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, 1998, 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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Jake Brown Road, Old Bridge, New Jersey 08857
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(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,
1998: 8,314,883.
The Exhibit Index appears on page 11.
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, Dec. 31,
1998 1997
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(unaudited)
Assets (Note 5)
Current assets:
Cash and cash equivalents............................................. $ 410 $ 555
Accounts receivable, net of allowance for doubtful
accounts of $802 and $607, respectively............................. 13,537 13,130
Inventories (Note 3).................................................. 22,720 17,875
Other current assets ................................................. 208 318
Deferred income taxes................................................. 1,380 1,054
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Total current assets...................................... 38,255 32,932
Property, plant and equipment, net of accumulated
depreciation and amortization....................................... 8,471 7,721
Other assets............................................................ 18,299 1,619
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$65,025 $42,272
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Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings (Note 5)........................................ $19,000 $ --
Current portion of long-term debt, including related party debt
of $1,278 at December 31, 1997...................................... 518 1,866
Accounts payable...................................................... 2,099 2,305
Accrued compensation.................................................. 1,718 1,606
Other accrued expenses................................................ 1,293 929
Income taxes.......................................................... 1,101 171
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Total current liabilities................................. 25,729 6,877
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Deferred income taxes................................................... 403 412
Revolving line of credit (Note 5)....................................... 718 -
Long-term debt.......................................................... 3,164 3,188
Commitments and contingencies (Note 6).................................. - -
Stockholders' equity:
Preferred stock, $.001 par value; authorized 5,000,000 shares;
no shares outstanding............................................... - -
Common stock, $.001 par value; authorized 25,000,000 shares,
8,313,383 shares issued and outstanding at March 31, 1998 and
8,272,758 shares issued and outstanding at December 31, 1997........ 8 8
Paid-in capital....................................................... 24,013 21,802
Retained earnings..................................................... 11,488 10,483
Treasury stock at cost, 40,200 shares at March 31, 1998
and December 31, 1997............................................... (498) (498)
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Total stockholders' equity................................ 35,011 31,795
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$65,025 $42,272
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See accompanying notes to consolidated financial statements.
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BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(unaudited)
Three Months Ended March 31,
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1998 1997
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Net sales............................................ $15,119 $14,041
Cost of goods sold................................... 10,024 9,296
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Gross profit..................................... 5,095 4,745
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Operating expenses:
Selling expenses................................. 1,312 1,131
General and administrative....................... 1,408 1,124
Research and development......................... 577 518
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3,297 2,773
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Earnings from operations............................. 1,798 1,972
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Other income (expense):
Interest expense................................. (124) (101)
Interest income.................................. 1 12
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(123) (89)
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Earnings before income taxes......................... 1,675 1,883
Provision for income taxes........................... 670 753
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Net earnings..................................... $ 1,005 $ 1,130
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Basic earnings per share............................. $ 0.12 $ 0.14
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Weighted average shares outstanding.................. 8,243 8,209
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See accompanying notes to consolidated financial statements.
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BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Three Months Ended
March 31,
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1998 1997
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Cash Flows From Operating Activities:
Net earnings.................................................................. $ 1,005 $ 1,130
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization........................................... 338 264
Provision for doubtful accounts......................................... 195 30
Deferred income taxes................................................... (335) (109)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable.................................................. (601) (802)
Inventories.......................................................... (1,045) 252
Other current assets................................................. 110 (74)
Other assets......................................................... (250) 116
Income taxes......................................................... 930 621
Accounts payable and accrued expenses................................ 270 940
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Net cash provided by operating activities......................... 617 2,368
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Cash Flows From Investing Activities:
Capital expenditures.......................................................... (202) (81)
Acquisition of Business....................................................... (19,000) (163)
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Net cash used in investing activities................................ (19,202) (244)
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Cash Flows From Financing Activities:
Net borrowings under revolving line of credit................................. 718 (1,176)
Proceeds from debt............................................................ 19,111 26
Repayments of debt............................................................ (1,484) (111)
Proceeds from exercise of stock options....................................... 95 46
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Net cash provided by (used in) financing activities.................. 18,440 (1,215)
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Net (Decrease) Increase In Cash................................................. (145) 909
Cash, beginning of period....................................................... 555 1,340
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Cash, end of period............................................................. $ 410 $ 2,249
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Supplemental Cash Flow Information:
Cash paid for interest........................................................ $ 85 $ 107
Cash paid for income taxes.................................................... 75 241
Schedule of noncash investing and financing activities:
Common stock issued for acquired business..................................... $ 1,000 -
Fair value of warrants issued for acquired business........................... $ 1,116 -
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See accompanying notes to consolidated financial statements.
