-----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, TvbKDghoat131cPE+ueM/XSNj2AgY87LleUXVH/UsRwRPLccu9xQ5O4gl0apaykV uJTI3PXpPHoRVd/FQs9XUA== 0000015310-99-000003.txt : 19990518 0000015310-99-000003.hdr.sgml : 19990518 ACCESSION NUMBER: 0000015310-99-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 99625170 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, 1999 -------------- 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 7, 1999 - -------------------------- -------------------------- 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, 1999 and December 31, 1998 ....................... 3 Consolidated Condensed Statements of Income - Three months ended March 31, 1999 and 1998 ................. 4 Consolidated Condensed Statements of Cash Flows- Three months ended March 31, 1999 and 1998 ................. 5 Notes to Consolidated Condensed Financial Statements .......... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ........................... 9 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K ....................... 12 Exhibit 27--Financial Data Schedule for the three months ended March 31, 1999 ............................................ 13 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, 1999 1998 ---------------------- Assets ------ Current assets: Cash and cash equivalents ....................... $ 10,303 $ 5,720 Investments ..................................... 29,762 19,964 Accounts and notes receivable-net ............... 39,667 56,213 Inventories, principally watches and clocks ..... 39,405 38,937 Prepaid expenses ................................ 1,856 1,502 Prepaid income taxes ............................ 1,057 Deferred income taxes ........................... 9,280 9,416 --------------------- Total current assets ........................ 130,273 $132,809 --------------------- Property, plant and equipment-net ................. 15,539 15,207 --------------------- Other assets: Deferred income taxes ........................... 16,035 16,220 Other ........................................... 232 216 --------------------- Total other assets .......................... 16,267 16,436 --------------------- Total assets ................................ $162,079 $164,452 ===================== Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Accounts payable ................................ $ 1,938 $ 3,579 Accrued expenses ................................ 19,320 21,529 Accrued federal and foreign income taxes ........ 516 --------------------- Total current liabilities ................... 21,774 25,108 --------------------- Other liabilities and credits: Postretirement benefits payable ................. 38,859 39,495 Pension benefits payable ........................ 3,389 3,590 Other ........................................... 4,479 4,428 --------------------- Total other liabilities and credits ......... 46,727 47,513 --------------------- Shareholders' equity .............................. 93,578 91,831 --------------------- Total liabilities and shareholders' equity .. $162,079 $164,452 ===================== 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, -------------------- 1999 1998 -------------------- Net sales .......................................... $28,877 $30,926 Cost of sales ...................................... 15,181 17,448 -------------------- Gross profit ....................................... 13,696 13,478 Selling, general and administrative expenses ....... 10,746 10,449 -------------------- Operating income ................................... 2,950 3,029 Royalty ............................................ 939 885 Interest income .................................... 405 514 Interest expense ................................... (3) (54) Other .............................................. (52) (7) -------------------- Income before income tax expense ................... 4,239 4,367 Income tax expense ................................. 1,916 2,010 -------------------- Net income ......................................... $ 2,323 $ 2,357 ==================== Net income per share ............................... $ .51 $ .51 ==================== Weighted average number of shares outstanding (in thousands) ................................... 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, --------------------- 1999 1998 --------------------- Operating Activities: Net income ....................................... $ 2,323 $ 2,357 Adjustments to reconcile net income to net cash provided by operating activities ................ 984 996 Changes in assets and liabilities-net: Receivables .................................... 15,883 11,865 Inventories .................................... (468) 5,240 Prepaid expenses ............................... (354) 539 Other assets ................................... (16) (44) Accounts payable and accrued expenses .......... (3,850) (3,892) Accrued federal and foreign income taxes ....... 1,573 1,478 Other liabilities and credits .................. (1,362) (881) -------------------- 14,713 17,658 -------------------- Investing Activities: Purchases of U.S. government securities .......... (19,635) (104,607) Proceeds from sales of U.S. government securities 10,000 90,000 Purchases of property, plant and equipment ....... (495) (91) Proceeds from disposal of property, plant and equipment ....................................... 6 -------------------- (10,130) (14,692) -------------------- Net change in cash and cash equivalents ............ 4,583 2,966 Cash and cash equivalents, beginning of period ..... 5,720 9,127 -------------------- Cash and cash equivalents, end of period ........... $ 10,303 $ 12,093 ==================== 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, 1998 filed with the Securities and Exchange Commission on March 30, 1999. There have been no changes in significant accounting policies since December 31, 1998. In addition, certain amounts applicable to prior periods have been reclassified to conform to classifications followed in 1999. 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. In addition, Benetton has commenced a second arbitration proceeding, asserting claims against the Company and the Company has asserted counter claims against Benetton in relation to the license agreement. 