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, 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 1-14120
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 Identification No.)
incorporation or organization)
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 7,
1999: 8,290,803.
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
March 31, December 31,
1999 1998
----------- ------------
(unaudited)
Assets (Note 4)
Current assets:
Cash ....................................................................... $ 1,253 $ 542
Accounts receivable, net of allowance for doubtful
accounts of $1,213 and $1,201, respectively ................................ 14,153 15,988
Inventories (Note 2) ....................................................... 25,408 24,540
Other current assets ....................................................... 744 597
Deferred income taxes ...................................................... 1,603 1,445
-------- --------
Total current assets .................................................... 43,161 43,112
Property, plant and equipment, net of accumulated
depreciation and amortization .............................................. 7,750 7,968
Patents, net ................................................................. 4,030 4,115
Goodwill, net ................................................................ 12,924 13,157
Other assets ................................................................. 1,443 1,299
-------- --------
$ 69,308 $ 69,651
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Revolving line of credit (Note 4) .......................................... $ 1,142 $ 1,827
Current portion of long-term debt .......................................... 19,496 19,494
Accounts payable ........................................................... 1,538 2,134
Accrued compensation ....................................................... 1,420 1,287
Other accrued expenses ..................................................... 989 933
Income taxes ............................................................... 844 388
-------- --------
Total current liabilities ............................................... 25,429 26,063
-------- --------
Deferred income taxes ........................................................ 190 227
Long-term debt (Note 4) ...................................................... 2,750 2,865
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, 8,370 shares issued
at March 31, 1999 and December 31, 1998 .................................... 8 8
Paid-in capital ............................................................ 23,743 23,743
Retained earnings .......................................................... 18,039 17,596
Treasury stock at cost, 81 shares at March 31, 1999
and December 31, 1998 ...................................................... (851) (851)
-------- --------
Total stockholders' equity .............................................. 40,939 40,496
-------- --------
$ 69,308 $ 69,651
======== ========
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,
----------------------------
1999 1998
------------ ------------
Net sales .................................. $ 13,756 $ 15,119
Cost of goods sold ......................... 8,990 10,024
-------- --------
Gross profit ............................. 4,766 5,095
-------- --------
Operating expenses:
Selling expenses ......................... 1,405 1,312
General and administrative ............... 1,655 1,408
Research and development ................. 525 577
-------- --------
3,585 3,297
-------- --------
Earnings from operations ................... 1,181 1,798
-------- --------
Other income (expense):
Interest expense ......................... (456) (124)
Interest income .......................... 1 1
-------- --------
(455) (123)
-------- --------
Earnings before income taxes ............... 726 1,675
Provision for income taxes ................. 283 670
-------- --------
Net earnings ............................. $ 443 $ 1,005
======== ========
Basic earnings per share ................... $ .05 $ 0.12
======== ========
Weighted average shares outstanding ........ 8,290 8,243
======== ========
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,
------------------------
1999 1998
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Cash Flows From Operating Activities:
Net earnings......................................................................... $ 443 $ 1,005
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization...................................................... 550 338
Provision for doubtful accounts.................................................... 170 195
Deferred income taxes.............................................................. (195) (335)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable.............................................................. 1,664 (601)
Inventories...................................................................... (868) (1,045)
Other current assets............................................................. (147) 110
Other assets..................................................................... (73) (250)
Income taxes..................................................................... 456 930
Accounts payable and accrued expenses............................................ (407) 270
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Net cash provided by operating activities...................................... 1,593 617
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Cash Flows From Investing Activities:
Capital expenditures................................................................. (84) (202)
Acquisition of Business.............................................................. -- (19,000)
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Net cash used in investing activities.......................................... (84) (19,202)
