652,000 Interest costs ................. 1,714,000 2,595,000 3,179,000 ------------------------------------------ Net periodic postretirement benefit cost ............... $2,152,000 $3,157,000 $3,831,000 ==========================================
For measurement purposes, a trend rate of 13.0% pre-65 and 10.0% post-65, for covered costs was used. These trend rates are expected to decrease gradually to 6.5% at 0.5% per annum. An increase of one percentage point in assumed health care cost trend rates would increase the accumulated postretirement benefit obligation by approximately $2,750,000 and the net periodic postretirement benefit cost by approximately $240,000. Note 10. Leases: The Company leases certain of its warehouse and office facilities. Other leases cover machinery and equipment. Net book value of assets held under capital leases, included in property, plant and equipment, amounted to $4,489,000 and $4,567,000 (net of accumulated amortization of $836,000 and $758,000) for the years ended December 31, 1995 and 1994, respectively. 21 The following is a schedule of future minimum lease payments under capital and operating leases for the five years ending December 31, 2000, together with the present value of net minimum lease payments of capital leases at December 31, 1995:
Minimum Rentals ---------------------------- Capital Operating Leases Leases ---------------------------- Years Ending December 31, 1996 ......................................... $ 206,000 $ 475,000 1997 ......................................... 382,000 1998 ......................................... 362,000 1999 ......................................... 377,000 2000 ......................................... 380,000 --------------------------- Total minimum lease payments ................... 206,000 $1,976,000 ========== Less amount representing interest .............. 6,000 ---------- Present value of net minimum lease payments .... $ 200,000 ==========
Note 11. Foreign Operations: Foreign currency items included in the Consolidated Financial Statements are as follows:
December 31 ---------------------------- 1995 1994 ---------------------------- Current assets ................................. $13,247,000 $11,329,000 Non-current assets ............................. 237,000 233,000 Current liabilities ............................ 2,565,000 2,420,000 Non-current liabilities ........................ 77,000 Retained earnings .............................. 2,874,000 2,302,000 Cumulative translation adjustment .............. (1,081,000) (1,406,000) Year Ended December 31 ------------------------------------------- 1995 1994 1993 ------------------------------------------- Sales ........................... $12,914,000 $11,859,000 $13,604,000 Net income ...................... 572,000 401,000 633,000
Note 12. Business Segment Information: The Company is engaged principally in the sale of watches and clocks through the brand names of Bulova, Caravelle and Accutron with substantially all of its sales in the United States and Canada. Substantially all watches and clocks are purchased from foreign suppliers. 22 The following table sets forth, for the periods indicated, identifiable assets and certain operating information.
Year Ended December 31 ------------------------------------------- 1995 1994 1993 ------------------------------------------- Geographic Area Information: Net Sales: Unaffiliated customers: United States .............. $ 87,535,000 $ 81,865,000 $ 80,276,000 Canada ..................... 12,914,000 11,859,000 13,604,000 Europe ..................... 14,000 ------------------------------------------- $100,449,000 $ 93,724,000 $ 93,894,000 =========================================== Inter-area sales to affiliates (a): United States .............. $ 2,664,000 $ 1,901,000 $ 2,658,000 Europe ..................... 738,000 741,000 ------------------------------------------- $ 2,664,000 $ 2,639,000 $ 3,399,000 =========================================== Income (loss) contribution (b): United States ................ $ 6,676,000 $ 796,000 $ 2,434,000 Canada ....................... 823,000 1,126,000 1,102,000 Europe ....................... (21,000) 20,000 ------------------------------------------- $ 7,499,000 $ 1,901,000 $ 3,556,000 =========================================== Identifiable assets: United States ................ $120,643,000 $139,473,000 $137,510,000 Canada ....................... 13,484,000 11,562,000 11,906,000 Europe ....................... 449,000 ------------------------------------------- $134,127,000 $151,035,000 $149,865,000 =========================================== (a) Inter-area sales to affiliates are reflected at the cost of the manufacturing location plus a margin. The amount of export sales from the United States to unaffiliated customers is not material. (b) Consists of income (loss) from continuing operations before interest expense, corporate expenses and income taxes.
