SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2000, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO .
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Commission file number 1-14120
BLONDER TONGUE LABORATORIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 52-1611421
- -------------------------------------------------------------- ------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer 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
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Number of shares of common stock, par value $.001, outstanding as of
May 11, 2000: 7,698,930
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BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
March 31, December 31,
2000 1999
----------- ------------
(unaudited)
Assets (Note 4)
Current assets:
Cash ................................................................................ $ 2,805 $ 48
Accounts receivable, net of allowance for doubtful
accounts of $762 and $683, respectively ............................................. 11,534 9,969
Inventories (Note 3) ................................................................ 25,398 26,793
Other current assets ................................................................ 1,600 2,007
Deferred income taxes ............................................................... 1,535 1,182
-------- --------
Total current assets ............................................................ 42,872 39,999
Property, plant and equipment, net of accumulated
depreciation and amortization ........................................................ 8,357 8,740
Patents, net ............................................................................. 4,129 4,242
Goodwill, net ............................................................................ 12,199 12,437
Other assets ............................................................................. 642 658
-------- --------
$ 68,199 $ 66,076
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Revolving line of credit (Note 4) ................................................... $ 4,203 $ 3,172
Current portion of long-term debt ................................................... 4,434 4,470
Accounts payable .................................................................... 3,164 4,644
Accrued compensation ................................................................ 1,617 1,040
Other accrued expenses .............................................................. 1,007 903
Income taxes ........................................................................ 1,494 314
-------- --------
Total current liabilities ....................................................... 15,919 14,543
-------- --------
Deferred income taxes .................................................................... 203 149
Long-term debt (Note 4) .................................................................. 15,077 16,137
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, 8,427 shares
issued at March 31, 2000 and 8,392 shares issued at December 31, 1999 ............... 8 8
Paid-in capital ..................................................................... 24,042 23,870
Retained earnings ................................................................... 19,236 17,655
Treasury stock at cost, 831 shares at March 31, 2000 and
December 31, 1999 ................................................................... (6,286) (6,286)
-------- --------
Total stockholders' equity ...................................................... 37,000 35,247
-------- --------
$ 68,199 $ 66,076
======== ========
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,
-----------------------------
2000 1999
-------- --------
Net sales ................................................................ $ 21,180 $ 13,756
Cost of goods sold ....................................................... 14,190 8,990
-------- --------
Gross profit ......................................................... 6,990 4,766
-------- --------
Operating expenses:
Selling expenses ..................................................... 1,582 1,405
General and administrative ........................................... 1,858 1,655
Research and development ............................................. 541 525
-------- --------
3,981 3,585
-------- --------
Earnings from operations ................................................. 3,009 1,181
-------- --------
Other income (expense):
Interest expense ..................................................... (583) (456)
Interest income ...................................................... -- 1
-------- --------
(583) (455)
-------- --------
Earnings before income taxes ............................................. 2,426 726
Provision for income taxes ............................................... 845 283
-------- --------
Net earnings ......................................................... $ 1,581 $ 443
======== ========
Basic and diluted earnings per share ..................................... $ .21 $ .05
======== ========
Weighted average shares outstanding ...................................... 7,562 8,290
======== ========
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,
------------------------
2000 1999
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Cash Flows From Operating Activities:
Net earnings .................................................................... $ 1,581 $ 443
Adjustments to reconcile net earnings to cash
Depreciation and amortization ................................................. 758 550
Provision for doubtful accounts ............................................... 79 170
Deferred income taxes ......................................................... (299) (195)
Changes in operating assets and liabilities:
Accounts receivable ......................................................... (1,644) 1,664
Inventories ................................................................. 1,395 (868)
Other current assets ........................................................ 407 (147)
Other assets ................................................................ -- (73)
Income taxes ................................................................ 1,180 456
Accounts payable and accrued expenses ....................................... (799) (407)
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Net cash provided by operating activities ................................. 2,658 1,593
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Cash Flows From Investing Activities:
Capital expenditures ............................................................ (8) (84)
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Net cash used in investing activities ..................................... (8) (84)
Cash Flows From Financing Activities:
Net borrowings under revolving line of credit ................................... 1,031 (685)
Proceeds from long-term debt .................................................... -- 10
Repayments of long-term debt .................................................... (1,096) (123)
Proceeds from exercise of stock options ......................................... 172 --
------- -------
Net cash provided by (used in) financing activities ....................... 107 (798)
------- -------
Net Increase In Cash ................................................................. 2,757 711
Cash, beginning of period ............................................................ 48 542
------- -------
Cash, end of period .................................................................. $ 2,805 $ 1,253
======= =======
Supplemental Cash Flow Information:
Cash paid for interest .......................................................... $ 481 $ 447
Cash paid for income taxes ...................................................... -- 23
======= =======
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 manufacturer of
television and satellite signal distribution equipment supplied to the private
cable television and broadcast industries. 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 2000 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, 2000. 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, SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS 133 standardizes accounting and reporting for
derivative instruments and for hedging activities. This statement was amended by
SFAS 137, which delays the effective date until 2001. The Company will be
reviewing this pronouncement to determine its applicability to the Company, if
any.
