-----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, MYOe46FTVikgPFcv/jGaEkxlq4yShcD84SLWHMTfcjCoTvQlyEGMqtjrRgBX1lQO POjKdHmB2sBcNTxXc0vebw== 0000015310-97-000003.txt : 19970327 0000015310-97-000003.hdr.sgml : 19970327 ACCESSION NUMBER: 0000015310-97-000003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970326 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: 97563907 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, 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, 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 28, 1997, 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 $665,000. ================================================================================ Page 1 BULOVA CORPORATION INDEX TO ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION For The Year Ended December 31, 1996
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 ....................... 8 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ............................................. 20 PART III 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ................ 21 11 EXECUTIVE COMPENSATION ............................................ 22 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT .... 23 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .................... 24 PART IV 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K .... 25
Page 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 below of this Form 10-K. 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 90% and 10%, 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 7 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 through major department stores, jewelry store chains, 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. In fiscal 1996, one customer represented approximately 12% of sales. No other customer represented more than 10% of the Company's sales. The business is intensely competitive. The principal methods of competition are price, styling, product availability, aftersale service, warranty and product performance. In all six 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, 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 440 persons, approximately 135 of whom are union members, and has experienced satisfactory labor relations. The Company has comprehensive benefit plans for substantially all employees. Page 3 Item 2. Properties. The Company owns an 80,000 square foot plant in Woodside, New York used for executive and sales offices, watch distribution, service and warehouse purposes. In addition, the Company leases 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.
1996 1995 ------------------------------------------------ High Low High Low - -------------------------------------------------------------------------------- First Quarter ................. 4 1/4 4 1/4 3 3/4 3 Second Quarter ................ 4 1/4 4 1/4 4 3 3/4 Third Quarter ................. 4 1/4 4 1/4 4 4 Fourth Quarter ................ 4 3/4 4 1/4 4 1/4 4
DIVIDEND INFORMATION The Company paid no dividends for the years ended December 31, 1996 and 1995. APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS There were approximately 1,500 holders of record of common stock of the Company at February 28, 1997. Page 4 Item 6. Selected Financial Data.
Year Ended December 31 1996 1995 1994 1993 1992 - -------------------------------------------------------------------------------- (In thousands, except per share data) Results of Operations: Revenues....................... $120,792 $109,223 $100,046 $101,303 $ 98,841 Income (loss) from continuing operations.................... 7,001 2,269 532 1,911 (1,342) Per share...................... 1.52 .49 .11 .41 (.29) Income before cumulative effect of accounting changes 7,001 2,632 834 2,514 4,793 Per share...................... 1.52 .57 .18 .54 1.04 Net income (loss).............. 7,001 2,632 834 2,514 (13,189) Per share...................... 1.52 .57 .18 .54 (2.87) Financial Position: Total assets................... 148,454 134,127 151,035 149,865 165,489 Discontinued operations-net.... - - 20,082 15,445 11,245 Long-term debt................. - - 200 600 1,000 Debt to affiliate.............. - - 19,000 16,000 31,000 Shareholders' equity........... 72,381 65,463 62,930 64,101 61,893 Dividends per share............ None None None None None Shares of common stock outstanding .................. 4,599 4,599 4,599 4,599 4,599
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. LIQUIDITY AND CAPITAL RESOURCES Cash Flow The Company generated net cash flow from operations of $9,569,000 for the year ended December 31, 1996. The Company generated (utilized) net cash flow from operations of $528,000 and $(3,931,000) for the years ended December 31, 1995 and 1994, respectively. The increase in net cash flow is due primarily to increased sales and collections from customers and the collection of an arbitral award, as well as a tax audit adjustment discussed below. 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 (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 consolidated federal tax returns for 1984 through 1990. 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 with Benetton International, N.V. ("Benetton") regarding premature termination of a licensing agreement, which is subject to return under certain circumstances. See Contingencies below. In previous years, the Company relied on Loews, which owns approximately 97% of the Company's common stock, to meet working capital needs which the Company was not able to meet through internally generated funds. In 1979, the Company entered into a Credit Agreement with Loews 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 Page 5 Company and Loews. The Credit Agreement currently expires June 30, 1998. The Company has not required any working capital advances from Loews since the entire debt of $19,000,000 under the Credit Agreement was paid in January 1995. The decrease in borrowing reflects the increased cash flow, the Benetton arbitral award, sale of BTI and tax settlement, as noted above. The Company expects to generate sufficient cash flow from operations in 1997. While Loews has no obligation to enter into or maintain arrangements for any further borrowing, it is anticipated that should the Company require working capital advances, they would be provided by Loews under the Credit Agreement. See Note 2 of the Notes to Consolidated Financial Statements. Contingencies In 1991, the Company and a third party commenced an arbitration proceeding before the Netherlands Arbitration Institute contesting the attempt of 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 damages award and on February 12, 1996, the Company received approximately $3,857,000 which represented damages, costs and interest. The funds received are subject to return, with interest, if the Dutch courts ultimately uphold Benetton's petition to overturn the arbitral award. As a result, the Company has deferred recognition of the award and recorded a deferred credit. 