-----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, UPG7Rnv9CUS9gkGYEZYtOqM8ywZ6HCaN30XeGJmH5pP6UswPfrr1Dv+LFHHlSspG 7vmIfSlcTf46JH0ehVi9JA== 0000015310-97-000011.txt : 19971117 0000015310-97-000011.hdr.sgml : 19971117 ACCESSION NUMBER: 0000015310-97-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BULOVA CORP CENTRAL INDEX KEY: 0000015310 STANDARD INDUSTRIAL CLASSIFICATION: WATCHES, CLOCKS, CLOCKWORK OPERATED DEVICES/PARTS [3873] IRS NUMBER: 111719409 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00457 FILM NUMBER: 97720152 BUSINESS ADDRESS: STREET 1: ONE BULOVA AVE CITY: WOODSIDE STATE: NY ZIP: 11377-7874 BUSINESS PHONE: 7182043300 MAIL ADDRESS: STREET 1: ONE BULOVA AVE CITY: WOODSIDE STATE: NY ZIP: 11377-7874 FORMER COMPANY: FORMER CONFORMED NAME: BULOVA WATCH CO INC DATE OF NAME CHANGE: 19880811 FORMER COMPANY: FORMER CONFORMED NAME: BULOVA J CO DATE OF NAME CHANGE: 19710627 10-Q 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------- ------------- Commission file number 1-457 ----- BULOVA CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) New York 11-1719409 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) ONE BULOVA AVENUE, WOODSIDE, N.Y. 11377-7874 ---------------------------------------------------- (Address of principal executive offices) (Zip Code) (718) 204-3300 ---------------------------------------------------- (Registrant's telephone number, including area code) NOT APPLICABLE ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- --------- Class Outstanding at November 7, 1997 - --------------------------- ------------------------------- Common stock, $5 par value 4,599,249 shares ============================================================================== Page 1 INDEX Page No. -------- Part I. Financial Information Item 1. Financial Statements Consolidated Condensed Balance Sheets- September 30, 1997 and December 31, 1996 .................... 3 Consolidated Condensed Statements of Income- Three and nine months ended September 30, 1997 and 1996 ...... 4 Consolidated Condensed Statements of Cash Flows- Nine months ended September 30, 1997 and 1996 ............... 5 Notes to Consolidated Condensed Financial Statements ........... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................ 8 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K ........................ 10 Page 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements --------------------
Bulova Corporation and Subsidiaries Consolidated Condensed Balance Sheets (Amounts in thousands) September 30, December 31, 1997 1996 ------------------------------ Assets ------ Current assets: Cash ......................................................... $ 3,286 $ 10,665 Investment in U.S. government securities ..................... 19,228 4,978 Accounts and notes receivable-net ............................ 50,125 54,417 Inventories, principally watches and clocks .................. 36,264 37,130 Prepaid expenses ............................................. 2,279 3,174 Prepaid federal income tax ................................... 329 Deferred income taxes ........................................ 7,889 8,232 ---------------------------- Total current assets ..................................... 119,400 118,596 ---------------------------- Property, plant and equipment-net .............................. 11,587 11,582 ---------------------------- Other assets: Deferred income taxes ........................................ 16,890 17,437 Other ........................................................ 360 839 ---------------------------- Total other assets ....................................... 17,250 18,276 ---------------------------- Total assets ............................................. $148,237 $148,454 ============================ Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Accounts payable ............................................. $ 2,339 $ 3,442 Accrued expenses ............................................. 16,083 17,967 Accrued federal and foreign income taxes ..................... 1,663 ---------------------------- Total current liabilities ................................ 18,422 23,072 ---------------------------- Other liabilities and credits: Postretirement benefits payable .............................. 42,152 42,754 Pension benefits payable ..................................... 3,452 4,055 Other ........................................................ 5,995 6,192 ---------------------------- Total other liabilities and credits ...................... 51,599 53,001 ---------------------------- Shareholders' equity ........................................... 78,216 72,381 ---------------------------- Total liabilities and shareholders' equity ............... $148,237 $148,454 ============================ See accompanying Notes to Consolidated Condensed Financial Statements.