Note 13. Contingencies and Litigation: (a) Environmental Matters - During 1991 the Company settled a lawsuit commenced by the owner of property formerly owned by the Company which sought damages under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, for alleged environmental contamination at the property. Under the settlement agreement the Company assumed responsibility for the clean- up of the property and agreed to pay to the owner $50,000 per year until the clean-up is completed. Based on the information available at that time, the Company provided $1,000,000 for estimated clean-up costs. In 1992 the Company became aware of additional facts and provided an additional $250,000. The Company received revised cost estimates in 1994 based upon which the Company accrued an additional $484,000 to provide for the minimum level of clean-up expense to be required. During 1994 the Company became aware of an environmental contaminate which was discovered in the ground water of a former defense manufacturing facility. The Company accrued $250,000 to provide for the estimated clean-up costs to be required. Additional testing and further evaluation is 23 required before a definitive cost of ultimate clean-up can be determined. Therefore, the liability accrued by the Company may require revisions in the future. During the third quarter of 1995, the Company provided for a liability of $150,000 in relation to an environmental condition at a former Jackson Heights, N.Y. watch manufacturing facility which the Company agreed to remediate in October 1995. During the fourth quarter of 1995, the Company became aware of an environmental condition at its Woodside, N.Y. facility. Testing and evaluation of the site remain in its preliminary stages. Based upon the information available, the Company provided $100,000 during the fourth quarter of 1995 for the estimated clean-up expense required. Additional testing and further evaluation is required before a definitive cost of ultimate clean up can be determined. Therefore, the liability accrued may require future revisions. The estimated environmental liability recognized in the Company's financial statements to date of $2,584,000 represents the minimum of the Company's estimated range in equally likely outcomes; the upper limit of that range is approximately $3,184,000. (b) Executive Life - In April 1991 Executive Life Insurance Company ("Executive Life"), the insurance company that had issued annuity policies to the Company's retirees, was placed in conservatorship under the laws of California, the state in which Executive Life is domiciled. The Company has been making up any shortfall which resulted from such conservatorship to those retirees who were not receiving their full retirement payment from Executive Life. In 1993 the Superior Court of the State of California approved a revised plan of rehabilitation (the "Revised Plan") for Executive Life. Under the Revised Plan, (i) Aurora National Life Assurance Company ("Aurora") has assumed the obligations of Executive Life under annuity policies for those Company retirees who elect to participate in the Revised Plan, but at a reduced rate and (ii) The National Organization of Life and Health Guaranty Associations ("NOLHGA") on behalf of participating state life and health insurance guaranty associations, has agreed to pay the balance of the original Executive Life annuity obligation with respect to substantially all of the participating retirees. The Company has agreed to make up any remaining shortfall ("Remaining Shortfall") with respect to any participating retiree who does not receive his or her full entitlement from Aurora and NOLHGA. In 1993 the Company entered into an agreement with the Department of Labor in which the Department of Labor acknowledged the termination of its investigation concerning the purchase of the Executive Life annuity. Pursuant to that agreement, the Company has amended its retirement plan to make up any Remaining Shortfall. This agreement further provides that should Aurora or NOLHGA fail to pay any amount required to be paid by them under the Revised Plan, the Company would cause such payment to be made. (c) Other - In 1994 the Company provided $811,000 to cover the estimated legal and or settlement costs related to an action which was settled in 1995. It is not possible to predict the outcome of pending litigation; however, on the basis of the facts presently known to it, management does not believe the actions pending will have a material adverse effect on the financial condition or results of operations of the Company. Should additional facts arise in the future indicating a probable adverse determination of any such actions, such ultimate determination might have a material adverse effect upon the Company's financial condition. 24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. (a) Directors.