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. During the fourth quarter of 1995, the Company provided for an additional liability, related to an environmental condition at its Woodside, N.Y. facility, of $100,000 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. These liabilities, therefore, may require future revisions. The impact of environmental remediation liabilities will directly affect cash flow from operations. The environmental remediation liability recognized in the Company's financial statements at December 31, 1996 of $639,000 represents the minimum of the Company's estimated range of equally likely outcomes, the upper limit of that range is approximately $1,239,000. Management does not believe that the foregoing matters will have a material adverse effect on the Company's financial condition or results of operations. 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 9 of the Notes to Consolidated Financial Statements. RESULTS OF OPERATIONS Total revenues increased $11,569,000 and $20,746,000, or 10.6% and 20.7%, as compared to 1995 and 1994, respectively. Watch and clock revenues increased $14,664,000 and $21,389,000, or 14.6% and 22.8%, over 1995 and 1994, 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 4.0% and 8.6%, while unit volume increased 10.2% and 13.1%, as compared to 1995 and 1994, respectively. Effective January 1, 1996, the Company selectively increased prices, primarily on the Bulova brand, which contributed to the increased revenues. New style introductions, combined with a consistent marketing effort focused on brand image, resulted in significant growth of the Bulova and Caravelle watch brands, which posted combined increases of $16,568,000 and $21,650,000, or 24.4% and 34.4%, as compared to 1995 and 1994. Royalties, interest and other revenues include $4,200,000 of interest income recognized during the second quarter of 1995, related to the tax audit adjustment discussed above, as well as a credit of $430,000, recognized in 1996, due to a revision to the Company's estimated liability related to the Executive Life shortfall. See Note 9 of the Notes to Consolidated Financial Statements. The Company recorded a favorable foreign currency adjustment of $1,472,000 in 1994 related to the shut-down of its European facilities. Exclusive of the above transactions, royalties, interest and other revenues increased by $675,000 and $399,000 as compared to 1995 and 1994. The increase as compared to 1995 is primarily related to increased royalties. The increase as compared to 1994 is attributable to higher interest income. The Company recognized $3,863,000, $3,197,000 and $3,780,000 in royalty income in 1996, 1995 and 1994, respectively. Royalty income represents payments by a distributor and licensees principally in Europe, the Far East and South America. Two agreements were Page 6 renegotiated in 1996. As a result, the Company expects a decline of approximately $375,000 in 1997, which will directly impact results of operations and cash flow. Included in royalty income are royalties under the "Benetton by Bulova" license agreement of $106,000 and $1,484,000 for the years ended 1995 and 1994, respectively. The license agreement with Benetton expired September 30, 1994. The Company has adopted amendments to its postretirement benefit health care plan which has reduced the related health care costs incurred by the Company. Selling, general and administrative expenses include postretirement benefit costs of $443,000, $2,152,000 and $3,157,000 for the years ended 1996, 1995 and 1994, respectively. The cost savings have contributed to the favorable results discussed below. See Note 5 of the Notes to Consolidated Financial Statements. 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 for the year ended December 31, 1996 was 36.8%, as compared to 38.9% and 41.0% for the years ended December 31, 1995 and 1994, respectively. This reduction represents management's continued efforts to control discretionary spending. Income from continuing operations before income taxes was affected by the $4,200,000 of interest income recognized during 1995 related to the tax audit adjustment discussed above. Exclusive of that transaction, income from continuing operations before income taxes increased $9,113,000 and $10,886,000 as compared to 1995 and 1994, respectively. This increase is primarily attributable to reduced postretirement benefit and environmental costs, the increased revenues, as discussed above, favorable changes in the product sales mix and improved procurement practices. 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, 1996, 1995 and 1994. 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 $730,000, $700,000 and $1,200,000 for the years ended December 31, 1996, 1995 and 1994, respectively. The cost allocated to the Company is estimated to be the incremental cost incurred by Loews in providing these services to the Company. Loews re-evaluated the services and costs which are allocated to the Company during the fourth quarter of 1996. As a result, the costs will increase by $1,334,000 to $2,064,000 in 1997. The additional cost will reduce income and cash flow. See Note 2 of the Notes to Consolidated Financial Statements. Taxes - For the year ended December 31, 1995, income taxes included a charge of $1,772,000 caused by the limitation on the utilization of certain tax attributes in connection with the tax audit adjustment. See Note 4 of the Notes to Consolidated Financial Statements. 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. ACCOUNTING STANDARDS In October 1996, the Accounting Standards Executive Committee of the AICPA issued Statement of Position No. 96-1, "Environmental Remediation Liabilities," which among other things, sets forth criteria for accrual of costs in relation to clean-up and remediation of environmental conditions. It is effective for fiscal years beginning after December 15, 1996, and will not have a significant impact on the Company. Page 7 Item 8. Financial Statements and Supplementary Data.
CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------------- Assets: - ------------------------------------------------------------------------------- December 31 1996 1995 - ------------------------------------------------------------------------------- Current assets: Cash $ 10,665,000 $ 5,963,000 Investment in U.S. government securities 4,978,000 Receivables, less allowance for doubtful accounts and cash discounts of $4,062,000 and $3,146,000 (Note 1) 54,417,000 50,958,000 Inventories (Note 1) 37,130,000 38,914,000 Prepaid expenses (Note 5) 3,174,000 1,453,000 Deferred income taxes (Notes 1 and 4) 8,232,000 7,470,000 - ------------------------------------------------------------------------------- Total current assets 118,596,000 104,758,000 - ------------------------------------------------------------------------------- Property, plant and equipment, at cost (Notes 1 and 8): Land, buildings and improvements 14,090,000 14,090,000 Machinery and equipment 2,523,000 2,571,000 Furniture, fixtures and leasehold improvements 3,703,000 3,597,000 - ------------------------------------------------------------------------------- 20,316,000 20,258,000 Less accumulated depreciation and amortization 8,734,000 7,998,000 - ------------------------------------------------------------------------------- Property, plant and equipment-net 11,582,000 12,260,000 - ------------------------------------------------------------------------------- Other assets: Deferred income taxes (Notes 1 and 4) 17,437,000 16,711,000 Other assets 839,000 398,000 - ------------------------------------------------------------------------------- Total other assets 18,276,000 17,109,000 - ------------------------------------------------------------------------------- Total assets $148,454,000 $134,127,000 =============================================================================== See Notes to Consolidated Financial Statements.
Page 8
- ------------------------------------------------------------------------------- Liabilities and Shareholders' Equity: - ------------------------------------------------------------------------------- December 31 1996 1995 - ------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 3,442,000 $ 3,351,000 Accrued expenses: Salaries, wages and commissions 3,576,000 2,462,000 Postretirement benefits (Note 5) 1,288,000 1,746,000 Advertising 2,128,000 1,706,000 Warranty 1,030,000 1,324,000 Other 9,945,000 6,904,000 Accrued federal and foreign income taxes (Notes 1 and 4) 1,663,000 55,000 Current installments of long-term debt 200,000 - ------------------------------------------------------------------------------- Total current liabilities 23,072,000 17,748,000 - ------------------------------------------------------------------------------- Other liabilities and credits: Postretirement benefits payable (Note 5) 42,754,000 43,143,000 Pension benefits payable (Note 5) 4,055,000 4,712,000 Other 6,192,000 3,061,000 - ------------------------------------------------------------------------------- Total other liabilities and credits 53,001,000 50,916,000 - ------------------------------------------------------------------------------- Commitments and contingent liabilities (Notes 2, 4, 5, 8 and 9) 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 27,778,000 20,777,000 Cumulative translation adjustment (1,251,000) (1,081,000) Pension liability adjustment (337,000) (424,000) - ------------------------------------------------------------------------------- 72,386,000 65,468,000 Less 1,000 shares of common stock held in treasury, at cost 5,000 5,000 - ------------------------------------------------------------------------------- Total shareholders' equity 72,381,000 65,463,000 - ------------------------------------------------------------------------------- Total liabilities and shareholders' equity $148,454,000 $134,127,000 ===============================================================================
Page 9
STATEMENTS OF CONSOLIDATED INCOME Year Ended December 31 1996 1995 1994 - ------------------------------------------------------------------------------- Revenues: Net sales $115,113,000 $100,449,000 $ 93,724,000 Royalties, interest and other (Note 4) 5,679,000 8,774,000 6,322,000 - ------------------------------------------------------------------------------- Total 120,792,000 109,223,000 100,046,000 - ------------------------------------------------------------------------------- Expenses: Cost of sales 66,756,000 63,160,000 59,267,000 Selling, general and administrative (Notes 2 and 5) 42,341,000 39,149,000 39,416,000 Interest: Affiliate (Note 2) 75,000 467,000 Others 26,000 83,000 113,000 - ------------------------------------------------------------------------------- Total 109,123,000 102,467,000 99,263,000 - ------------------------------------------------------------------------------- Income from continuing operations before income taxes 11,669,000 6,756,000 783,000 Income tax expense (Notes 1 and 4) 4,668,000 4,487,000 251,000 - ------------------------------------------------------------------------------- Income from continuing operations 7,001,000 2,269,000 532,000 Discontinued operations of BTI (net of tax of $195,000 and $155,000) (Note 3) 363,000 302,000 - ------------------------------------------------------------------------------- Net income $ 7,001,000 $ 2,632,000 $ 834,000 =============================================================================== Income per share (Note 1): Income from continuing operations $ 1.52 $ .49 $ .11 Discontinued operations of BTI .08 .07 - ------------------------------------------------------------------------------- Net income $ 1.52 $ .57 $ .18 =============================================================================== See Notes to Consolidated Financial Statements.
