-----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, KZXObOv5o1/9U8HeXleeCtaBgKz4/zxBqt5uBdVZBwB71dyzCMmAYDrhaOLKYIh8 YpE0DGTwjZ06lTGkIKh4lw== 0000015310-98-000003.txt : 19980518 0000015310-98-000003.hdr.sgml : 19980518 ACCESSION NUMBER: 0000015310-98-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: 98625295 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 March 31, 1998 -------------- 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 May 1, 1998 - --------------------------- ------------------------------- 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- March 31, 1998 and December 31, 1997 ....................... 3 Consolidated Condensed Statements of Income - Three months ended March 31, 1998 and 1997 ................. 4 Consolidated Condensed Statements of Cash Flows- Three months ended March 31, 1998 and 1997 ................. 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 Exhibit 27--Financial Data Schedule for the three months ended March 31, 1998 ............................................ 10 Page 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements --------------------
Bulova Corporation and Subsidiaries Consolidated Condensed Balance Sheets (Amounts in thousands) March 31, December 31, 1998 1997 ----------------------- Assets ------ Current assets: Cash and cash equivalents ....................... $ 12,093 $ 9,127 Investments ..................................... 34,930 19,937 Accounts and notes receivable-net ............... 38,926 51,377 Inventories, principally watches and clocks ..... 30,416 35,656 Prepaid expenses ................................ 1,021 2,079 Deferred income taxes ........................... 7,941 8,219 ---------------------- Total current assets ........................ 125,327 126,395 ---------------------- Property, plant and equipment-net ................. 11,397 11,489 ---------------------- Other assets: Deferred income taxes ........................... 17,101 17,442 Other ........................................... 268 224 ---------------------- Total other assets .......................... 17,369 17,666 ---------------------- Total assets ................................ $154,093 $155,550 ====================== Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Accounts payable ................................ $ 2,882 $ 3,092 Accrued expenses ................................ 16,231 19,913 Accrued federal and foreign income taxes ........ 959 ---------------------- Total current liabilities ................... 20,072 23,005 ---------------------- Other liabilities and credits: Postretirement benefits payable ................. 40,582 40,967 Pension benefits payable ........................ 3,405 3,606 Other ........................................... 5,315 6,029 ---------------------- Total other liabilities and credits ......... 49,302 50,602 ---------------------- Shareholders' equity .............................. 84,719 81,943 ---------------------- Total liabilities and shareholders' equity .. $154,093 $155,550 ====================== See accompanying Notes to Consolidated Condensed Financial Statements.
Page 3
Bulova Corporation and Subsidiaries Consolidated Condensed Statements of Income (Amounts in thousands, except per share data) Three Months Ended March 31, 1998 1997 --------------------- Net sales .......................................... $30,926 $28,548 Cost of sales ...................................... 17,448 16,449 --------------------- Gross profit ....................................... 13,478 12,099 Selling, general and administrative expenses ....... 10,449 10,705 --------------------- Operating income ................................... 3,029 1,394 Royalty ............................................ 885 1,053 Interest income .................................... 514 317 Interest expense ................................... (54) (7) Other .............................................. (7) 154 --------------------- Income before income tax expense ................... 4,367 2,911 Income tax expense ................................. (2,010) (1,317) --------------------- Net income ......................................... $ 2,357 $ 1,594 ===================== Net income per share ............................... $ .51 $ .35 ===================== Weighted average number of shares outstanding ...... 4,599 4,599 ===================== See accompanying Notes to Consolidated Condensed Financial Statements.