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BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(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 1998 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, 1998.
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 1997, SFAS 130, "Reporting Comprehensive Income," and SFAS 131,
"Disclosures About Segments of an Enterprise and Related Information," were
issued. SFAS 130 addresses standards for reporting and display of comprehensive
income and its components and SFAS 131 requires disclosure of reportable
operating segments. In February 1998, SFAS 132, "Employer's Disclosures About
Pensions and Other Postretirement Plans" was issued. SFAS 132 standardizes
pension disclosures. These statements are effective in 1998. The effect of the
adoptions did not have a material impact on the Company's net earnings per
share.
Note 3 - Inventories
Inventories are summarized as follows:
March 31, Dec. 31,
1998 1997
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Raw Materials................................. $10,314 $ 8,740
Work in process............................... 4,192 2,907
Finished Goods................................ 8,214 6,228
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$22,720 $17,875
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Note 4 - Acquisition
On March 25, 1998, the Company acquired all of the assets and technology
rights of the interdiction business (the "Interdiction Business") of
Scientific-Atlanta, Inc. ("Scientific") for a purchase price consisting of (i)
$19 million in cash, (ii) 68 shares of the Company's common stock, (iii) a
warrant to purchase 150 additional shares of the Company's common stock at an
exercise price of $14.25 per share and (iv) assumption by the Company of certain
obligations under executory contracts with vendors and customers and certain
warranty obligations and current liabilities of the Interdiction Business. The
Interdiction Business generated approximately $16 million in revenues for the
prior twelve month period. The Company believes that Scientific's interdiction
products, which have been engineered primarily to serve the franchised cable
market, will supplement the Company's VideoMask(TM) products, which are
primarily focused on the Private Cable market. In addition, the Company expects
that the technology acquired as part of the Interdiction Business will enhance
its ability to design products that meet the specific needs of all cable
providers, while improving its
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BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(In thousands, except per share amounts)
(unaudited)
position in the franchised cable market. Scientific will provide certain
manufacturing, consulting and other transition services to the Company pursuant
to agreements executed by the parties during a limited period following the
acquisition in order to permit the Company to fulfill sales orders of the
Interdiction Business for the transition period following the closing.
In addition, under the terms of the purchase agreement with Scientific,
the Company is obligated to file a registration statement with the Securities
and Exchange Commission to register the shares of common stock issued to
Scientific and underlying the warrant held by Scientific as part of the purchase
price for the Interdiction Business within 90 days after the closing of the
acquisition.
Note 5 - Line of Credit
In October, 1997, the Company executed a new $15 million revolving line
of credit with its bank, on which funds may be borrowed at the bank's overnight
base rate ("OBR") plus a margin ranging from .95% to 2.45%, depending upon the
calculation of certain financial covenants (7.075% at March 31, 1998). As of
March 31, 1998, the Company had $718 outstanding under the line of credit. The
line of credit is collateralized by a security interest in all of the Company's
assets. The agreement contains restrictions that require the Company to maintain
certain financial ratios as well as restrictions on the payment of dividends. In
addition, the Company has an acquisition loan commitment which may be drawn upon
by the Company to finance acquisitions in accordance with certain terms. The
acquisition loan commitment had been $15 million until March, 1998 when it was
increased to $20 million to accommodate the acquisition of Scientific's
Interdiction Business. Funds may be borrowed under the acquisition loan
commitment at OBR plus a margin ranging from 1.25% to 2.75%, depending upon the
calculation of certain financial covenants (7.375% at March 31, 1998). At March
31, 1998, there was $19 million outstanding under the acquisition loan
commitment. The line of credit and the acquisition loan commitment expire on
June 30, 1999.
Note 6 - Commitments and Contingencies
On October 18, 1996, the Company was served with a complaint in a
lawsuit filed by Scientific-Atlanta, Inc. ("Scientific") in the United States
District Court for the Northern District of Georgia, alleging patent
infringement by the Company's VideoMask(TM) interdiction product. The complaint
requested an unspecified amount of damages and injunctive relief.