------ -------
Cash Flows From Financing Activities:
Net borrowings under revolving line of credit........................................ (685) 718
Proceeds from long-term debt......................................................... 10 19,111
Repayments of long-term debt......................................................... (123) (1,484)
Proceeds from exercise of stock options.............................................. -- 95
------ -------
Net cash (used in) provided by financing activities............................ (798) 18,440
------ -------
Net Increase (Decrease) In Cash........................................................... 711 (145)
Cash, beginning of period................................................................. 542 555
------ -------
Cash, end of period....................................................................... $1,253 $ 410
====== =======
Supplemental Cash Flow Information:
Cash paid for interest............................................................... $ 447 $ 85
Cash paid for income taxes........................................................... 23 75
Schedule of noncash investing and financing activities:
Common stock issued for acquired business............................................ $ -- $ 1,000
Warrants issued for acquired business................................................ -- 775
====== =======
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 1999 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, 1999. 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 is effective
in the year 2000. 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,
1999 1998
--------- --------
Raw Materials......................................... $ 7,195 $ 9,550
Work in process....................................... 4,477 2,463
Finished Goods........................................ 13,736 12,527
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$25,408 $24,540
========= ========
Note 4 - 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 (7.58% at March 31, 1999). As of
March 31, 1999, the Company had $1,142 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 (7.88% at March 31, 1999). At March
31, 1999, 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 is currently in negotiations to renew the line of
credit and acquisition loan commitment with interest rates based upon LIBOR plus
a variable margin.
5
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, 1998 (See Item 1:
Business and Item 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations).
First three months of 1999 Compared with first three months of 1998
Net Sales. Net sales decreased $1,363,000, or 9.0%, to $13,756,000 in the
first three months of 1999 from $15,119,000 in the first three months of 1998.
International sales accounted for $5,000 for the first three months of 1999
compared to $509,000 (3.4% of total sales) for the first three months of 1998.
The decrease in sales is primarily attributed to a decrease in demand for
products in the multiple dwelling unit and hotel, motel and resort markets,
including a decrease in sales of interdiction equipment. Net sales included
approximately $2,412,000 of interdiction equipment for the first three months of
1999 compared to approximately $2,922,000 for the first three months of 1998.
Cost of Goods Sold. Cost of goods sold decreased to $8,990,000 for the
first three months of 1999 from $10,024,000 for the first three months of 1998
and also decreased as a percentage of sales to 65.4% from 66.3%. 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.
Selling Expenses. Selling expenses increased to $1,405,000 for the first
three months of 1999 from $1,312,000 in the first three months of 1998,
primarily due to an increase in wages related to the increase in headcount as a
result of the addition of the telemarketing department along with additional
employees in the marketing department in order to accomplish the Company's
objective of increasing market penetration. This increase was offset by a
decrease in commissions due to the overall reduction in sales along with the
termination of the Company's independent sales representatives in the first
quarter of 1998.
General and Administrative Expenses. General and administrative expenses
increased to $1,655,000 for the first three months of 1999 from $1,408,000 for
the first three months of 1998 and increased as a percentage of sales to 12.0%
for the first three months of 1999 from 9.3% for the first three months of 1998.
The $247,000 increase can be primarily attributed to an increase in the
amortization of intangibles related to the acquisition of the interdiction
business of Scientific-Atlanta, Inc. ("Scientific") which occurred during the
first quarter of 1998.
6
Research and Development Expenses. Research and development expenses
decreased to $525,000 in the first three months of 1999 from $577,000 in the
first three months of 1998, primarily due to a decrease in purchased materials
for research and development. Research and development expenses, as a percentage
of sales, remained at 3.8%.
Operating Income. Operating income decreased 34.3% to $1,181,000 for the
first three months of 1999 from $1,798,000 for the first three months of 1998.
Operating income as a percentage of sales decreased to 8.6% in the first three
months of 1999 from 11.9% in the first three months of 1998.
Interest and Other Expenses. Other expense increased to $455,000 in the
first three months of 1999 from $123,000 in the first three months of 1998.
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. 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.
Income Taxes. The provision for income taxes for the first three months of
1999 decreased to $283,000 from $670,000 for the first three months of 1998 as a
result of a decrease in taxable income and a reduction in the effective tax rate
from 40% to 39%.