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Bulova Corporation and Subsidiaries Consolidated Condensed Statements of Income (Amounts in thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ----------------------------------------- Net sales ........................................ $33,049 $32,980 $88,208 $79,992 Cost of sales .................................... 17,840 18,888 49,631 47,836 ----------------------------------------- Gross profit ..................................... 15,209 14,092 38,577 32,156 Selling, general and administrative .............. 11,491 9,985 32,564 28,295 ----------------------------------------- Operating income ................................. 3,718 4,107 6,013 3,861 Other income: Royalty ........................................ 856 998 2,722 2,855 Interest - net ................................. 423 195 1,033 685 Other .......................................... 93 563 381 696 ----------------------------------------- Income before income tax expense ................. 5,090 5,863 10,149 8,097 Income tax expense ............................... (1,996) (1,980) (4,241) (2,843) ----------------------------------------- Net income ...................................... $ 3,094 $ 3,883 $ 5,908 $ 5,254 ========================================= Net income per share ............................. $ .67 $ .84 $ 1.28 $ 1.14 ========================================= Weighted average number of shares outstanding .... 4,599 4,599 4,599 4,599 ========================================= See accompanying Notes to Consolidated Condensed Financial Statements.
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Bulova Corporation and Subsidiaries Consolidated Condensed Statements of Cash Flows (Amounts in thousands) Nine Months Ended September 30, 1997 1996 ---------------------------- Operating Activities: Net income ................................................... $ 5,908 $ 5,254 Adjustments to reconcile net income to net cash provided by operating activities ........................................ 2,784 3,674 Changes in assets and liabilities-net: Receivables ................................................ 2,265 (1,771) Inventories ................................................ 866 1,655 Other assets ............................................... 1,374 (1,986) Accounts payable and accrued expenses ...................... (2,987) 454 Accrued federal and foreign income taxes ................... (1,992) 1,390 Other liabilities and credits .............................. (1,475) 2,074 ---------------------------- 6,743 10,744 ---------------------------- Investing Activities: Purchases of U.S. government securities ...................... (33,661) (14,639) Proceeds from maturities of U.S. government securities ....... 20,000 10,000 Purchases of property, plant and equipment ................... (478) (130) Proceeds from disposal of property, plant and equipment ...... 17 49 ---------------------------- (14,122) (4,720) ---------------------------- Financing Activities: Principal payments on long-term debt ......................... (200) ---------------------------- Net change in cash ............................................. (7,379) 5,824 Cash, beginning of period ...................................... 10,665 5,963 ---------------------------- Cash, end of period ............................................ $ 3,286 $ 11,787 ============================ See accompanying Notes to Consolidated Condensed Financial Statements.
Page 5 Bulova Corporation and Subsidiaries Notes to Consolidated Condensed Financial Statements 1. See Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 1996 filed with the Securities and Exchange Commission on March 26, 1997. 2. In 1991, the Company and a third party commenced an arbitration proceeding before the Netherlands Arbitration Institute contesting the attempt of Benetton International N.V. ("Benetton") to prematurely terminate the License Agreement for "Benetton by Bulova" timepieces and seeking damages in relation thereto. (The License Agreement subsequently terminated in 1994). The arbitral panel determined that Benetton was not entitled to terminate the License Agreement prior to the expiration of its term and awarded damages to the Company in relation thereto. Benetton has commenced proceedings in the Dutch courts seeking to overturn the arbitral award on a number of grounds and, pending the outcome of those proceedings, to suspend enforcement of the 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. 3. During the third quarter of 1996 the Company recorded a credit of $1,194,000 as a result of amendments to the Company's postretirement benefit health care plans. Amendments adopted by the Company adjusted the cost sharing provisions including copayments, deductibles and payment limits. See Note 5 of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 1996. 4. During the third quarter of 1996 the Company revised its estimated liability related to the Executive Life shortfall and, as a result, recorded a credit of $430,000. See Note 9 of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 1996. 