Page 10
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY Additional Cumulative Pension Common Paid-in Retained Translation Liability Treasury Stock Capital Earnings Adjustment Adjustment Stock - ------------------------------------------------------------------------------------------------- (Amounts in thousands) Balance, Dec. 31, 1993 $22,999 $23,197 $17,311 $ 599 $ (5) Net income 834 Exchange rate changes during the year (net of income tax benefit 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 taxes of $175) 325 Pension liability adjustment (Note 5) $(424) - ------------------------------------------------------------------------------------------------- Balance, Dec. 31, 1995 22,999 23,197 20,777 (1,081) (424) (5) Net income 7,001 Exchange rate changes during the year (net of income tax benefit of $92) (170) Pension liability adjustment (Note 5) 87 - ------------------------------------------------------------------------------------------------- Balance, Dec. 31, 1996 $22,999 $23,197 $27,778 $(1,251) $(337) $ (5) ================================================================================================= See Notes to Consolidated Financial Statements.
Page 11
STATEMENTS OF CONSOLIDATED CASH FLOWS Year Ended December 31 1996 1995 1994 - ------------------------------------------------------------------------------- Operating Activities: Net income $ 7,001,000 $ 2,632,000 $ 834,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Amortization of investments (339,000) (345,000) Depreciation and amortization 773,000 667,000 608,000 (Gain) loss on disposition of assets (67,000) (558,000) 165,000 Provision for losses and cash discounts on accounts receivable 3,194,000 2,174,000 2,577,000 Deferred income taxes (1,488,000) 2,567,000 39,000 Changes in operating assets and liabilities-net: Receivables (6,653,000) (1,878,000) (6,099,000) Inventories 1,784,000 (3,164,000) 4,528,000 Prepaid expenses (1,721,000) (1,124,000) 191,000 Net assets of discontinued operations (4,637,000) Other assets (441,000) (133,000) 127,000 Accounts payable and accrued expenses 3,916,000 1,000 730,000 Accrued federal and foreign income taxes 1,608,000 (463,000) (637,000) Other-net 2,002,000 152,000 (2,357,000) - ------------------------------------------------------------------------------- 9,569,000 528,000 (3,931,000) - ------------------------------------------------------------------------------- Investing activities: Purchases of U.S. government securities (14,639,000) (5,655,000) Proceeds from sales of U.S. government securities 10,000,000 6,000,000 Purchases of property, plant and equipment (112,000) (177,000) (462,000) Proceeds from disposal of property, plant and equipment 84,000 11,000 Proceeds from disposal of BTI 20,810,000 - ------------------------------------------------------------------------------- (4,667,000) 20,978,000 (451,000) - ------------------------------------------------------------------------------- Financing activities: Principal payments on long-term debt (200,000) (400,000) (400,000) Proceeds from debt to affiliate 23,000,000 Principal payments on debt to affiliate (19,000,000) (20,000,000) - ------------------------------------------------------------------------------- (200,000) (19,400,000) 2,600,000 - ------------------------------------------------------------------------------- Net change in cash 4,702,000 2,106,000 (1,782,000) Cash, beginning of year 5,963,000 3,857,000 5,639,000 - ------------------------------------------------------------------------------- Cash, end of year $ 10,665,000 $ 5,963,000 $ 3,857,000 =============================================================================== See Notes to Consolidated Financial Statements.
Page 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies - (a) Business - The Company is engaged in the distribution and sale of watches, clocks and timepieces for consumer use. The principal watch brands are Bulova, Caravelle, Accutron and Sportstime. Clocks are principally sold under the Bulova brand name. Bulova's principal markets are the United States and Canada. Royalties are received from a distributor and licensees principally in Europe, the Far East and South America. 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 and Concentration of Credit Risk - 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, 1996 and 1995, accounts receivable were substantially comprised of balances due from retailers. Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable. One customer represents approximately 12% of sales for the year ended December 31, 1996. Although the Company's exposure to credit risk associated with non-payment by this customer is affected by conditions or occurrences within the retail industry, trade receivables from this significant customer were collected within terms; no other customer represented more than 10% of the Company's sales. The carrying amount of receivables approximates fair value. (e) Inventories - Substantially all inventory, consisting primarily of finished watches and clocks, 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 federal 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, 1996). 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) Investments - Investments in U.S. government securities are considered available for sale and carried at fair value, which approximates cost. (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, 1996, there were no foreign currency contracts outstanding. As of December 31, 1995, the U.S. dollar equivalent of foreign currency contracts approximated $443,000. These agreements matured through March 1996. (l) Impairment of Long-Lived Assets - The Company reviews its long-lived assets for impairment when changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets and certain intangibles, under certain circumstances, are reported at the lower of carrying amount or fair value. Assets to be disposed of and assets not expected to provide any future service potential to the Company are recorded at the lower of carrying amount or fair value less cost to sell. Page 13 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, 1998. In January 1995, the balance was paid in full with the proceeds from the sale of BTI (see Note 3). Loews has provided administrative services for which the Company paid $730,000, $700,000 and $1,200,000 for the years ended December 31, 1996, 1995 and 1994, respectively. In 1994 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 these services to the Company. Loews re-evaluated the services and costs which are allocated to the Company during the fourth quarter of 1996. As a result, the costs will increase by $1,334,000 to $2,064,000. Note 3. 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. Summarized financial information of BTI is as follows:
Year Ended December 31 1994 - ------------------------------------------------------------------------------- Net sales (a) $ 52,600,000 Cost of sales (45,117,000) Selling, general and administrative (5,849,000) Interest expense (1,177,000) - ------------------------------------------------------------------------------- Income before income taxes 457,000 Income taxes (155,000) - ------------------------------------------------------------------------------- Net income $ 302,000 =============================================================================== (a) Includes $2,370,000 from settlement of defense contract claims with the U.S. government.