Liquidity and Capital Resources
The Company's net cash provided by operating activities for the three-month
period ended March 31, 1999 was $1,593,000, compared to cash provided by
operating activities for the three-month period ended March 31, 1998, which was
$617,000. Cash flows from operating activities have been positive, due primarily
to net earnings of $443,000, and a $1,664,000 decrease in accounts receivable
offset by an $868,000 increase in inventory.
Cash used in investing activities was $84,000, which was attributable to
capital expenditures for new equipment. The Company anticipates additional
capital expenditures during calendar year 1999 aggregating approximately
$800,000, which will be used for the purchase of automated assembly and test
equipment.
Cash used in financing activities was $798,000 for the first three months
of 1999 primarily comprised of repayments of borrowings under the revolving 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 (7.58% at March 31, 1999). As of
March 31, 1999, the Company had $1,142,000 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 (7.88% at March 31, 1999). At
March 31, 1999, 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 is currently in negotiations to renew the line of
credit and acquisition loan commitment with interest rates based upon LIBOR plus
a variable margin.
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.
7
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 is effective
in the year 2000. The Company will be reviewing this pronouncement to determine
its applicability to the Company, if any.
Year 2000
The Company has assigned certain individuals to identify and correct Year
2000 compliance issues. Information technology ("IT") systems with non-compliant
code are expected to be modified or replaced with systems that are Year 2000
compliant. Similar actions are being taken with respect to non-IT systems,
primarily systems embedded in manufacturing and the Company's products. The
individuals are also responsible for investigating the readiness of suppliers,
customers and other third parties along with the development of contingency
plans where necessary.
All IT systems have been inventoried and assessed for compliance, and
detailed plans are in place for required system modifications or replacements.
Remediation and testing activities are underway with approximately 80% of the
systems already compliant. IT systems are expected to be fully compliant by the
end of the second quarter of 1999. Inventories and assessments of non-IT systems
have been completed. Progress of the Year 2000 compliance program is
continuously being monitored by senior management.
The Company has identified critical suppliers, customers and other third
parties and has surveyed their Year 2000 remediation programs. Risk assessments
and contingency plans were finalized in the first quarter of 1999.
Incremental costs directly related to Year 2000 issues are estimated to be
$300,000 to be incurred between 1998 and 2000, of which $240,000 (or 80%) has
been spent to date. Approximately 90% of the total estimated spending represents
costs to modify existing systems. Costs incurred prior to 1998 were immaterial.
This estimate assumes that the Company will not incur significant Year 2000
related costs on behalf of suppliers, customers or other third parties.
The Company's most likely potential risk is the inability of some customers
to order and pay on a timely basis. In addition, the Company has several foreign
suppliers, which, if not in compliance, would cause the Company to utilize more
expensive suppliers resulting in reduced margins. Contingency plans for Year
2000-related interruptions are being developed and will include, but not be
limited to, the development of emergency backup and recovery procedures,
remediation of existing systems parallel with installation of new systems and
identification of alternate suppliers. All plans are expected to be completed by
the end of the second quarter of 1999.
The Company's Year 2000 efforts are ongoing and its overall plan, as well
as the consideration of contingency plans, will continue to evolve as new
information becomes available. While the Company anticipates no major
interruption of its business activities, that will be dependent in part upon the
ability of third parties to properly remediate their IT and non-IT systems in a
timely manner. Although the Company has implemented the actions described above
to address third party issues, it has no ability to influence the compliance
actions of such parties. Accordingly, while the Company believes its actions in
this regard should have the effect of reducing Year 2000 risks, it is unable to
eliminate them or estimate the ultimate effect Year 2000 risks will have on the
Company's operating results.
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, 1999 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, 1999.
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, 1999 By: /s/ James A. Luksch
------------------------------------------------
James A. Luksch
President and Chief Executive Officer
By: /s/ Peter Pugielli
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Peter Pugielli, Senior Vice President - Finance
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.
27 Financial Data Schedule Electronic Filing only.
11