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, 2001, 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 1-14120
BLONDER TONGUE LABORATORIES, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 52-1611421
- ------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE JAKE BROWN ROAD, OLD BRIDGE, NEW JERSEY 08857
- ----------------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 679-4000
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
----- -----
Number of shares of common stock, par value $.001, outstanding as of May 11,
2001: 7,612,664
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
March 31, December 31,
2001 2000
----------- --------------
(unaudited)
ASSETS (Note 4)
Current assets:
Cash....................................................................... $ 157 $ 363
Accounts receivable, net of allowance for doubtful
accounts of $1,514 and $1,424, respectively................................ 6,101 7,125
Inventories (Note 3)....................................................... 27,319 26,333
Other current assets ...................................................... 1,417 3,264
Prepaid income taxes....................................................... 362 -
Deferred income taxes...................................................... 1,660 1,804
----------- -------------
Total current assets................................................... 37,016 38,889
----------- -------------
Property, plant and equipment, net of accumulated
depreciation and amortization............................................... 7,367 7,644
Patents, net.................................................................... 3,822 3,943
Goodwill, net................................................................... 11,488 11,730
Other assets.................................................................... 580 628
----------- -------------
$60,273 $62,834
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit (Note 4).......................................... $ 3,550 $ 2,250
Current portion of long-term debt (Note 4)................................. 4,368 4,382
Accounts payable........................................................... 818 2,833
Accrued compensation....................................................... 1,103 1,143
Other accrued expenses..................................................... 645 659
Income taxes............................................................... - 468
----------- -------------
Total current liabilities.............................................. 10,484 11,735
----------- -------------
Deferred income taxes........................................................... 165 201
Long-term debt (Note 4)......................................................... 10,735 11,802
Commitments and contingencies................................................... - -
Stockholders' equity:
Preferred stock, $.001 par value; authorized 5,000 shares;
no shares outstanding...................................................... - -
Common stock, $.001 par value; authorized 25,000 shares, 8,444 shares
issued .................................................................... 8 8
Paid-in capital............................................................ 24,143 24,143
Retained earnings.......................................................... 21,024 21,231
Treasury stock at cost, 831 shares......................................... (6,286) (6,286)
----------- -------------
Total stockholders' equity............................................. 38,889 39,096
----------- -------------
$60,273 $62,834
=========== =============
See accompanying notes to consolidated financial statements.
2
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended March 31,
-----------------------------------
2001 2000
-------------- -------------
Net sales....................................................... $10,745 $21,180
Cost of goods sold.............................................. 7,099 14,190
-------------- -------------
Gross profit................................................ 3,646 6,990
-------------- -------------
Operating expenses:
Selling expenses............................................ 1,461 1,582
General and administrative.................................. 1,563 1,858
Research and development.................................... 529 541
-------------- -------------
3,553 3,981
-------------- -------------
Earnings from operations........................................ 93 3,009
-------------- -------------
Other expense:
Interest expense............................................ (404) (583)
-------------- -------------
(404) (583)
-------------- -------------
Earnings (loss) before income taxes............................. (311) 2,426
Provision (benefit) for income taxes............................ (104) 845
-------------- -------------
Net earnings (loss)......................................... $ (207) $ 1,581
============== =============
Basic net earnings (loss) per share............................. $ (.03) $ .21
-------------- -------------
Basic weighted average shares outstanding....................... 7,613 7,562
-------------- -------------
Diluted net (loss) earnings per share........................... $ (.03) $ .21
-------------- -------------
Diluted weighted average shares outstanding..................... 7,625 7,653
============== =============
See accompanying notes to consolidated financial statements.
3
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
------------------------
2001 2000
-------- --------
Cash Flows From Operating Activities:
Net earnings (loss).................................................................. $ (207) $ 1,581
Adjustments to reconcile net earnings to cash
provided by (used in) operating activities:
Depreciation and amortization...................................................... 768 758
Provision for doubtful accounts.................................................... 90 79
Deferred income taxes.............................................................. 108 (299)
Changes in operating assets and liabilities:
Accounts receivable.............................................................. 934 (1,644)
Inventories...................................................................... (986) 1,395
Other current assets............................................................. 1,847 407
Other assets..................................................................... - -
Income taxes..................................................................... (830) 1,180
Accounts payable and accrued expenses............................................ (2,069) (799)
-------- ----------
Net cash provided by (used in) operating activities............................ (345) 2,658
-------- ----------
Cash Flows From Investing Activities:
Capital expenditures................................................................. (80) (8)
-------- ----------
Net cash used in investing activities.......................................... (80) (8)
Cash Flows From Financing Activities:
Net borrowings under revolving line of credit........................................ 1,300 1,031
Repayments of long-term debt......................................................... (1,081) (1,096)
Proceeds from exercise of stock options.............................................. - 172
-------- ----------
Net cash provided by financing activities...................................... 219 107
-------- ----------
Net increase (decrease) in cash........................................................... (206) 2,757
Cash, beginning of period................................................................. 363 48
-------- ----------
Cash, end of period....................................................................... $ 157 $ 2,805
======== ==========
Supplemental Cash Flow Information:
Cash paid for interest............................................................... $ 408 $ 481
Cash paid for income taxes........................................................... 618 -
======== ==========
See accompanying notes to consolidated financial statements.