Note 4. 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 Company will pay Loews approximately $5,282,000 and has received approximately $2,109,000 and $286,000 for the years ended December 31, 1996, 1995 and 1994, respectively. This agreement may be canceled by the Company or Loews upon thirty days written notice. Income before income tax expense consisted of the following for continuing operations:
Year Ended December 31 1996 1995 1994 - ------------------------------------------------------------------------------- Income before income taxes: Domestic $11,350,000 $ 5,933,000 $ 382,000 Foreign 319,000 823,000 401,000 - ------------------------------------------------------------------------------- Total $11,669,000 $ 6,756,000 $ 783,000 =============================================================================== Page 14 Year Ended December 31 1996 1995 1994 - ------------------------------------------------------------------------------- Income tax expense (benefit): Federal: Current $ 5,282,000 $ 746,000 $ (289,000) Deferred (1,627,000) 2,790,000 116,000 State and local-current 958,000 700,000 65,000 Foreign: Current (22,000) 245,000 310,000 Deferred 77,000 6,000 49,000 - ------------------------------------------------------------------------------- Income tax expense $ 4,668,000 $ 4,487,000 $ 251,000 =============================================================================== Deferred tax assets are as follows: December 31 1996 1995 - ------------------------------------------------------------------------------- Employee benefits $22,735,000 $23,078,000 Inventory 5,779,000 5,856,000 Accrued expenses 4,106,000 1,963,000 Accounts receivable 1,482,000 1,116,000 Tax loss carryforward 1,085,000 785,000 - ------------------------------------------------------------------------------- 35,187,000 32,798,000 Valuation allowance (9,518,000) (8,617,000) - ------------------------------------------------------------------------------- Deferred tax assets-net $25,669,000 $24,181,000 ===============================================================================
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 1996 1995 1994 - ------------------------------------------------------------------------------- Income taxes computed at statutory rate $4,084,000 $2,365,000 $ 274,000 Increase (decrease) in taxes resulting from: State and local taxes, net of federal benefit 623,000 455,000 42,000 Foreign taxes, net of foreign tax credit (53,000) (43,000) (38,000) Permanent differences 31,000 38,000 (482,000) Tax settlement 1,772,000 (Benefit) expense related to prior years' losses (177,000) 292,000 Other (17,000) 77,000 163,000 - ------------------------------------------------------------------------------- Income tax expense $4,668,000 $4,487,000 $ 251,000 ===============================================================================
Federal, foreign, state and local income tax payments (refunds) amounted to approximately $2,910,000, $(6,022,000) and $(2,314,000) for the years ended December 31, 1996, 1995 and 1994, respectively. At December 31, 1996, the Company had state and local operating loss carryforwards of approximately $9,257,000 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. Page 15 Note 5. 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 1996 1995 1994 - ------------------------------------------------------------------------------- Service cost-benefits earned $ 614,000 $ 517,000 $ 740,000 Interest cost 1,852,000 1,761,000 1,652,000 Return on assets-(gain) loss (954,000) (3,271,000) 424,000 Net amortization and deferrals (826,000) 1,564,000 (1,764,000) Curtailment and special termination benefits expense 168,000 - ------------------------------------------------------------------------------- Net pension cost $ 854,000 $ 571,000 $ 1,052,000 =============================================================================== The status of the underfunded U.S. plans were as follows: December 31 1996 1995 - ------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Accumulated benefit obligation $24,109,000 $23,618,000 =============================================================================== Accumulated vested benefit obligation $23,486,000 $22,864,000 =============================================================================== Projected benefit obligation $26,143,000 $26,424,000 Plan assets at fair value 22,377,000 19,575,000 - ------------------------------------------------------------------------------- Projected benefit obligation over plan assets 3,766,000 6,849,000 Unrecognized net asset at January 1 1,913,000 2,392,000 Unrecognized net loss (4,465,000) (5,850,000) Unrecognized prior service cost (322,000) (40,000) Additional minimum liability 840,000 693,000 - ------------------------------------------------------------------------------- Accrued pension cost $ 1,732,000 $ 4,044,000 =============================================================================== The rates used in the actuarial assumptions were: Year Ended December 31 1996 1995 1994 - ------------------------------------------------------------------------------- Discount rate 7.50% 7.00% 8.75% Rate of compensation increase 5.75% 5.50% 6.25% Expected long-term rate of return on assets 7.56% 8.75% 7.50% - --------------------------------------------------------------------------------