3. Under the tax allocation agreement between the Company and its parent, Loews Corporation ("Loews"), the Company has paid Loews approximately $1,312,000 and $1,219,000 for the three months ended March 31, 1999 and 1998, respectively. See Note 3 of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 1998. 4. Loews provides administrative and managerial services for which the Company was charged $665,000 and $519,000 for the three months ended March 31, 1999 and 1998, 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. 5. For the three months ended March 31, 1999 and 1998, comprehensive income totaled $1,747,000 and $2,776,000, respectively. Comprehensive income includes all changes to shareholders' equity, except those resulting from investments by owners and distributions to owners. Comprehensive income includes net income, foreign currency translation gains or losses, and pension liability adjustments. 6. 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 $213,000 represents the minimum of the Company's estimated range of equally likely outcomes, the upper limit of that range is approximately $500,000. See Note 8 of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 1998. Page 6 7. Shareholders' equity:
March 31, December 31, 1999 1998 ----------------------- (In thousands) Common stock ............................... $22,999 $22,999 Additional paid-in capital ................. 23,197 23,197 Retained earnings .......................... 51,037 48,714 Accumulated other comprehensive loss ....... (3,650) (3,074) ---------------------- Total ................................... 93,583 91,836 Less treasury stock, at cost ............... 5 5 ---------------------- Total shareholders' equity .............. $93,578 $91,831 ======================
8. Geographic Information: The Company operates predominantly in a single industry segment, that being the distribution and sale of watches and clocks under the brand names of Bulova, Caravelle and Accutron. Substantially all of the Company's sales are in the United States and Canada. The Company evaluates performance based on operating earnings of the respective geographic area and the geographic distribution of the Company's operating results are summarized in the following tables:
United Three Months Ended March 31, 1999 States Canada Total ------------------------------ (In thousands) Sales ................................. $26,172 $3,022 $29,194 Intercompany sales .................... (317) (317) ------------------------------ Total net sales ....................... $25,855 $3,022 $28,877 ============================== Operating income ...................... $ 2,433 $ 517 $ 2,950 Royalties ............................. 939 939 Interest-net .......................... 385 17 402 Other ................................. (57) 5 (52) ------------------------------ Income before tax ..................... $ 3,700 $ 539 $ 4,239 ============================== Three Months Ended March 31, 1998 Sales ................................. $28,763 $2,881 $31,644 Intercompany sales .................... (718) (718) ------------------------------ Total net sales ....................... $28,045 $2,881 $30,926 ============================== Operating income ...................... $ 2,751 $ 278 $ 3,029 Royalties ............................. 885 885 Interest-net .......................... 454 6 460 Other ................................. 69 (76) (7) ------------------------------ Income before tax ..................... $ 4,159 $ 208 $ 4,367 ==============================
Page 7 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 March 31, 1999 and December 31, 1998 and the results of operations and changes in cash flows for the three months ended March 31, 1999 and 1998, 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 8 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations --------------------------------------------------------------- Liquidity and Capital Resources: The Company generated net cash flow from operations of $14,713,000 and $17,658,000 for the three months ended March 31, 1999 and 1998, respectively. The decrease in net cash flow compared to the corresponding period of the prior year is primarily the result of an increase in inventory purchases necessary to meet the Company's sales forecast, partially offset by a higher collection of accounts receivables compared to the corresponding period of the prior year. 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 with 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, 2000. 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 Company's Annual Report on Form 10-K for the year ended December 31, 1998. The Company has not required any working capital advances from Loews since the entire debt of $19,000,000 in principal amount under the Credit Agreement was paid in January 1995 and expects that existing cash balances and cash flow from operations will be sufficient to fund anticipated working capital requirements. The Company's investments consist primarily of U.S. Treasury notes and commercial paper. Cash and cash equivalents, and investments amounted to approximately $40,065,000 at March 31, 1999, as compared to approximately $25,684,000 at December 31, 1998. 