Note 3 - Inventories
Inventories are summarized as follows:
March 31, Dec. 31,
2000 1999
-------- --------
Raw Materials................................... $ 12,500 $ 11,484
Work in process................................. 4,432 5,058
Finished Goods.................................. 8,466 10,251
-------- --------
$ 25,398 $ 26,793
======== ========
Note 4 - Line of Credit
On November 12, 1999, the Company entered into a new revolving line of
credit with its bank, replacing its former revolving line of credit ("Former
Credit Line"), 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 (8.63% at March 31, 2000). The Company was unable to meet
certain financial covenants with its bank at December 31, 1999, compliance with
which was waived by the bank as of such date. Coincident with obtaining the
waiver by the bank, the bank agreed to extend the line of credit until September
30, 2000 and to waive compliance by the Company with certain financial covenants
as of March 31, 2000, subject to the Company meeting certain alternative
financial covenants as of such date, and the Company agreed to periodic
reductions in the line of credit commencing in March, 2000, until the line of
credit has been reduced from $7.5 million to $5.5 million as of August 1, 2000.
As of March 31, 2000, the line of credit had been reduced to $6,250,000 and the
Company had $4,203,000 outstanding under the line of credit as of such date.
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
5
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. Also, 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 (8.93% at March 31, 2000). At March 31, 2000, there
was $15,833,000 outstanding under the S-A Term Loan. The principal balance of
the S-A Term Loan is being amortized in monthly installments of $366,667 with a
final balloon payment of all remaining unpaid principal and accrued interest due
on June 30, 2002.
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, 1999 (See Item 1:
Business and Item 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations).
First three months of 2000 Compared with first three months of 1999
Net Sales. Net sales increased $7,424,000, or 54.0%, to $21,180,000 in the
first three months of 2000 from $13,756,000 in the first three months of 1999.
The increase in sales is primarily attributed to an increase in sales of
interdiction products, complemented by an increase in demand for core products
in the multiple dwelling unit and hotel, motel and resort markets. Net sales
included approximately $11,170,000 of interdiction equipment for the first three
months of 2000 compared to approximately $2,412,000 for the first three months
of 1999.
Cost of Goods Sold. Cost of goods sold increased to $14,190,000 for the
first three months of 2000 from $8,990,000 for the first three months of 1999
and also increased as a percentage of sales to 67.0% from 65.4%. The increase as
a percentage of sales was caused primarily by a higher proportion of sales
during the period being comprised of lower margin products.
Selling Expenses. Selling expenses increased to $1,582,000 for the first
three months of 2000 from $1,405,000 in the first three months of 1999,
primarily due to an increase in wages related to the increase in headcount along
with an increase in costs incurred for advertising and marketing materials. The
increase in selling expenses is directly related to the Company's efforts to
increase market penetration within the franchised cable market and the promotion
of new product lines such as fiber optics and interdiction. The Company
anticipates that these efforts will favorably impact operating results for the
remainder of fiscal year 2000.
General and Administrative Expenses. General and administrative expenses
increased to $1,858,000 for the first three months of 2000 from $1,655,000 for
the first three months of 1999 but decreased as a percentage of sales to 8.8%
for the first three months of 2000 from 12.0% for the first three months of
1999. The
6
$203,000 increase can be primarily attributed to an increase in the accrual for
executive bonuses and an increase in costs for professional services rendered
offset by a decrease in the accrual for the allowance for doubtful accounts.
Research and Development Expenses. Research and development expenses
increased to $541,000 in the first three months of 2000 from $525,000 in the
first three months of 1999, primarily due to an increase in purchased materials
for research and development. Research and development expenses, as a percentage
of sales, decreased to 2.6% in the first three months of 2000 from 3.8% in the
first three months of 1999.
Operating Income. Operating income increased 154.8% to $3,009,000 for the
first three months of 2000 from $1,181,000 for the first three months of 1999.
Operating income as a percentage of sales increased to 14.2% in the first three
months of 2000 from 8.6% in the first three months of 1999.
Interest and Other Expenses. Other expense increased to $583,000 in the
first three months of 2000 from $455,000 in the first three months of 1999.