Page 4
Bulova Corporation and Subsidiaries Consolidated Condensed Statements of Cash Flows (Amounts in thousands) Three Months Ended March 31, 1998 1997 ---------------------- Operating Activities: Net income ....................................... $ 2,357 $ 1,594 Adjustments to reconcile net income to net cash provided by operating activities ................ 996 1,475 Changes in assets and liabilities-net: Receivables .................................... 11,865 14,900 Inventories .................................... 5,240 (1,206) Prepaid expenses ............................... 539 425 Other assets ................................... (44) 363 Accounts payable and accrued expenses .......... (3,892) (3,670) Accrued federal and foreign income taxes ....... 1,478 (876) Other liabilities and credits .................. (881) (952) --------------------- 17,658 12,053 --------------------- Investing Activities: Purchases of U.S. government securities .......... (104,607) (14,628) Proceeds from sales of U.S. government securities 90,000 5,000 Purchases of property, plant and equipment ....... (91) (108) Proceeds from disposal of property, plant and equipment ....................................... 6 12 --------------------- (14,692) (9,724) --------------------- Net change in cash and cash equivalents ............ 2,966 2,329 Cash and cash equivalents, beginning of period ..... 9,127 10,665 --------------------- Cash and cash equivalents, end of period ........... $ 12,093 $ 12,994 ===================== 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, 1997 filed with the Securities and Exchange Commission on March 27, 1998. There have been no changes in significant accounting policies since December 31, 1997. In addition, certain amounts applicable to prior periods have been reclassified to conform to classifications followed in 1998. 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. Under the tax allocation agreement between the Company and its parent, Loews Corporation ("Loews"), the Company has paid Loews approximately $1,219,000 and $787,000 for the three months ended March 31, 1998 and 1997, 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, 1997. 4. Loews provides administrative and managerial services for which the Company was charged $519,000 and $516,000 for the three months ended March 31, 1998 and 1997, 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. See Note 2 of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 1997. 5. The Company adopted Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income." Comprehensive income includes all changes to shareholders' equity, including net income, except those resulting from investments by owners and distributions to owners. For the three months ended March 31, 1998 and 1997, comprehensive income totaled $2,776,000 and $1,515,000, respectively. Comprehensive income includes net income and foreign currency translation gains or losses. Page 6 6. Shareholders' equity:
March 31, December 31, 1998 1997 ------------------------ (In thousands) Common stock ................................. $22,999 $22,999 Additional paid-in capital ................... 23,197 23,197 Retained earnings ............................ 40,151 37,794 Cumulative translation adjustment ............ (1,142) (1,561) Pension liability adjustment ................. (481) (481) ---------------------- Total ................................... 84,724 81,948 Less treasury stock, at cost ................. 5 5 ---------------------- Total shareholders' equity .............. $84,719 $81,943 ======================
7. 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 environmental liability recognized in the Company's financial statements of $374,000 represents the minimum of the Company's estimated range of equally likely outcomes, the upper limit of that range is approximately $1,093,000. See Note 9 of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 1997. 8. In the opinion of Management, the accompanying consolidated condensed financial statements reflect all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of March 31, 1998 and December 31, 1997 and the results of operations and changes in cash flows for the three months ended March 31, 1998 and 1997, respectively. Results of operations for the first quarter 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 $17,658,000 and $12,053,000 for the three months ended March 31, 1998 and 1997, respectively. The increase in net cash flow is primarily the result of the timing of inventory purchases and increased sales, as compared to the prior year. The reduction in purchases during the first quarter of 1998 is due to the Company's continuing effort to closely monitor inventory purchasing to ensure that appropriate levels are maintained. 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, under terms and conditions set forth therein, for unsecured loans in amounts aggregating up to $50,000,000. The Credit Agreement has been periodically extended by the Company and currently expires June 30, 1999. 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, 1997. 