Principal Occupations Director of During Past Five Years the Company Name Age and Other Directorships Since - ------------------------------------------------------------------------------ Andrew H. Tisch ..... 46 Chairman of the Board of the Company and 1979 Chairman of the Management Committee of Loews's Board of Directors since 1995. Prior thereto he had been Chairman of the Board and Chief Executive Officer of Lorillard Tobacco Company, a wholly owned subsidiary of Loews. Mr. Tisch is also a director of Zale Corporation. Herbert C. Hofmann .. 53 President and Chief Executive Officer 1979 of the Company. Mr. Hofmann is also a director of Diamond Offshore Drilling, Inc. (70% owned subsidiary of Loews) and also serves as Senior Vice President of Loews. Harry B. Henshel .... 77 Vice Chairman of the Board. 1958 Laurence A. Tisch ... 73 Co-Chairman of the Board and Co-Chief 1979 Executive Officer of Loews. Mr. Tisch is also Chief Executive Officer and director of CNA Financial Corporation ("CNA")(84% owned subsidiary of Loews). Mr. Tisch also serves as a director of Automatic Data Processing, Inc. and Federated Department Stores, Inc. Preston R. Tisch .... 69 Co-Chairman of the Board and Co-Chief 1988 Executive Officer of Loews. Mr. Tisch is also a director of CNA, Hasbro, Inc. and Rite Aid Corporation.
Messrs. Laurence A. Tisch and Preston R. Tisch are brothers and Mr. Andrew H. Tisch is the son of Mr. Laurence A. Tisch. There are no other family relationships among any of the Company's directors. Each director serves until the annual meeting of shareholders next succeeding his election and until his successor shall have been duly elected and qualified. 25 (b) Executive Officers.
First Became Name Position and Offices Held Age an Officer - ----------------------------------------------------------------------------- Herbert C. Hofmann ..... President and Chief Executive 53 1985 Officer Warren J. Neitzel ...... General Counsel and Corporate 45 1993 Secretary John T. O'Reilly ....... Controller 35 1996 Paul S. Sayegh ......... Chief Operating Officer 52 1979
There are no family relationships among the above. Officers are elected and hold office until their successors are elected and qualified, and are subject to removal by the Board of Directors. All officers of the Company, except Mr. O'Reilly, have been engaged actively and continuously in the business of the Company and its subsidiaries for more than the past five years. Prior to his appointment as General Counsel and Corporate Secretary, Mr. Neitzel served as Senior Counsel for the Company's former defense subsidiary since 1980. Mr. O'Reilly served as Assistant Controller for approximately two years prior to his appointment as Controller. Prior thereto he served, since 1990, as Treasurer of CLAS International, a hotel reservation service affiliated with Loews. Item 11. Executive Compensation. The following table sets forth information for the years indicated regarding the compensation of the chief executive officer and each of the other two most highly compensated executive officers of the Company whose compensation exceeded $100,000 as of December 31, 1995, for services in all capacities to the Company. Summary Compensation Table
Name and Principal Position Year Salary ---------------------------------------------------------------------------- Herbert C. Hofmann 1995 $ - President and Chief Executive Officer (a) 1994 - 1993 - Paul S. Sayegh 1995 223,000 Chief Operating Officer 1994 212,000 1993 200,000 Warren J. Neitzel 1995 130,000 General Counsel and Corporate Secretary 1994 112,000 1993 104,108 - -------------- (a) Mr. Hofmann is compensated by Loews. Included in the charges to the Company under a Service Agreement, as discussed in Item 13 of this Form 10-K, was $200,000 for Mr. Hofmann's services in 1995 and 1994. Loews did not charge the Company for Mr. Hofmann's services prior to 1994.
Information with respect to certain non-cash compensation made available to the Company's executive officers in 1995, has not been 26 included because the incremental costs thereof to the Company was below the Securities and Exchange Commission's required disclosure threshold. (b) Compensation Pursuant to Plans. The Company provides a non-contributory retirement plan (the "Plan") for all employees, except for those covered by Loews's benefit plans, which Plan provides pensions upon retirement at one and one-half per cent of the employee's annual compensation during each year of credited service after December 31, 1976, plus one and one-half per cent of annual compensation for the year 1976 multiplied by the number of years of credited service rendered prior to January 1, 1977. Compensation under the Plan includes all compensation as an employee included in the table above. Pension benefits are not subject to reduction for Social Security benefits or other amounts. The following table shows estimated annual benefits payable upon retirement under the Plan for various amounts of average compensation and years of credited service, based upon retirement in 1995 and a straight life annuity form of pension. Other forms of pension payments are also available under the Plan. Pension benefits may be limited by the Internal Revenue Code.