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 $2,323,000 of contributions in excess of the minimum funding requirement for the year ended December 31, 1996. At December 31, 1996 and 1995, the Company's minimum pension liability exceeded its unrecognized prior service cost and net transition obligation by $840,000 and $693,000, respectively. This excess is recorded as a reduction to shareholders' equity of $337,000 and $424,000, net of tax benefits of $181,000 and $229,000, and intangible assets of $322,000 and $40,000, for the years ended December 31, 1996 and 1995, respectively. Other Postretirement Benefit Plans - The Company maintains postretirement health care plans covering eligible employees and retirees. Union 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 salaried employees who are eligible upon retirement at age 55 and 20 years of service or upon retirement at age 60 and 10 years of service. Prior to January 1, 1995, Page 16 participants were eligible upon retirement at age 55 and 10 years of service or upon completion of 20 years of service. The benefits provided by the Company are basically health, and for certain retirees, life insurance type benefits. During 1996, the Company made certain amendments to the plan covering salaried employees which reduced postretirement benefit expense by approximately $1,108,000.
The rates used in the actuarial assumptions were: December 31 1996 1995 - -------------------------------------------------------------------------------- Net periodic postretirement benefit cost 7.00% 8.75% Accumulated postretirement benefit liability 7.50% 7.00% - -------------------------------------------------------------------------------- The following table sets forth the postretirement plan's status: December 31 1996 1995 - -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $18,448,000 $22,624,000 Fully eligible active plan participants 1,570,000 4,028,000 Other active plan participants 1,072,000 3,428,000 - -------------------------------------------------------------------------------- 21,090,000 30,080,000 Unrecognized prior service cost 5,535,000 679,000 Unrecognized net gain 17,417,000 14,130,000 - -------------------------------------------------------------------------------- Accrued postretirement benefit liability $44,042,000 $44,889,000 ================================================================================ Postretirement benefit cost includes the following components: Year Ended December 31 1996 1995 1994 - -------------------------------------------------------------------------------- Service costs $ 206,000 $ 438,000 $ 562,000 Interest costs 1,821,000 2,657,000 2,595,000 Net amortization and deferral (1,498,000) (943,000) Curtailment gain (86,000) - -------------------------------------------------------------------------------- Net periodic postretirement benefit cost $ 443,000 $2,152,000 $3,157,000 ================================================================================
For measurement purposes, a trend rate of 12.5% pre-65 and 9.5% post-65, for covered costs was used. These trend rates are expected to decrease gradually to 7.0% 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 $1,730,000 and the net periodic postretirement benefit cost by approximately $210,000. Page 17 Note 6. Quarterly Financial Data (Unaudited) -
1996 Quarters Ended Dec. 31 Sept. 30 June 30 March 31 - -------------------------------------------------------------------------------- Total revenues $36,544,000 $34,741,000 $23,963,000 $25,544,000 Cost of sales 18,920,000 18,888,000 13,903,000 15,045,000 Income from continuing operations 1,747,000 3,883,000 670,000 701,000 Per share .38 .84 .15 .15 Net income 1,747,000 3,883,000 670,000 701,000 Per share .38 .84 .15 .15 1995 Quarters Ended Dec. 31 Sept. 30 June 30 March 31 - -------------------------------------------------------------------------------- Total revenues $32,640,000 $27,114,000 $25,512,000 $23,957,000 Cost of sales 19,298,000 15,805,000 13,703,000 14,354,000 Income from continuing operations 652,000 865,000 687,000 65,000 Per share .14 .19 .15 .01 Net income 652,000 865,000 687,000 428,000 Per share .14 .19 .15 .09 - --------------------------------------------------------------------------------
Note 7. Geographic Information -
United States --------------------- Canada Year Ended December 31, 1996 Operations Royalties Operations Eliminations Total - ------------------------------------------------------------------------------------------------ Sales to unaffiliated customers $103,425 $11,688 $115,113 Intercompany sales 1,377 $(1,377) - ------------------------------------------------------------------------------------------------ Net sales 104,802 11,688 (1,377) 115,113 Royalties, interest & other 2,303 $3,863 (487) 5,679 - ------------------------------------------------------------------------------------------------ Total revenues $107,105 $3,863 $11,688 $(1,864) $120,792 ================================================================================================ Operating profit $ 7,756 $3,863 $ 806 $ 12,425 Interest expense (26) (487) $ 487 (26) Corporate charges (730) (730) - ------------------------------------------------------------------------------------------------ Income from continuing operations before tax $ 7,000 $3,863 $ 319 $ 487 $ 11,669 ================================================================================================ Identifiable assets $137,149 $11,305 $148,454 ================================================================================================ Year Ended December 31, 1995 - ------------------------------------------------------------------------------------------------ Sales to unaffiliated customers $ 87,535 $12,914 $100,449 Intercompany sales 2,664 $(2,664) - ------------------------------------------------------------------------------------------------ Net sales 90,199 12,914 (2,664) 