Following the Company's acquisition of the assets and technology rights
of Scientific's Interdiction Business, Scientific's lawsuit against the Company
was dismissed with prejudice.
ITEM 1. 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 Part I, Item 1 - Management's
Discussion and Analysis of Financial Condition and Results of Operations. The
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BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(In thousands, except per share amounts)
(unaudited)
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, 1997
(See Item 1: Business and Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations).
First three months of 1998 Compared with first three months of 1997
Net Sales. Net sales increased $1,078,000, or 7.7%, to $15,119,000 in
the first three months of 1998 from $14,041,000 in the first three months of
1997. International sales accounted for $509,000 (3.4% of total sales) for the
first three months of 1998 compared to $366,000 (2.6% of total sales) for the
first three months of 1997.
The increase in sales is primarily attributed to an increase in demand
for products in the MDU market. In addition, the significant increase in sales
of interdiction equipment also had a favorable impact. Net sales included
approximately $2,922,000 of interdiction equipment for the first three months of
1998 compared to approximately $1,526,000 for the first three months of 1997.
Cost of Goods Sold. Cost of goods sold increased to $10,024,000 for the
first three months of 1998 from $9,296,000 for the first three months of 1997
and also increased as a percentage of sales to 66.3% from 66.2%. The increase
was caused primarily by a higher proportion of sales during the period being
comprised of lower margin products.
Selling Expenses. Selling expenses increased to $1,312,000 for the first
three months of 1998 from $1,131,000 in the first three months of 1997,
primarily due to an increase in costs incurred for trade shows and marketing and
an increase in royalty payments relating to certain license agreements.
General and Administrative Expenses. General and administrative expenses
increased to $1,408,000 for the first three months of 1998 from $1,124,000 for
the first three months of 1997 and increased as a percentage of sales to 9.3%
for the first three months of 1998 from 8% for the first three months of 1997.
The $284,000 increase can be attributed to an increase in the allowance for
doubtful accounts and expenditures for professional services rendered.
Research and Development Expenses. Research and development expenses
increased to $577,000 in the first three months of 1998 from $518,000 in the
first three months of 1997, primarily due to an increase in wages as a result of
annual salary increases and purchased materials for research and development.
Research and development expenses also increased as a percentage of sales to
3.8% from 3.7% and the Company anticipates continuing to increase its research
and development expenditures.
Operating Income. Operating income decreased 8.8% to $1,798,000 for the
first three months of 1998 from $1,972,000 for the first three months of 1997.
Operating income as a percentage of sales decreased to 11.9% in the first three
months of 1998 from 14% in the first three months of 1997.
Interest and Other Expenses. Other expense, increased to $123,000 in the
first three months of 1998 from $89,000 in the first three months of 1997. These
expenses in the first three months of 1998 consisted of interest expense in the
amount of $124,000 offset by $1,000 of interest income. These expenses in the
first three months of 1997 consisted of interest expense in the amount of
$101,000 offset by $12,000 of interest income.
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BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(In thousands, except per share amounts)
(unaudited)
Income Taxes. The provision for income taxes for the first three months
of 1998 decreased to $670,000 from $753,000 for the first three months of 1997
as a result of a decrease in taxable income.
Liquidity and Capital Resources
The Company's net cash provided by operating activities for the
three-month period ended March 31, 1998 was $617,000, compared to cash provided
by operating activities for the three-month period ended March 31, 1997, which
was $2,368,000. Cash flows from operating activities have been positive, due
primarily to net earnings of $1,005,000, an increase in accounts payable and
accrued expenses and an increase in income taxes payable, offset by an increase
in inventory and accounts receivable.
Cash used in investing activities was $19,202,000, of which $19,000,000
was utilized for the acquisition of the Scientific Interdiction Business, and
$202,000 was attributable to capital expenditures for new equipment. The Company
anticipates additional capital expenditures during calendar year 1998
aggregating, approximately $1,300,000, which will be used for the purchase of
automated assembly and test equipment. The Company does not have any present
plans or commitments for material capital expenditures for fiscal year 1999.
Cash used in financing activities was $18,440,000 for the first three
months of 1998, comprised primarily of $19,000,000 in proceeds from the
Company's acquisition loan commitment.