Estimated Annual Pension for Representative Remuneration Years of Credited Service ------------ -------------------------------------------- 15 20 25 30 35 -- -- -- -- -- $ 50,000................. $11,250 $15,000 $18,750 $ 22,500 $ 26,250 75,000................. 16,875 22,500 28,125 33,750 39,375 100,000................. 22,500 30,000 37,500 45,000 52,500 125,000................. 28,125 37,500 46,875 56,250 65,625 150,000................. 33,750 45,000 56,250 67,500 78,750 175,000................. 39,375 52,500 65,625 78,750 91,875 200,000................. 45,000 60,000 75,000 90,000 105,000 225,000................. 50,625 67,500 84,375 101,250 118,125 The years of credited service and the estimated annual retirement benefit payable at normal retirement age for the following officers are as follows: Estimated Annual Name Years Retirement Benefit ---- ----- ------------------ Herbert C. Hofmann* Warren J. Neitzel 15 $50,619 Paul S. Sayegh* *Not covered under the Plan.
Item 12. Security Ownership of Certain Beneficial Owners and Management. (a) Security Ownership of Certain Beneficial Owners. The only person known to the Registrant to be the beneficial owner of more than 5% of any class of Registrant's voting securities is Loews, which owns beneficially 4,459,859 shares of the outstanding Common Stock of Registrant as of February 29, 1996 constituting approximately 97% of the total shares of Common Stock outstanding. Loews's principal executive offices are located at 667 Madison Avenue, New York, New York 10021-8087. For information with respect to the principal holders of the outstanding voting securities of Loews, see Item 12 (b) below. 27 (b) Security Ownership of Management. The following table sets forth certain information, as of February 29, 1996, with respect to the shares of Registrant's Common Stock and shares of Loews Common Stock beneficially owned by each of the directors of the Company and executive officers named above and by all directors and executive officers of the Company as a group:
Shares of Name of Individual Shares of Loews or Number of Common Stock Percent of Common Percent of Persons in Group (1) Class Stock(1) Class - ---------------------------------------------------------------------------- Harry B. Henshel ..... 100 * Herbert C. Hofmann ... 400(2) * Warren J. Neitzel .... John T. O'Reilly ..... Paul S. Sayegh ....... Andrew H. Tisch ...... 2,000(3) * Laurence A. Tisch .... 18,559,912 15.8% Preston R. Tisch ..... 18,559,912 15.8% All directors and executive officers as a group (8 listed above) .............. 100 * 37,122,224 31.5% * Represents less than 1% of the outstanding shares of stock. (1)Except as otherwise indicated, the persons listed as beneficial owners of shares of stock have sole voting and investment power with respect to such shares. (2)Does not include 350 shares of Loews Common Stock owned by a child as to which Mr. Hofmann disclaims any beneficial interest. (3)In addition, 372 shares of Loews Common Stock are owned by Mr. Tisch's son, as to which Mr. Tisch disclaims any beneficial interest and 60,000 shares of Loews Common Stock are held by a charitable foundation as to which Mr. Tisch has shared voting and investment power.
