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 JUNE 30, 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 August 6,
1999: 7,541,803.
The Exhibit Index appears on page 13.
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
June 30, December 31,
1999 1998
-------------- --------------
(unaudited)
Assets (Note 4)
Current assets:
Cash ....................................................................... $ 1,009 $ 542
Accounts receivable, net of allowance for doubtful
accounts of $1,319 and $1,201, respectively ................................ 11,750 15,988
Inventories (Note 2) ....................................................... 23,556 24,540
Other current assets ....................................................... 1,580 597
Deferred income taxes ...................................................... 1,630 1,445
-------- --------
Total current assets ................................................... 39,525 43,112
Property, plant and equipment, net of accumulated
depreciation and amortization ............................................... 7,631 7,968
Patents, net .................................................................... 3,944 4,115
Goodwill, net ................................................................... 13,155 13,157
Other assets .................................................................... 1,539 1,299
-------- --------
$ 65,794 $ 69,651
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Revolving line of credit (Note 4) .......................................... $ 3,015 $ 1,827
Current portion of long-term debt .......................................... 4,295 19,494
Accounts payable ........................................................... 2,042 2,134
Accrued compensation ....................................................... 1,477 1,287
Other accrued expenses ..................................................... 541 933
Income taxes ............................................................... 506 388
-------- --------
Total current liabilities .............................................. 11,876 26,063
-------- --------
Deferred income taxes ........................................................... 161 227
Long-term debt (Note 4) ......................................................... 17,829 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 June 30, 1999 and December 31, 1998 ...................................... 8 8
Paid-in capital ............................................................. 23,754 23,743
Retained earnings ........................................................... 18,372 17,596
Treasury stock at cost, 831 shares at June 30, 1999 and 81 shares at December
31, 1998 .................................................................... (6,206) (851)
-------- --------
Total stockholders' equity ............................................. 35,928 40,496
-------- --------
$ 65,794 $ 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 June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net sales ................................... $ 14,656 $ 20,525 $ 28,412 $ 35,644
Cost of goods sold .......................... 9,890 13,786 18,880 23,810
-------- -------- -------- --------
Gross profit .............................. 4,766 6,739 9,532 11,834
-------- -------- -------- --------
Operating expenses:
Selling expenses .......................... 1,480 1,096 2,885 2,408
General and administrative ................ 1,746 1,694 3,401 3,102
Research and development .................. 556 550 1,081 1,127
-------- -------- -------- --------
3,782 3,340 7,367 6,637
-------- -------- -------- --------
Earnings from operations .................... 984 3,399 2,165 5,197
-------- -------- -------- --------
Other income (expense):
Interest expense .......................... (444) (438) (900) (562)
Other income .............................. 5 -- 6 1
-------- -------- -------- --------
(439) (438) (894) (561)
-------- -------- -------- --------
Earnings before income taxes ................ 545 2,961 1,271 4,636
Provision for income taxes .................. 212 1,185 495 1,855
-------- -------- -------- --------
Net earnings .............................. $ 333 $ 1,776 $ 776 $ 2,781
======== ======== ======== ========
Basic net earnings per share ................ $ 0.04 $ 0.21 $ 0.09 $ 0.34
======== ======== ======== ========
Basic weighted average shares outstanding ... 8,280 8,321 8,285 8,282
======== ======== ======== ========
Diluted net earnings per share .............. $ 0.04 $ 0.21 $ 0.09 $ 0.33
======== ======== ======== ========
Diluted weighted average shares outstanding.. 8,328 8,468 8,329 8,441
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
3
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Six Months Ended June 30,
-------------------------
1999 1998
-------- --------
Cash Flows From Operating Activities:
Net earnings ................................................... $ 776 $ 2,781
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization ................................ 1,419 968
Provision for doubtful accounts .............................. 370 618
Deferred income taxes ........................................ (251) (517)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable .......................................... 3,868 (5,114)
Inventories .................................................. 984 (77)
Other current assets ......................................... (983) (2,041)
Other assets ................................................. (873) (416)
Income taxes ................................................. 118 1,395
Accounts payable and accrued expenses ........................ (295) 3,758
-------- --------
Net cash provided by operating activities .................. 5,133 1,355
-------- --------
Cash Flows From Investing Activities:
Capital expenditures ........................................... (276) (399)
Acquisition of business ........................................ -- (19,000)
-------- --------
Net cash used in investing activities ........................ (276) (19,399)
-------- --------
Cash Flows From Financing Activities:
Net borrowings under revolving line of credit .................. 1,188 1,097
Proceeds from long-term debt ................................... 10 19,199