4
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
NOTE 1 - COMPANY AND BASIS OF PRESENTATION
Blonder Tongue Laboratories, Inc. (the "Company") is a designer,
manufacturer and supplier of electronics and systems equipment for the cable
television industry, primarily throughout the Unites States. The consolidated
financial statements include the accounts of Blonder Tongue Laboratories, Inc.
and subsidiaries. Significant intercompany accounts and transactions have been
eliminated in consolidation.
The results for the first quarter of 2001 are not necessarily
indicative of the results to be expected for the full fiscal year and have not
been audited. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting only of
normal recurring accruals, necessary for a fair statement of the results of
operations for the period presented and the consolidated balance sheet at March
31, 2001. Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the SEC rules and
regulations. These financial statements should be read in conjunction with the
financial statements and notes thereto that were included in the Company's
latest annual report on Form 10-K.
NOTE 2 - EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("FAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." FAS 133 was adopted by the
Company on January 1, 2001. FAS 133 requires that all derivative instruments be
recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of the hedge
transaction and the type of hedge transaction. Since the Company's interest rate
swap is considered an effective hedge under FAS 133, the effect of implementing
FAS 133 in the quarter ending March 31, 2001 is not considered material.
NOTE 3 - INVENTORIES
Inventories are summarized as follows:
March 31, Dec. 31,
2001 2000
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Raw Materials................................................................. $ 10,512 $ 11,346
Work in process............................................................... 4,604 3,261
Finished Goods................................................................ 12,203 11,726
------------ ------------
$ 27,319 $ 26,333
============ ============
NOTE 4 - DEBT
The Company has a $5,500 revolving line of credit with its bank
($7,500 prior to August 1, 2000) on which funds may be borrowed at either the
bank's base rate plus a margin ranging from 0% to .625%, or LIBOR, plus a margin
ranging from 1.50% to 2.625%, in each case depending upon the calculation of
certain financial covenants (7.6875% at March 31, 2001). At March 31, 2001, the
Company had $3,550 outstanding under the line of credit. Borrowings under the
line of credit are limited to certain percentages of eligible accounts
receivable and inventory as defined in the credit agreement. The line of credit
is collateralized by a security interest in all of the Company's assets. The
agreement also contains restrictions that require the Company to maintain
certain financial ratios as well as restrictions on the payment of dividends.
5
In March, 2001, the Company's credit agreement with its bank was
amended to retroactively modify certain financial covenants effective as of
December 31, 2000 and thereafter, as well as to extend the maturity date of the
line of credit until November 30, 2001. The Company is in compliance with all of
such financial covenants, as amended. The Company anticipates that it will
either conclude negotiations with its bank and obtain a further renewal of its
current credit facilities, or enter into new credit facilities with another
bank, prior to November 30, 2001.
As of November 12, 1999, the Company's acquisition loan commitment
under its former credit line was converted to a term loan with its bank (the
"S-A TERM LOAN"). The S-A Term Loan bears interest at either the bank's base
rate plus a margin ranging from 0% to .875%, or LIBOR plus a margin ranging from
1.75% to 2.875%, in each case depending upon the calculation of certain
financial covenants (7.9875% at March 31, 2001). At March 31, 2001, there was
$12,033 outstanding under the S-A Term Loan. The principal balance of the S-A
Term Loan is being amortized in monthly installments of $317 with a final
balloon payment of all remaining unpaid principal and accrued interest due on
June 30, 2002.