Item 13. Certain Relationships and Related Transactions. The Company and Loews have entered into a credit agreement (the "Credit Agreement") providing for unsecured loans by Loews, from time to time, in amounts aggregating up to $50,000,000, bearing interest at the rate of 10% per annum currently expiring on June 30, 1997. No amounts are currently outstanding. The Company and Loews have entered into a tax allocation agreement with respect to the filing by Loews of consolidated federal income tax returns which include the Company and its subsidiaries. Under this agreement, the Company will (i) be paid by Loews the amount, if any, by which Loews's consolidated federal income tax is reduced by virtue of the inclusion of the Company and its subsidiaries in Loews's consolidated federal income tax return or (ii) pay to Loews an amount, if any, equal to the federal income tax which would have been payable by the Company if the Company and its subsidiaries had filed a separate consolidated return. This agreement may be cancelled by the Company or Loews upon thirty days written notice. Pursuant to this agreement, $55,000 was payable to Loews for the year ended December 31, 1995. 28 The Company and Loews have entered into a services agreement pursuant to which Loews provides to the Company various administrative services, including among other things, data processing, purchasing, accounts payable, printing services, tax return preparation and cash management services. In addition, the Company provides Loews with warehousing and printing services. Pursuant to this agreement, each party reimburses the other in an amount not to exceed the allocated cost of the services provided. The Company and Loews paid $700,000 and $149,000, respectively, for services provided during 1995. Although the Company cannot practicably estimate the administrative costs which it would incur on a stand-alone basis, it believes that had the agreement with Loews for administrative services not been in place during 1995, the Company could have incurred costs aggregating between $700,000 and $1,000,000. In addition, the Company has reimbursed to Loews approximately $571,000 in salaries and related employee benefits for 1995 for employees of Loews on loan to the Company. The Company participates in blanket insurance policies, primarily relating to property and casualty and general liability insurance, maintained by Loews which cover properties and facilities of Loews and certain of its subsidiaries, including the Company. The Company reimbursed to Loews approximately $492,000 for premiums paid with respect to 1995. Certain of the Company's employee health and life insurance benefits are provided by an insurance subsidiary of CNA. Premiums and fees for such insurance amounted to approximately $355,000 for 1995. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) 1. The consolidated financial statements appear above under Item 8. The following additional financial data should be read in conjunction with those financial statements. Schedules not included with these additional financial data have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes to consolidated financial statements.
Page Number ------ 2. Financial statement schedules: Independent Auditors' Report...................................... 33 Bulova Corporation and Subsidiaries: Schedule II-Valuation and Qualifying Accounts................... 34 29 3. Exhibits: Exhibit Description Number ----------- ------- (3) Articles of Incorporation and By-Laws Restated Certificate of Incorporation, dated May 25, 1964, and filed on August 4, 1964 as Exhibit 3(a) to Amendment No. 2 to Registrant's Registration Statement on Form S-1 (Reg. No. 2-22576), incorporated herein by reference. Copies of amendments thereto, dated July 26, 1966, April 22, 1969 and July 2, 1969, incorporated herein by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1980. Copy of Certificate of Change thereto, dated November 25, 1985, incorporated herein by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1985. Copy of Certificate of Change thereto, dated July 14, 1987, incorporated herein by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1987. Copy of Certificate of Amendment thereto, dated June 16, 1988, incorporated herein by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1988 .. 3(a) By-laws currently in effect and incorporated herein by reference to Exhibit 3(b) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1984 ............................... 3(b) (4) Instruments Defining the Rights of Security Holders, Including Indentures Registrant hereby agrees to furnish to the Commission upon request copies of instruments with respect to certain long-term debt which have not been filed as an exhibit to this report, pursuant to Item 601 (b)(4)(iii) of Regulation S-K. (10) Material Contracts Merger Agreement entered into on January 17, 1995, by Bulova Technologies, Inc., a New York corporation ("BTI"), BTI Acquisition Corporation, a Delaware corporation, and Bulova Corporation, a New York corporation, the form of which was filed as part of Exhibit (2) to Registrant's Report on Form 8-K dated January 17, 1995, and incorporated herein by reference ......... 