These expenses in the first three months of 2000 consisted entirely of interest
expense. These expenses in the first three months of 1999 consisted of interest
expense in the amount of $456,000 offset by $1,000 of interest income.
Income Taxes. The provision for income taxes for the first three months of
2000 increased to $845,000 from $283,000 for the first three months of 1999 as a
result of an increase in taxable income.
Liquidity and Capital Resources
The Company's net cash provided by operating activities for the three-month
period ended March 31, 2000 was $2,658,000, compared to cash provided by
operating activities for the three-month period ended March 31, 1999, which was
$1,593,000. Cash flows from operating activities have been positive, due
primarily to net earnings of $1,581,000, and a $1,395,000 decrease in inventory
offset by a $1,644,000 increase in accounts receivable.
Cash used in investing activities was $8,000, which was attributable to
capital expenditures for new equipment. The Company anticipates additional
capital expenditures during calendar year 2000 aggregating approximately
$100,000, which will be used for the purchase of automated assembly and test
equipment.
Cash provided by financing activities was $107,000 for the first three
months of 2000 primarily comprised of $1,031,000 of borrowings under the
revolving line of credit and $172,000 of proceeds from the exercise of stock
options offset by $1,096,000 of repayments of long term debt.
On November 12, 1999, the Company entered into a new revolving line of
credit with its bank, replacing its former revolving line of credit ("Former
Credit Line"), 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 (8.63% at March 31, 2000). The Company was unable to meet
certain financial covenants with its bank at December 31, 1999, compliance with
which was waived by the bank as of such date. Coincident with obtaining the
waiver by the bank, the bank agreed to extend the line of credit until September
30, 2000 and to waive compliance by the Company with certain financial covenants
as of March 31, 2000, subject to the Company meeting certain alternative
financial covenants as of such date, and the Company agreed to periodic
reductions in the line of credit commencing in March, 2000, until the line of
credit has been reduced from $7.5 million to $5.5 million as of August 1, 2000.
As of March 31, 2000, the line of credit had been reduced to $6,250,000 and the
Company had $4,203,000 outstanding under the line of credit as of such date.
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. Also, 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 (8.93% at March 31, 2000). At March 31, 2000, there
was $15,833,000 outstanding under the S-A Term Loan. The principal balance of
the S-A Term Loan is being amortized in monthly installments
7
of $366,667 with a final balloon payment of all remaining unpaid principal and
accrued interest due on June 30, 2002.
On February 3, 1999, the Company entered into an interest rate swap
agreement with a notional 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, SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS 133 standardizes accounting and reporting for
derivative instruments and for hedging activities. This statement was amended by
SFAS 137, which delays the effective date until 2001. The Company will be
reviewing this pronouncement to determine its applicability to the Company, if
any.
Year 2000
The Company previously assigned certain individuals to identify and correct
Year 2000 compliance issues. Information technology ("IT") systems with
non-compliant code were modified or replaced with systems that are Year 2000
compliant as they were identified. Similar actions were taken with respect to
non-IT systems, primarily systems embedded in manufacturing equipment and the
Company's products. The individuals were also responsible for investigating the
readiness of suppliers, customers and other third parties along with the
development of contingency plans where necessary.
All IT and non-IT systems were inventoried and assessed for compliance, and
remediation and testing activities completed with all systems compliant prior to
the end of 1999. The Company also identified critical suppliers, customers and
other third parties, surveyed their Year 2000 remediation programs, and
finalized risk assessments and contingency plans, where necessary, prior to the
end of 1999.
The Company's incremental costs directly related to Year 2000 compliance
issues were approximately $300,000. Approximately 90% of the total estimated
spending represented costs to modify existing systems.
To date, the Company has not experienced any material adverse effect on its
business resulting from Year 2000 compliance issues.
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, 2000 and 1999 the principal amount of the Company's
aggregate outstanding variable rate indebtedness was $22,120,333 and
$24,443,000, respectively. Without giving effect to the swap agreement described
below, a hypothetical 10% adverse change in interest rates would have had an
annualized unfavorable impact of approximately $196,319 and $190,229,
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, 2000 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, 2000.
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, 2000 By: /s/ James A. Luksch
--------------------------------------
James A. Luksch
President and Chief Executive Officer
By: /s/ Peter Pugielli
-----------------------------------------------
Peter Pugielli, Senior 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 First Amendment and Waiver to Fifth Amended and Filed herewith.
Restated Loan Agreement dated March 24, 2000
10.2 First Restatement of the Fifth Amended and Filed herewith.
Restated Line of Credit Note
27 Financial Data Schedule Electronic Filing only.
11