On May 24, 1996, the Company borrowed $2,800 for a ten year term
secured by a mortgage against the Company's Old Bridge Facility. The loan
accrued interest at a fixed rate of 7.25% through May 1999. Effective June 1,
1999, the loan was converted to a variable interest rate based upon the bank's
base rate (8.0% at March 31, 2001).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report contains
forward-looking statements relating to such matters as anticipated financial
performance, business prospects, technological developments, new products,
research and development activities and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the Company
notes that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. The risks
and uncertainties that may affect the operation, performance, development and
results of the Company's business include, but are not limited to, those matters
discussed herein in the section entitled Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations. The words "believe",
"expect", "anticipate", "project" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's analysis only as of
the date hereof. Blonder Tongue undertakes no obligation to publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date hereof. Readers should carefully review the risk factors
described in other documents the Company files from time to time with the
Securities and Exchange Commission, including without limitation, the Company's
Annual Report on Form 10-K for the year ended December 31, 2000 (See Item 1:
Business and Item 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations).
First three months of 2001 Compared with first three months of 2000
Net Sales. Net sales decreased $10,435,000, or 49%, to $10,745,000 in
the first three months of 2001 from $21,180,000 in the first three months of
2000. The decrease in sales is primarily attributed to a decrease in sales of
interdiction products. Net sales included approximately $2,879,000 of
interdiction equipment for the first three months of 2001 compared to
approximately $11,170,000 for the first three months of 2000. The substantially
higher interdiction sales recorded in the first quarter of 2000 were primarily
attributable to a large interdiction order booked in late 1999.
Cost of Goods Sold. Cost of goods sold decreased to $7,099,000 for the
first three months of 2001 from $14,190,000 for the first three months of 2000
and also decreased as a percentage of sales to 66.1% from 67.0%. The decrease as
a percentage of sales was caused primarily by a higher proportion of sales
during the period being comprised of higher margin products.
6
Selling Expenses. Selling expenses decreased to $1,461,000 for the
first three months of 2001 from $1,582,000 in the first three months of 2000,
primarily due to a decrease in wages related to a reduction in headcount along
with a decrease in costs incurred for advertising and marketing materials.
General and Administrative Expenses. General and administrative
expenses decreased to $1,563,000 for the first three months of 2001 from
$1,858,000 for the first three months of 2000 but increased as a percentage of
sales to 14.5% for the first three months of 2001 from 8.8% for the first three
months of 2000. The $295,000 decrease can be primarily attributed to a decrease
in the accrual for executive bonuses.
Research and Development Expenses. Research and development expenses
decreased to $529,000 in the first three months of 2001 from $541,000 in the
first three months of 2000, primarily due to a decrease in purchased materials
for research and development. Research and development expenses, as a percentage
of sales, increased to 4.9% in the first three months of 2001 from 2.6% in the
first three months of 2000.
Operating Income. Operating income decreased 97% to $93,000 for the
first three months of 2001 from $3,009,000 for the first three months of 2000.
Operating income as a percentage of sales decreased to 0.9% in the first three
months of 2001 from 14.2% in the first three months of 2000.
Interest and Other Expenses. Other expense decreased to $404,000 in
the first three months of 2001 from $583,000 in the first three months of 2000.
These expenses consisted entirely of interest expense. The decrease is the
result of lower average borrowing and lower average interest rates.
Income Taxes. The provision for income taxes for the first three
months of 2001 decreased to a benefit of $104,000 from $845,000 in expense for
the first three months of 2000 as a result of a decrease in taxable income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash used in operating activities for the
three-month period ended March 31, 2001 was $345,000, compared to cash provided
by operating activities for the three-month period ended March 31, 2000, which
was $2,658,000. Cash flows from operating activities have been negative, due
primarily to a net loss of $207,000.
Cash used in investing activities was $80,000, which was attributable
to capital expenditures for new equipment. The Company anticipates additional
capital expenditures during calendar year 2001 aggregating approximately
$100,000, which will be used for the purchase of automated assembly and test
equipment.
Cash provided by financing activities was $219,000 for the first three
months of 2001 primarily comprised of $1,300,000 of borrowings under the
revolving line of credit offset by $1,081,000 of repayments of long term debt.
The Company has a $5,500,000 revolving line of credit with its bank
($7,500,000 prior to August 1, 2000) on which funds may be borrowed at either
the bank's base rate plus a margin ranging from 0% to .625%, or LIBOR, plus a
margin ranging from 1.50% to 2.625%, in each case depending upon the calculation
of certain financial covenants (7.6875% at March 31, 2001). At March 31, 2001,
the Company had $3,550,000 outstanding under the line of credit. Borrowings
under the line of credit are limited to certain percentages of eligible accounts
receivable and inventory as defined in the credit agreement. The line of credit
is collateralized by a security interest in all of the Company's assets. The
agreement also contains restrictions that require the Company to maintain
certain financial ratios as well as restrictions on the payment of dividends.