5. Under the tax allocation agreement between the Company and its parent, Loews Corporation ("Loews"), the Company has paid Loews approximately $786,000, $1,334,000, $2,359,000 and $1,575,000 for the three and nine months ended September 30, 1997 and 1996, respectively. See Note 4 of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 1996. 6. Loews provides administrative and managerial services for which the Company was charged $516,000, $183,000, $1,548,000 and $548,000 for the three and nine months ended September 30, 1997 and 1996, respectively. This expense is included in selling, general and administrative expenses. The cost allocated to the Company is estimated to be the incremental cost incurred by Loews in providing these services to the Company. The increased charges reflect the re-evaluation by Loews of the services provided to the Company. See Note 2 of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 1996. Page 6 7. Shareholders' equity:
September 30, December 31, 1997 1996 -------------------------- (In thousands) Common stock .............................. $22,999 $22,999 Additional paid-in capital ................ 23,197 23,197 Retained earnings ......................... 33,686 27,778 Cumulative translation adjustment ......... (1,324) (1,251) Pension liability adjustment .............. (337) (337) ------------------------ Total .................................. 78,221 72,386 Less treasury stock, at cost .............. 5 5 ------------------------ Total shareholders' equity ............. $78,216 $72,381 ========================
8. The Company is responsible for the clean-up of certain environmental conditions at its current facility as well as certain former manufacturing facilities. The remaining liability recognized in the Company's financial statements of $455,000 represents the Company's estimate of costs to be incurred in these environmental remediation matters, the upper limit of that range is approximately $1,055,000. See Note 9 of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 1996. 9. In the opinion of Management, the accompanying consolidated condensed financial statements reflect all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of September 30, 1997 and December 31, 1996 and the results of operations for the three and nine months ended September 30, 1997 and 1996 and changes in cash flows for the nine months ended September 30, 1997 and 1996, respectively. Results of operations for the third quarter and first nine months of each of the years is not necessarily indicative of results of operations for that entire year. Page 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations --------------------------------------------------------------- Liquidity and Capital Resources: The Company generated cash flow from operations of $6,743,000 and $10,744,000 for the nine months ended September 30, 1997 and 1996, respectively. The decrease in net cash flow is due primarily to the collection of the arbitral award discussed below. In the first quarter of 1996, the Company received approximately $3,857,000 in cash which represented damages, costs and interest, as a result of the arbitration proceedings from Benetton International, N.V. regarding premature termination of a licensing agreement with the Company. See Note 2 of the Notes to Consolidated Condensed Financial Statements. In previous 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 was not 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, 1998. 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 in the Annual Report on Form 10-K for the year ended December 31, 1996. The Company plans to improve warehouse operations efficiency during 1997 by investing in property, plant and equipment. Capital expenditures for the current year are expected to be funded through operations, and are estimated to be approximately $1,000,000. The review and evaluation of operations and information systems are not complete, and actual expenditures may differ from current estimates. The Company's capital expenditures amounted to $67,000 and $478,000 for the three and nine months ended September 30, 1997. In addition, as of September 30, 1997 the Company has outstanding purchase commitments related to capital expenditures amounting to approximately $500,000. The Company invests its excess cash in U.S. government securities. During the first quarter of 1997, the Company purchased U.S. Treasury bills for $14,628,000 in cash, which are classified as available for sale. Results of Operations: Net sales increased $69,000, or 0.2%, and $8,216,000, or 10.3%, for the three and nine months ended September 30, 1997, as compared to 1996. The increase is due to overall higher unit prices and sales volume. Unit volume increased 2.1%, while unit prices increased 8.0%, as compared to 1996. The watch and clock revenue increase is primarily attributable to the continued growth of the core Bulova watch brand, which posted increases of $831,000, or 4.5%, and $6,889,000, or 15.0%, partially offset by decreases in Caravelle of $721,000, or 11.8%, and $229,000, or 1.6%, for the three and nine