100,449 Royalties, interest & other 6,117 $3,197 (540) 8,774 - ------------------------------------------------------------------------------------------------ Total revenues $ 96,316 $3,197 $12,914 $(3,204) $109,223 ================================================================================================ Operating profit $ 3,594 $3,197 $ 823 $ 7,614 Interest expense (158) (540) $ 540 (158) Corporate charges (700) (700) - ------------------------------------------------------------------------------------------------ Income from continuing operations before tax $ 2,736 $3,197 $ 283 $ 540 $ 6,756 ================================================================================================ Identifiable assets $120,643 $13,484 $134,127 ================================================================================================ Page 18 United States --------------------- Canada Year Ended December 31, 1994 Operations Royalties Operations Eliminations Total - ------------------------------------------------------------------------------------------------ Sales to unaffiliated customers $ 81,865 $11,859 $ 93,724 Intercompany sales 1,901 $ 738 $(2,639) - ------------------------------------------------------------------------------------------------ Net sales 83,766 738 11,859 (2,639) 93,724 Royalties, interest & other 2,973 3,780 (431) 6,322 - ------------------------------------------------------------------------------------------------ Total revenues $ 86,739 $4,518 $11,859 $(3,070) $100,046 ================================================================================================ Operating (loss) profit $ (2,822) $3,759 $ 1,126 $ 2,063 Interest expense (580) (431) $ 431 (580) Corporate charges (700) (700) - ------------------------------------------------------------------------------------------------ Income (loss) from continuing operations before tax $ (4,102) $3,759 $ 695 $ 431 $ 783 ================================================================================================ Identifiable assets $139,473 $11,562 $151,035 ================================================================================================
Note 8. Leases - The Company leases certain of its warehouse and office facilities. The future minimum lease payments under operating leases for the five years ending December 31, 2001 is $482,000, $482,000, $497,000, $500,000 and $500,000. Note 9. 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. In 1994, the Company accrued an additional $484,000 based upon revised cost estimates. As of December 31, 1996, the remaining estimated liability of $267,000 represents the minimum level of clean-up expense 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 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. At December 31, 1996, the total estimated environmental liability recognized in the Company's financial statements of $639,000 represents the minimum of the Company's estimated range in equally likely outcomes; the upper limit of that range is approximately $1,239,000. (b) Arbitral Award - 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 by Bulova") to prematurely terminate the License Agreement for "Benetton by Bulova" timepieces and seeking damages in relation thereto. (The License Agreement subsequently terminated in 1994). The arbitral panel determined that Benetton was not entitled to terminate the License Agreement prior to the expiration of its term and awarded damages to the Company in relation thereto. Benetton has commenced proceedings in the Dutch courts seeking to overturn the arbitral award on a number of grounds and, pending the outcome of those proceedings, to suspend enforcement of the damage award. The Dutch courts have refused to suspend enforcement of the damage award and on February 12, 1996, the Company received approximately $3,857,000 which represented damages, costs and interest. The funds received are subject to return, with interest, if the Dutch courts ultimately uphold Benetton's petition to overturn the arbitral award. As a result, the Company has deferred recognition of the award and recorded a deferred credit. Page 19 (c) 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. (d) 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. In October 1996, the Accounting Standards Executive Committee of the AICPA issued Statement of Position No. 96-1, "Environmental Remediation Liabilities," which among other things, sets forth criteria for accrual of costs in relation to clean-up and remediation of environmental conditions. It is effective for fiscal years beginning after December 15, 1996, and will not have a significant impact on the Company. 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. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. Page 20 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 ..... 47 Chairman of the Board of the Company 1979 and Chairman of the Management Committee of Loews Corporation since 1995. Prior thereto he had been Chairman of the Board and Chief Executive Officer of Lorillard, Inc., a wholly owned subsidiary of Loews. Mr. Tisch is also a director of Zale Corporation. Herbert C. Hofmann .. 54 President and Chief Executive Officer 1979 of the Company. Mr. Hofmann is also a director of Diamond Offshore Drilling, Inc. (51% owned subsidiary of Loews) and also serves as Senior Vice President of Loews. Harry B. Henshel .... 78 Vice Chairman of the Board of the Company. 1958 Laurence A. Tisch ... 74 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. Preston R. Tisch .... 70 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. (b) Executive Officers.