In March, 2001, the Company's credit agreement with its bank was
amended to retroactively modify certain financial covenants effective as of
December 31, 2000 and thereafter, as well as to extend the maturity date of the
line of credit until November 30, 2001. The Company is in compliance with all of
such financial covenants, as amended. The Company anticipates that it will
either conclude negotiations with its bank and obtain a further renewal of its
current credit facilities, or enter into new credit facilities with another
bank, prior to November 30, 2001.
7
As of November 12, 1999, the Company's acquisition loan commitment
under its former credit line was converted to a term loan with its bank (the
"S-A TERM LOAN"). The S-A Term Loan bears interest at either the bank's base
rate plus a margin ranging from 0% to .875%, or LIBOR plus a margin ranging from
1.75% to 2.875%, in each case depending upon the calculation of certain
financial covenants (7.9875% at March 31, 2001). At March 31, 2001, there was
$12,033,000 outstanding under the S-A Term Loan. The principal balance of the
S-A Term Loan is being amortized in monthly installments of $317,000 with a
final balloon payment of all remaining unpaid principal and accrued interest due
on June 30, 2002.
On May 24, 1996, the Company borrowed $2,800,000 for a ten year term
secured by a mortgage against the Company's Old Bridge Facility. The loan
accrued interest at a fixed rate of 7.25% through May 1999. Effective June 1,
1999, the loan was converted to a variable interest rate based upon the bank's
base rate (8.0% at March 31, 2001).
On February 3, 1999, the Company entered into an interest rate swap
agreement with a national amount of $10,000,000. The swap agreement has a
maturity date of June 3, 2002 and requires the Company to make fixed rate
interest payments on the notional amount of 8.01% per annum in exchange for
floating rate payments equal to LIBOR plus 2.55%. The Company is exposed to
credit risk in the unlikely event of the nonperformance by the counterparties.
Interest to be paid or received is accrued over the life of the agreement at the
net effective interest rate for the swap and corresponding debt instrument.
The Company currently anticipates that the cash generated from
operations, existing cash balances and amounts available under its existing or a
replacement line of credit, will be sufficient to satisfy its foreseeable
working capital needs.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("FAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." FAS 133 was adopted by the
Company on January 1, 2001. FAS 133 requires that all derivative instruments be
recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of the hedge
transaction and the type of hedge transaction. Since the Company's interest rate
swap is considered an effective hedge under FAS 133, the effect of implementing
FAS 133 in the quarter ending March 31, 2001 is not considered material.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Company's financial instruments and
positions represents the potential loss arising from adverse changes in interest
rates. At March 31, 2001 and 2000 the principal amount of the Company's
aggregate outstanding variable rate indebtedness was $17,481,116 and
$22,120,333, respectively. Without giving effect to the swap agreement described
below, a hypothetical 1% adverse change in interest rates would have had an
annualized unfavorable impact of approximately $13,859 and $19,632,
respectively, on the Company's earnings and cash flows based upon these
quarter-end debt levels. To ameliorate these risks, in February, 1999, the
Company entered into an interest rate Swap Agreement with a notional amount of
$10,000,000. The specific terms of the Swap Agreement are more fully discussed
above in Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.
8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to certain proceedings incidental to the
ordinary course of its business, none of which, in the current opinion of
management, is likely to have a material adverse effect on the Company's
business, financial condition, or results of operations.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
first quarter ended March 31, 2001 through the solicitation of proxies or
otherwise.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits are listed in the Exhibit Index appearing at page 11
herein.
(b) No reports on Form 8-K were filed in the quarter ended March 31, 2001.
9
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.
BLONDER TONGUE LABORATORIES, INC.
Date: May 14, 2001 By: /s/ James A. Luksch
-------------------------------------
James A. Luksch
President and Chief Executive Officer
By: /s/ Eric Skolnik
-------------------------------------
Eric Skolnik
Vice President - Finance and Chief
Financial Officer
10
EXHIBIT INDEX
Exhibit # Description Location
--------- ----------- --------
3.1 Restated Certificate of Incorporation of Blonder Incorporated by reference from Exhibit 3.1
Tongue Laboratories, Inc. to S-1 Registration Statement No. 33-98070
originally filed October 12, 1995, as
amended.
3.2 Restated Bylaws of Blonder Tongue Laboratories, Incorporated by reference from Exhibit 3.2
Inc. to S-1 Registration Statement No. 33-98070
originally filed October 12, 1995, as
amended.
10.1 Fourth Amendment to Fifth Amended and Restated Filed herewith.
Loan Agreement dated as of March 27, 2001 between
Blonder Tongue Laboratories, Inc. and First Union
National Bank
11