Repayments of long-term debt ................................... (244) (1,654)
Acquisition of treasury stock .................................. (5,355) --
Proceeds from exercise of stock options ........................ 11 140
-------- --------
Net cash (used in) provided by financing activities .......... (4,390) 18,782
-------- --------
Net Increase In Cash ............................................. 467 738
Cash, beginning of period ........................................ 542 555
======== ========
Cash, end of period .............................................. $ 1,009 $ 1,293
======== ========
Supplemental Cash Flow Information:
Cash paid for interest ......................................... $ 456 $ 424
Cash paid for income taxes ..................................... $ 607 $ 976
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
(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 second 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 June 30, 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 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:
June 30, 1999 Dec. 31, 1998
(In thousands)
------- -------
Raw Materials ........................ $ 8,873 $ 9,550
Work in process ...................... 2,886 2,463
Finished Goods ....................... 11,797 12,527
------- -------
$23,556 $24,540
======= =======
Note 4 - Line of Credit
In February 1999, the Company executed a new $15 million revolving line of
credit with its bank, on which funds may be borrowed at LIBOR plus a margin
ranging from .75% to 2.25%, depending upon the calculation of certain financial
covenants (7.58% at June 30, 1999). As of June 30, 1999, the Company had
$3,015,000 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 a $20 million acquisition loan commitment which may be
drawn upon by the Company to finance acquisitions in accordance with certain
terms. Funds may be borrowed under the acquisition loan commitment at LIBOR plus
a margin ranging from 1.05% to 2.55%, depending upon the calculation of certain
financial covenants (7.88% at June 30, 1999). At June 30, 1999, there was $19
million outstanding under the acquisition loan commitment related to the
acquisition of the interdiction business of Scientific-Atlanta, Inc. (the "S-A
Term Loan"). The principal balance of the S-A Term Loan is being amortized over
59 consecutive monthly installments of $366,666.67 commencing June 1, 1999, with
a final principal payment of $316,666.47 due on May 1, 2004.
As a result of the Company's financial performance for the first half of
1999 as well as the capital expended by the Company in connection with a self
tender offer conducted during this period, the Company was unable to meet a
certain financial covenant with its bank at June 30, 1999, compliance with which
was waived by the bank as of such date. Coincident with obtaining the waiver by
the bank, the Company agreed to reduce its revolving line of credit to $5
million. The line of credit and the Company's ability to draw additional
advances against the acquisition loan commitment expire on September 30, 1999.
The Company anticipates that it will conclude negotiations with its bank and
obtain a renewal of its credit facilities prior to September 30, 1999.
5
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 5 - Stockholders' Equity
On May 17, 1999, the Company commenced a self tender offer to purchase
750,000 shares of its common stock at a purchase price ranging from $6.00 to
$8.00 per share. As of June 22, 1999, approximately 1,600,000 shares were
tendered and the Company accepted 750,000 shares for purchase at a price of
$7.00 per share. The stock repurchase was funded by a combination of the
Company's cash on hand and borrowings against its revolving line of credit.
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 sections entitled Part I, 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).
Second three months of 1999 Compared with second three months of 1998
Net Sales. Net sales decreased $5,869,000, or 28.6%, to $14,656,000 in the
second three months of 1999 from $20,525,000 in the second 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 resorts markets,
including a decrease in sales of interdiction equipment. Net sales included
approximately $2,635,000 of interdiction equipment for the second three months
of 1999 compared to approximately $7,085,000 for the second three months of
1998. The substantially higher sales of interdiction equipment during 1998 are
primarily attributed to filling backlog orders acquired from Scientific-Atlanta,
Inc. in connection with the acquisition of its interdiction business at the end
of the first quarter of 1998.
Cost of Goods Sold. Cost of goods sold decreased to $9,890,000 for the
second three months of 1999 from $13,786,000 for the second three months of 1998
but increased as a percentage of sales to 67.5% from 67.2%. 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 $1,480,000 for the second
three months of 1999 from $1,096,000 in the second three months of 1998, due to
an increase in salary and employee benefit expenses as a result of an increase
in headcount, along with an increase in commissions related to sales achieved by
the Company's new telemarketing representatives and marketing related expenses.
6
General and Administrative Expenses. General and administrative expenses
increased to $1,746,000 for the second three months of 1999 from $1,694,000 for
the second three months of 1998 and also increased as a percentage of sales to
11.9% for the second three months of 1999 from 8.3% for the second three months
of 1998. The $52,000 increase can be attributed to an increase in wages and
employee benefit expenses, along with an increase in the amortization of
intangibles related to the acquisition of the interdiction business of
Scientific-Atlanta, Inc. offset by a decrease in the allowance for doubtful
accounts.
Research and Development Expenses. Research and development expenses
increased to $556,000 in the second three months of 1999 from $550,000 in the
second three months of 1998, and increased as a percentage of sales to 3.8% from
2.7%. The increase can be attributed to an increase in wages and employee
benefit expenses offset by a decrease in amortization of licenses.