10(a) Credit Agreement between Loews Corporation and Registrant dated as of September 19, 1979, the form of which was filed as part of Exhibit (2) of Item 9(a) of Registrant's Report on Form 10-Q for the quarter ended September 30, 1979, and incorporated herein by reference ...................................................... 10(b) Federal Income Tax Allocation Agreement between Loews Corporation and Registrant dated as of March 12, 1980 and effective April 1, 1979, incorporated herein by reference to Exhibit 10(b) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1987 .............................................. 10(c) Corporate Services Agreement between Loews Corporation and Registrant dated as of January 1, 1987, incorporated herein by reference to Exhibit 10(c) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1987 ................. 10(d) 30 Description Number ----------- ------- (21) Subsidiaries of the Registrant List of subsidiaries of Registrant ............................. 21* (27) Financial Data Schedule ........................................ 27* *Filed herewith (b) Reports on Form 8-K: There were no reports on Form 8-K for the three months ended December 31, 1995. 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 Dated: March 27, 1996 By /s/Paul S. Sayegh -------------------------------- (Paul S. Sayegh, Chief Operating Officer and Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Dated: March 27, 1996 By /s/Herbert C. Hofmann ------------------------------- (Herbert C. Hofmann, President, Chief Executive Officer and Director) Dated: March 27, 1996 By /s/Paul S. Sayegh ------------------------------- (Paul S. Sayegh, Chief Operating Officer and Principal Financial Officer) Dated: March 27, 1996 By /s/John T. O'Reilly ------------------------------- (John T. O'Reilly, Controller and Principal Accounting Officer) Dated: March 27, 1996 By /s/Harry B. Henshel ------------------------------- (Harry B. Henshel, Director) Dated: March 27, 1996 By /s/Andrew H. Tisch -------------------------------- (Andrew H. Tisch, Director) Dated: March 27, 1996 By /s/Laurence A. Tisch -------------------------------- (Laurence A. Tisch, Director) Dated: March 27, 1996 By /s/Preston R. Tisch -------------------------------- (Preston R. Tisch, Director) 32 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders of Bulova Corporation: We have audited the accompanying consolidated balance sheets of Bulova Corporation and its subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the financial statement schedule listed in the index at Item 14(a)2. These financial statements and financial statement schedule are the responsibility of the Corporation's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Bulova Corporation and its subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Also, in our opinion such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. Deloitte & Touche LLP New York, New York February 14, 1996 33 Schedule II BULOVA CORPORATION AND SUBSIDIARIES Valuation and Qualifying Accounts
Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Additions Balance at charged to Balance at beginning costs and end of Description of Period expenses Deductions Period ----------- ------------------------------------------------- Year Ended December 31, 1995 Allowance for doubtful accounts ................... $3,022,000 $ 872,000 $1,182,000(a) $2,712,000 Allowance for cash discounts 455,000 1,302,000 1,323,000 434,000 ------------------------------------------------- $3,477,000 $2,174,000 $2,505,000 $3,146,000 ================================================= Allowance for loss on investment in unconsolidated subsidiary ................. $ 529,000 $ 529,000 ========== ========== Year Ended December 31, 1994 Allowance for doubtful accounts ................... $2,563,000 $1,675,000 $1,216,000(a) $3,022,000 Allowance for cash discounts 391,000 902,000 838,000 455,000 ------------------------------------------------- $2,954,000 $2,577,000 $2,054,000 $3,477,000 ================================================= Allowance for loss on investment in unconsolidated subsidiary ................. $ 529,000 $ 529,000 ========== ========== Year Ended December 31, 1993 Allowance for doubtful accounts .................. $2,709,000 $1,946,000 $2,092,000(a) $2,563,000 Allowance for cash discounts 358,000 1,316,000 1,283,000 391,000 ------------------------------------------------- $3,067,000 $3,262,000 $3,375,000 $2,954,000 ================================================= Allowance for loss on investment in unconsolidated subsidiary ................. $ 529,000 $ 529,000 ========== ========== - ------------- (a) Includes doubtful accounts written off net of recoveries. 34
EX-21 2 Exhibit 21 BULOVA CORPORATION Subsidiaries of the Registrant December 31, 1995
Organized under Name of Subsidiary the Laws of Business Names ------------------ --------------- -------------- Bulova Watch Company Limited Canada Bulova
The names of certain subsidiaries which, if considered as a single subsidiary, would not constitute a "significant subsidiary" as defined in Regulation S-X have been omitted. 35 EX-27 3 FINANCIAL DATA SCHEDULE FOR DECEMBER 31, 1995 FORM 10-K
5 1,000 12-MOS DEC-31-1995 DEC-31-1995 5,963 0 54,104 3,146 38,914 104,758 20,258 7,998 134,127 17,748 0 22,999 0 0 42,464 134,127 100,449 109,223 63,160 63,160 36,975 2,174 158 6,756 4,487 2,269 363 0 0 2,632 .57 0
-----END PRIVACY-ENHANCED MESSAGE-----