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 $2,000,000, of which approximately $116,000 was incurred during the first quarter of 1999, and approximately $1,177,000 has been incurred since the inception of the project, which commenced in the first quarter of 1997. This project will be funded through the Company's working capital. Additionally, during the fourth quarter of 1998, the Company purchased a building for its clock warehousing and distribution requirements to replace a leased facility. The cost of the building was approximately $4,000,000 and was funded through the Company's available working capital. The Company anticipates it will incur approximately $650,000 in renovation costs during the first half of 1999. Renovation costs incurred during the first quarter of 1999 were approximately $200,000. These costs were funded through the Company's working capital. Year 2000 Issue The widespread use of computer programs, both in the United States and internationally, that rely on two digit date fields to perform computations and decision making functions may cause computer systems to malfunction when processing information involving dates beginning in 1999. Such malfunctions could lead to business delays and disruptions. The Company renovated or replaced many of its legacy systems and upgraded its systems to accommodate business for the Year 2000 and beyond. In addition, the Company is checking embedded systems in computer hardware and other infrastructure such as heating and ventilating systems, and security systems. Based upon its current assessment, the Company estimates the total cost to replace and upgrade its systems to accommodate Year 2000 processing is expected to be approximately $350,000. As of March 31, 1999, approximately Page 9 $337,000 has been spent. However, prior to 1997, the Company did not specifically separate technology charges for the Year 2000 from other information technology charges. In addition, while some hardware charges are included in the budget figures, the Company's hardware costs are typically included as part of ongoing technology updates and not specifically as part of the Year 2000 project. All funds spent and to be spent will be financed from current operating funds. The Company believes that it will be able to resolve the Year 2000 issue during the first half of 1999. As of March 31, 1999, the Company has certified internally over 95% of its internal applications and systems as being ready for the year 2000. However, due to the interdependent nature of computer systems, there may be an adverse impact on the Company if vendors, customers, and other business partners fail to successfully address the Year 2000 issue. The Company's contingency plans will be structured to address both remediation of systems and their components and overall business operating risk. These plans are intended to mitigate both internal risks as well as potential risk with the Company's vendors, customers, and other business partners. RESULTS OF OPERATIONS: Net sales decreased $2,049,000, or 6.6%, and income before taxes decreased $128,000, or 2.9%, respectively, for the three months ended March 31, 1999, as compared to the prior year. The decrease in net sales is primarily attributable to a unit volume decrease of .5% and a 6.1% decrease in the average unit selling price. Income before taxes decreased as a result of the sales decrease noted above, partially offset by an increase in gross profit percentage discussed below. Gross profit as a percentage of sales for the three months ended March 31, 1999 was 47.4% as compared to 43.6% for the three months ended March 31, 1998. This increase is attributable to a favorable product sales mix and the continued efforts to maintain operational efficiency and improve procurement practices. Selling, general and administrative expenses as a percentage of net sales for the three months ended March 31, 1999 was 37.2% as compared to 33.8% for the prior year. This increase is the result of an increased level of brand support advertising, partially offset by a decrease in selling expenses. Royalty income has increased $54,000, or 6.1%, for the first quarter of 1999, as compared to 1998. Royalty income represents payments by a distributor and licensees principally in Europe, the Far East and South America. The income represents an annual increase in association with the South American distributor agreement. The Europe and Far East license agreements expire on December 31, 2001 and the South American distributor agreement expires on December 31, 2000. The Company cannot predict the outcome of future negotiations. This could negatively impact revenues, gross profit, results of operations and cash flows. Interest income decreased $109,000, or 21.2%, for the three months ended March 31, 1999. This decrease is the result of a lower level of invested assets as compared to the corresponding period of the prior year. Foreign Currency The Company imports most of its watch and clock products. Approximately 4% of the Companys purchases are denominated in Japanese yen. The remaining purchases are primarily denominated in U.S. dollars and acquired from vendors located in Europe, 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 the Company's gross profit, operating income and cash flow. Foreign currency fluctuations have not had a material impact on the Company's Page 10 results of operations for the quarters ended March 31, 1999 and 1998. Future foreign currency fluctuations, however, could impact gross profit, income, and cash flow. Forward-Looking Statements When included in this Report, the words "believes," "expects," "intends," "anticipates," "estimates" and analogous expressions are intended to identify forward-looking statements. Such statements inherently are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include, among others, general economic and business conditions, changes in financial markets, significant changes in consumer spending patterns, competition in the Company's product areas, effects of the Asian economic crisis, changes in foreign currency valuations in relation to the U.S. dollar, changes in foreign, political, social and economic conditions, and various other matters, many of which are beyond the Company's control. These forward-looking statements speak only as of the date of this report. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based. Page 11 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, 1999. (b) Current reports on Form 8-K -- There were no reports on Form 8-K filed for the three months ended March 31, 1999. 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 14, 1999 By: /s/ Paul S. Sayegh ----------------------- PAUL S. SAYEGH Chief Operating Officer (Duly authorized officer and principal financial officer) Page 12 EX-27 2 FINANCIAL DATA SCHEDULE FOR MARCH 31, 1999 FORM 10-Q
5 1,000 3-MOS DEC-31-1999 MAR-31-1999 10,303 29,762 43,448 3,781 39,405 130,273 25,696 10,157 162,079 21,774 0 22,999 0 0 70,579 162,079 28,877 28,877 15,181 15,181 10,083 663 3 4,239 1,916 2,323 0 0 0 2,323 0.51 0.51
-----END PRIVACY-ENHANCED MESSAGE-----