In October, 1997, the Company executed a new $15 million revolving line
of credit with its bank, on which funds may be borrowed at the bank's overnight
base rate ("OBR") plus a margin ranging from .95% to 2.45%, depending upon the
calculation of certain financial covenants (7.075% at March 31, 1998). As of
March 31, 1998, the Company had $718 outstanding under the line of credit. The
line of credit is collateralized by a security interest in all of the Company's
assets. The agreement contains restrictions that require the Company to maintain
certain financial ratios as well as restrictions on the payment of dividends. In
addition, the Company has an acquisition loan commitment which may be drawn upon
by the Company to finance acquisitions in accordance with certain terms. The
acquisition loan commitment had been $15 million until March, 1998 when it was
increased to $20 million to accommodate the acquisition of Scientific's
Interdiction Business. Funds may be borrowed under the acquisition loan
commitment at OBR plus a margin ranging from 1.25% to 2.75%, depending upon the
calculation of certain financial covenants (7.375% at March 31, 1998). At March
31, 1998, there was $19 million outstanding under the acquisition loan
commitment. The line of credit and the acquisition loan commitment expire on
June 30, 1999.
The Company currently anticipates that the cash generated from
operations, existing cash balances and amounts available under its existing line
of credit, will be sufficient to satisfy its foreseeable working capital needs.
Historically, the Company has satisfied its cash requirements primarily from net
cash provided by operating activities and from borrowings under its line of
credit.
New Accounting Pronouncements
In June 1997, SFAS 130, "Reporting Comprehensive Income," and SFAS 131,
"Disclosures About Segments of an Enterprise and Related Information," were
issued. SFAS 130 addresses standards for reporting and display of comprehensive
income and its components and SFAS 131 requires disclosure of reportable
operating segments. In February 1998, SFAS 132, "Employer's Disclosures About
Pensions and Other Postretirement Plans" was issued. SFAS 132 standardizes
pension disclosures. These statements are effective in 1998. The effect of the
adoptions did not have a material impact on the Company's net earnings per
share.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 18, 1996, the Company was served with a complaint in a
lawsuit filed by Scientific-Atlanta, Inc. ("Scientific") in the United States
District Court for the Northern District of Georgia, alleging patent
infringement by the Company's VideoMask(TM) interdiction product. The complaint
requested an unspecified amount of damages and injunctive relief.
Following the Company's acquisition of the assets and technology rights
of Scientific's Interdiction Business, Scientific's lawsuit against the Company
was dismissed with prejudice.
ITEM 2. CHANGES IN SECURITIES
As part of the consideration for the Company's acquisition of all of the
assets and technology rights of Scientific's Interdiction Business, in March,
1998, the Company issued Scientific (i) 67,889 shares of the Company's common
stock and (ii) a warrant to purchase 150,000 additional shares of the Company's
common stock at an exercise price of $14.25 per share. Such issuances were
exempt from registration under the Securities Act of 1933, as amended (the
"Act"), pursuant to Section 4(2) of the Act as transactions by an issuer not
involving a public offering. No underwriters were involved.
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, 1998 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, 1998.
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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 13, 1998 By: /s/ James A. Luksch
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James A. Luksch
President and Chief Executive Officer
By: /s/ Peter Pugielli
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Peter Pugielli,
Senior Vice President - Finance
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EXHIBIT INDEX
Exhibit # Description Location
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3.1 Restated Certificate of Incorporation of Blonder Incorporated by reference from Exhibit
Tongue Laboratories, Inc. 3.1 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
Inc. 3.2 to S-1 Registration Statement
No. 33-98070 originally filed
October 12, 1995, as amended.
10.1 Asset Purchase Agreement, dated March 1, 1998, Filed herewith.
between Scientific-Atlanta, Inc. and Blonder
Tongue Laboratories, Inc.
10.2 Commercial Manufacturing Agreement, dated Filed herewith.
February 19, 1998, between Blonder Tongue
Laboratories, Inc. and Hughes Network Systems,
a Hughes Electronics Corporation.
10.3 First Amendment to Third Amended and Restated Filed herewith.
Loan Agreement dated March 23, 1998, between
Blonder Tongue Laboratories, Inc. and CoreStates
Bank, N.A.
10.4 Acquisition Loan Note dated March 25, 1998, by Filed herewith.
Blonder Tongue Laboratories, Inc. in favor of
CoreStates Bank, N.A.
27 Financial Data Schedule Electronic Filing only.
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