Operating Income. Operating income decreased 71% to $984,000 for the second
three months of 1999 from $3,399,000 for the second three months of 1998.
Operating income as a percentage of sales decreased to 6.7% in the second three
months of 1999 from 16.6% in the second three months of 1998.
Interest and Other Expenses. Other expense, net, increased to $439,000 in
the second three months of 1999 from $438,000 in the second three months of
1998. These expenses in the second three months of 1999 consisted of interest
expense in the amount of $444,000 offset by $5,000 of interest income. These
expenses in the second three months of 1998 consisted of interest expense in the
amount of $438,000.
Income Taxes. The provision for income taxes for the second three months of
1999 decreased to $212,000 from $1,185,000 for the second three months of 1998
as a result of a decrease in taxable income.
First six months of 1999 Compared with first six months of 1998
Net Sales. Net sales decreased $7,232,000, or 20.3%, to $28,412,000 in the
first six months of 1999 from $35,644,000 in the first six months of 1998. The
decrease in sales is primarily attributed to a decrease in demand in the
multiple dwelling unit, hotel, motel and resorts markets, including a decrease
in sales of interdiction equipment. Net sales included approximately $5,047,000
of interdiction equipment for the first six months of 1999 compared to
approximately $10,007,000 for the first six months of 1998. The substantially
higher sales of interdiction equipment during 1998 are primarily attributed to
filling backlog orders acquired from Scientific-Atlanta, Inc. in connection with
the acquisition of its interdiction business at the end of the first quarter of
1998.
Cost of Goods Sold. Cost of goods sold decreased to $18,880,000 for the
first six months of 1999 from $23,810,000 for the first six months of 1998 and
decreased as a percentage of sales to 66.5% from 66.8%. The decrease as a
percentage of sales was caused primarily by a greater proportion of sales during
the period being comprised of higher margin products.
Selling Expenses. Selling expenses increased to $2,885,000 in the first six
months of 1999 from $2,408,000 in the first six months of 1998, due to an
increase in salary and employee benefit expenses as a result of an increase in
headcount, along with an increase in marketing related expenses, offset by a
decrease in commissions due to the reduction in the number of sales
representatives.
General and Administrative Expenses. General and administrative expenses
increased to $3,401,000 in the first six months of 1999 from $3,102,000 for the
first six months of 1998 and increased as a percentage of sales to 12.0% in the
first six months of 1999 from 8.7% for the first six months of 1998. The
$299,000 increase can be attributed to an increase in the amortization of
intangibles related to the acquisition of the interdiction business of
Scientific-Atlanta, Inc. offset by a decrease in the allowance for doubtful
accounts.
Research and Development Expenses. Research and development expenses
decreased 4.1% to $1,081,000 in the first six months of 1999 from $1,127,000 in
the first six months of 1998 but increased as a percentage of sales to 3.8% from
3.2%. The decrease was primarily attributable to a decrease in amortization of
licenses and wages and employee benefit expenses.
7
Operating Income. Operating income decreased 58.3% to $2,165,000 for the
first six months of 1999 from $5,197,000 for the first six months of 1998.
Operating income as a percentage of sales decreased to 7.6% in the first six
months of 1999 from 14.6% in the first six months of 1998.
Interest and Other Expenses. Other expense, net, increased to $894,000 in
the first six months of 1999 from $561,000 in the first six months of 1998.
These expenses in the first six months of 1999 consisted of interest expense of
$900,000 offset by interest income of $6,000. These expenses in the first six
months of 1998 consisted of interest expense in the amount of $562,000, offset
by interest income of $1,000.
Income Taxes. The provision for income taxes for the first six months of
1999 decreased to $495,000 from $1,855,000 for the first six months of 1998 as a
result of a decrease in taxable income.
Liquidity and Capital Resources
The Company's net cash provided by operating activities for the six-month
period ended June 30, 1999 was $5,133,000, compared to cash provided by
operating activities for the six-month period ended June 30, 1998, which was
$1,355,000. Cash flows from operating activities have been positive, due
primarily to net earnings of $776,000, a $3,868,000 decrease in accounts
receivable and a $984,000 decrease in inventory.
Cash used in investing activities was $276,000, which was attributable to
capital expenditures for new equipment. The Company anticipates additional
capital expenditures during calendar year 1999 aggregating approximately
$1,000,000, which will be used for the purchase of automated assembly and test
equipment.
Cash used in financing activities was $4,390,000 for the first six months
of 1999 primarily comprised of $5,355,000 related to the acquisition of treasury
stock in connection with the Company's self tender offset by $1,188,000 of
borrowings under the revolving line of credit.