months ended September 30, 1997, as compared to the prior year. In the third quarter of 1996, the Company recorded a credit of $367,000 in cost Page 8 of sales related to changes adopted to its postretirement benefit health care plan. (See Note 3 of the Notes to Consolidated Condensed Financial Statements). Exclusive of that transaction, gross profit as a percentage of net sales for the three and nine months ended September 30, 1997 was 46.0% and 43.7%, as compared to 41.6% and 39.7%, for the three and nine months ended September 30, 1996, respectively. This increase is due to higher overall prices and a favorable sales mix. In the third quarter of 1996, the Company recorded a credit of $827,000 in administrative expenses related to changes adopted to the Company's postretirement benefit health care plan. (See Note 3 of the Notes to Consolidated Condensed Financial Statements). Exclusive of that transaction, selling, general and administrative expenses as a percentage of net sales for the three and nine months ended September 30, 1997 was 34.8% and 36.9%, as compared to 32.8% and 36.4% for the three and nine months ended September 30, 1996, respectively. This increase is the result of the Company's increased investment in brand support advertising and higher charges for administrative and managerial services provided by Loews. Royalty income has declined $142,000, or 14.2%, and $133,000, or 4.7%, for the three and nine months ended September 30, 1997, as compared to 1996, respectively. Royalty income represents payments by a distributor and licensees in Europe, the Far East, and South America. The decline in royalty income reflects the effects of two agreements which were renegotiated in 1996. Interest income increased $228,000, or 116.9%, and $348,000, or 50.8%, for the three and nine months ended September 30, 1997. This increase is the result of an increased level of invested assets. Other income was primarily affected by the $430,000 credit recorded during the third quarter of 1996 related to an adjustment to the Remaining Shortfall of the Executive Life annuity. ( See Note 4 of the Notes to Consolidated Condensed Financial Statements). Exclusive of that transaction, other income decreased $40,000, or 30.1%, for the three months ended September 30, 1997, and increased $115,000, or 43.2%, for the nine months September 30, 1997, as compared to the corresponding periods of the prior year. Other income primarily represents proceeds from the sale of promotional and display materials. Income from operations before income taxes was affected by the credits recorded during the third quarter of 1996 related to changes to the Company's postretirement benefit health care plan and the Executive Life annuity as discussed above. Exclusive of those transactions, income from operations before income taxes increased $851,000 and $3,676,000 for the three and nine months ended September 30, 1997, as compared to the prior year, resulting from the sales increase discussed above, partially offset by higher brand support advertising and increased charges for administrative and managerial services provided by Loews. The Company imports most of its watch and clock products. Foreign currency fluctuations therefore, can have a material impact on operations. Approximately 5% of the Company's purchases are denominated in Japanese yen. Substantially all of the remaining purchases are denominated in U.S. dollars with vendors from Hong Kong and the Pacific Rim. As a result of hedging practices adopted by the Company, foreign currency fluctuations have not had a material impact on the results of operations for the three and nine months ended September 30, 1997 and 1996. Future foreign currency fluctuations, however, could impact gross profit, income, and cash flow. Page 9 Corporate Related Parties - Loews has provided administrative services for which the Company was charged $516,000, $183,000, $1,548,000 and $548,000 for the three and nine months ended September 30, 1997 and 1996, respectively. The cost allocated to the Company is estimated to be the incremental cost incurred by Loews in providing these services to the Company. The increased charges reflect the re-evaluation by Loews of the services provided to the Company. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) Exhibits -- (27) Financial Data Schedule for the nine months ended September 30, 1997. (b) Current reports on Form 8-K -- There were no reports on Form 8-K filed for the three months ended September 30, 1997. Page 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BULOVA CORPORATION ------------------ (Registrant) Dated: November 14, 1997 By: /s/Paul S. Sayegh ----------------------- PAUL S. SAYEGH Chief Operating Officer (Duly authorized officer and principal financial officer) Page 11 EX-27 2 FINANCIAL DATA SCHEDULE FOR SEPTEMBER 30, 1997 FORM 10-Q
5 1,000 9-MOS DEC-31-1997 SEP-30-1997 3,286 19,228 54,469 4,344 36,264 119,400 20,757 9,170 148,237 18,422 0 0 0 22,999 55,217 148,237 88,208 92,359 49,631 49,631 0 805 15 10,149 4,241 5,908 0 0 0 5,908 1.28 0
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