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 and expects to generate sufficient cash flow from operations in 1998 to fund working capital requirements. The Company's investments consist primarily of commercial paper. During the first quarter of 1998, the Company purchased commercial paper for $104,607,000 in cash and received proceeds of $90,000,000. Cash and cash equivalents, and investments amounted to $47,023,000 at March 31, 1998, as compared to $29,064,000 at December 31, 1997. The Company has invested in property, plant and equipment in an effort to improve warehouse operational efficiency. Capital expenditures related to this project are estimated to be approximately $1,350,000, of which approximately $91,000 was incurred during the first quarter of 1998, and approximately $654,000 has been incurred since the inception of the project. Year 2000 Issue Some of the Company's older computer programs were written using two digits rather than four to define the applicable year. As a result, time-sensitive software may incorrectly recognize a date using "00" as the year 1900 rather than 2000. This could cause a system failure or miscalculations causing disruptions of operations, including among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company is in the process of modifying and/or replacing portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. The project is expected to be completed no later than December 31, 1998, which is prior to any anticipated impact on its operating systems, and the cost is not expected to be material. The Company believes that the Year 2000 issue will not pose a significant operational problem for its computer systems. However, if the modifications and conversions of software are not completed timely, the Year 2000 issue could have a material impact on the operations of the Company. In addition, due to the interdependent nature of computer systems, the Company may be adversely impacted depending upon whether it or other entities not affiliated with the Company (vendors, customers, and business partners) address the issue successfully. Results of Operations: Net sales increased $2,378,000, or 8.3%, and income before income taxes Page 8 increased $1,456,000 for the three months ended March 31, 1998, respectively, as compared to the prior year. The increase in net sales is primarily attributable to the continued growth of the Company's core watch brands of Accutron, Bulova and Caravelle. The Company has continued a consistent marketing effort focused on brand image which resulted in a combined sales increase for the core watch brands of $2,638,000, or 11.1% for the three months ended March 31, 1998 as compared to the prior year. The increase reflects a combined 10.6% increase in unit volume over the prior year. Gross profit as a percentage of sales for the three months ended March 31, 1998 was 43.6% as compared to 42.4% for the three months ended March 31, 1997. This increase is attributable to a favorable product sales mix and the continued efforts to improve procurement practices. Selling, general and administrative expenses as a percentage of net sales for the three months ended March 31, 1998 was 33.8% as compared to 37.5% for the prior year. This decrease is the result of higher sales and management's continued efforts to control discretionary costs, partially offset by higher advertising costs. Royalty income has declined $168,000, or 16.0%, for the first quarter of 1998, as compared to 1997. Royalty income represents payments by a distributor and licensees principally in Europe, the Far East and South America. The decline in royalty income reflects the effects of renegotiation of two license agreements in 1996. Interest income increased $197,000, or 62.1% for the three months ended March 31, 1998. This increase is the result of the increased level of invested assets. The Company imports most of its watch and clock products. Approximately 5% of the Company's purchases are denominated in Japanese yen. The remaining purchases are primarily in U.S. dollars from vendors located in Hong Kong and other Asian countries. The Hong Kong dollar is pegged to the U.S. dollar and has not been subject to the fluctuations that have affected other Asian currencies. In the event that the peg between the two currencies is removed, currency fluctuations could have a material impact on the cost of those imported products which ultimately could have a negative impact on gross profit, operating income and cash flow. Foreign currency fluctuations have not had a material impact on the results of operations for the quarter ended March 31, 1998 and 1997. 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 was charged $519,000 and $516,000 for the three months ended March 31, 1998 and 1997, 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. Page 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) Exhibits -- (27) Financial Data Schedule for the three months ended March 31, 1998. (b) Current reports on Form 8-K -- There were no reports on Form 8-K filed for the three months ended March 31, 1998. 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: May 15, 1998 By: /s/ Paul S. Sayegh ----------------------- PAUL S. SAYEGH Chief Operating Officer (Duly authorized officer and principal financial officer) Page 10 EX-27 2 FINANCIAL DATA SCHEDULE FOR MARCH 31, 1998 FORM 10-Q
5 1,000 3-MOS DEC-31-1998 MAR-31-1998 12,093 34,930 42,264 3,338 30,416 125,327 20,903 9,506 154,093 20,072 0 22,999 0 0 61,720 154,093 30,926 1,338 17,448 17,448 10,449 586 54 4,367 2,010 2,357 0 0 0 2,357 0.51 0.51
-----END PRIVACY-ENHANCED MESSAGE-----