First Became Name Position and Offices Held Age an Officer - -------------------------------------------------------------------------------- Herbert C. Hofmann ..... President and Chief Executive 54 1985 Officer Warren J. Neitzel ...... General Counsel and Corporate 46 1993 Secretary John T. O'Reilly ....... Controller 36 1996 Paul S. Sayegh ......... Chief Operating Officer 53 1979
Page 21 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. (a) General. 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, 1996, for services in all capacities to the Company. Summary Compensation Table
Name and Principal Position Year Salary - -------------------------------------------------------------------------------- Herbert C. Hofmann 1996 - President and Chief Executive Officer (a) 1995 - 1994 - Paul S. Sayegh 1996 $245,000 Chief Operating Officer 1995 223,000 1994 212,000 Warren J. Neitzel 1996 130,000 General Counsel and Corporate Secretary 1995 130,000 1994 112,000 - -------------- (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 1996, 1995 and 1994.
Information with respect to certain non-cash compensation made available to the Company's executive officers in 1996, has not been 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 Page 22 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 1996 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 $ 26,250 100,000................. 22,500 30,000 37,500 45,000 52,500 150,000................. 33,750 45,000 56,250 67,500 78,750 200,000................. 45,000 60,000 75,000 90,000 105,000 250,000................. 56,250 75,000 93,750 112,500 131,250 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 16 $53,807 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 28, 1997 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. (b) Security Ownership of Management. The following table sets forth certain information, as of February 28, 1997, 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: Page 23
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 * Warren J. Neitzel .... John T. O'Reilly ..... Paul S. Sayegh ....... Andrew H. Tisch ...... 2,000(2) * Laurence A. Tisch .... 18,059,998 15.7% Preston R. Tisch ..... 18,059,998 15.7% All directors and executive officers as a group (8 listed above) .............. 100 * 36,122,396 31.4% * 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) 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 20,000 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, 1998. There has not been any borrowings under the Credit Agreement since January 17, 1995. 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 canceled by the Company or Loews upon thirty days written notice. Pursuant to this agreement, $1,663,000 was payable to Loews for the year ended December 31, 1996. 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 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 $730,000 and $47,000, respectively, for services provided during 1996. Loews re-evaluated the services and costs which are allocated to the Company during the fourth quarter of 1996. As a result, the costs will increase by $1,334,000 to $2,064,000. In addition, the Company has reimbursed to Loews approximately $587,000 in salaries and related employee benefits for 1996 for employees of Loews on loan to the Company. Page 24 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 $552,000 for premiums paid with respect to 1996. 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 $311,000 for 1996. 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...................................... 30 Bulova Corporation and Subsidiaries: Schedule II-Valuation and Qualifying Accounts................... 31 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) Page 25 Exhibit Description Number ----------- ------- (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) (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, 1996. Page 26 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 26, 1997 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 26, 1997 By /s/ Herbert C. Hofmann -------------------------------- (Herbert C. Hofmann, President, Chief Executive Officer and Director) Dated: March 26, 1997 By /s/ Paul S. Sayegh -------------------------------- (Paul S. Sayegh, Chief Operating Officer and Principal Financial Officer) Dated: March 26, 1997 By /s/ John T. O'Reilly -------------------------------- (John T. O'Reilly, Controller and Principal Accounting Officer) By -------------------------------- (Harry B. Henshel, Director) Dated: March 26, 1997 By /s/ Andrew H. Tisch -------------------------------- (Andrew H. Tisch, Director) Dated: March 26, 1997 By /s/ Laurence A. Tisch ------------------------------- (Laurence A. Tisch, Director) Dated: March 26, 1997 By /s/ Preston R. Tisch -------------------------------- (Preston R. Tisch, Director) Page 27 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, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 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 12, 1997 Page 28 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 beginning costs and at end Description of period expenses Deductions of period ----------- ------------------------------------------------- Year Ended December 31, 1996 Allowance for doubtful accounts ................... $2,712,000 $2,073,000 $1,271,000 (a) $3,514,000 Allowance for cash discounts 434,000 1,121,000 1,007,000 548,000 ------------------------------------------------- $3,146,000 $3,194,000 $2,278,000 $4,062,000 ================================================= Allowance for loss on investment in unconsolidated subsidiary ................. $ 529,000 $ 529,000 ========== ========== 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 ========== ========== - ------------- (a) Includes doubtful accounts written off net of recoveries. Page 29
EX-21 2 Exhibit 21 BULOVA CORPORATION Subsidiaries of the Registrant December 31, 1996
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. Page 30 EX-27 3 FINANCIAL DATA SCHEDULE FOR DECEMBER 31, 1996 FORM 10-K
5 1,000 12-MOS DEC-31-1996 DEC-31-1996 10,665 4,978 58,479 4,062 37,130 118,596 20,316 8,734 148,454 23,072 0 22,999 0 0 49,382 148,454 115,113 120,792 66,756 66,756 0 2,073 26 11,669 4,668 7,001 0 0 0 7,001 1.52 0
-----END PRIVACY-ENHANCED MESSAGE-----