In February 1999, the Company executed a new loan agreement providing for a
$15 million revolving line of credit with its bank, on which funds may be
borrowed at LIBOR plus a margin ranging from .75% to 2.25%, depending upon the
calculation of certain financial covenants (7.58% at June 30, 1999). As of June
30, 1999, the Company had $3,015,000 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 a $20 million acquisition loan commitment which may be
drawn upon by the Company to finance acquisitions in accordance with certain
terms. Funds may be borrowed under the acquisition loan commitment at LIBOR plus
a margin ranging from 1.05% to 2.55%, depending upon the calculation of certain
financial covenants (7.88% at June 30, 1999). At June 30, 1999, there was $19
million outstanding under the acquisition loan commitment related to the
acquisition of the interdiction business of Scientific-Atlanta, Inc. (the "S-A
Term Loan"). The principal balance of the S-A Term Loan is being amortized over
59 consecutive monthly installments of $366,666.67 commencing June 1, 1999, with
a final principal payment of $316,666.47 due on May 1, 2004.
On May 17, 1999, the Company commenced a self tender offer to purchase
750,000 shares of its common stock at a purchase price ranging from $6.00 to
$8.00 per share. As of June 22, 1999, approximately 1,600,000 shares were
tendered and the Company accepted 750,000 shares for purchase at a price of
$7.00 per share. The stock repurchase was funded by a combination of the
Company's cash on hand and borrowings against its revolving line of credit.
As a result of the Company's financial performance for the first half of
1999 and the capital expended in connection with the self tender, the Company
was unable to meet a certain financial covenant with its bank at June 30, 1999,
compliance with which was waived by the bank as of such date. Coincident with
obtaining the waiver by the bank, the Company agreed to reduce its revolving
line of credit to $5 million. The line of credit and the Company's ability to
draw additional advances against the acquisition loan commitment expire on
September 30, 1999. The Company anticipates that it will conclude negotiations
with its bank and obtain a renewal of its credit facilities prior to September
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.
8
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 2001. The Company will be reviewing this pronouncement to determine
its applicability to the Company, if any.
Year 2000
The Company has designated certain individuals as responsible for
identification and correction of Year 2000 compliance issues. Since 1998,
information technology ("IT") systems with non-compliant code have been modified
or replaced with systems that are Year 2000 compliant. Similar actions have been
taken with respect to non-IT systems, primarily systems embedded in
manufacturing equipment and the Company's products. The Company has also
investigated the readiness of suppliers, customers and other third parties and
developed contingency plans where necessary.
As of June 30, 1999, all IT systems were inventoried and assessed for
compliance, and detailed plans were implemented for required system
modifications or replacements. Remediation and testing activities have been
completed with 100% of the systems in compliance. Inventories and assessments of
non-IT systems have also been completed.
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 were approximately
$300,000 between 1998 and the end of the second quarter of 1999. 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 resulting from Year 2000 issues 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. The Company's contingency plans for Year 2000-related interruptions
include, but are not 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 were
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.
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 June 30, 1999 and 1998, the principal amount of the Company's
aggregate outstanding variable rate indebtedness was $22,015,000 and
$20,097,000, 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 $175,000 and $156,000,
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 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 its receipt from the swap counterparties of floating rate payments
equal to LIBOR plus 2.55%. The Company is
9
exposed to credit risk in the unlikely event that the swap counterparties
default on their payment obligations to the Company under the swap agreement.
Interest to be paid or received is accrued over the life of the agreement at the
net effective interest rate for the swap agreement and corresponding debt
instrument.
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 AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders (the "Meeting") on May
6, 1999. The Company solicited proxies in connection with the Meeting. At the
record date of the Meeting (March 23, 1999), there were 8,289,797 shares of
Common Stock outstanding and entitled to vote. The following were the matters
voted upon at the Meeting:
1. Election of Directors. The following directors were elected at the
Meeting: James A. Luksch, John E. Dwight and Robert E. Heaton. The number of
votes cast for and withheld from each director are as follows:
DIRECTORS FOR WITHHELD
--------- --- --------
James A. Luksch 8,049,302 17,815
John E. Dwight 8,049,402 17,715
Robert E. Heaton 8,049,402 17,715
Robert J. Palle, Jr., James H. Williams, James F. Williams, Robert B.
Mayer and Gary P. Scharmett continued as directors after the meeting.
2. Ratification of Auditors. The appointment of BDO Seidman, LLP as the
Company's independent auditors for the year ending December 31, 1999 was
ratified by the following vote of Common Stock:
FOR AGAINST ABSTAIN
--- ------- -------
8,055,392 6,075 5,650
10
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 13 herein.
(b) No reports on Form 8-K were filed in the quarter ended June 30, 1999.
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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: August 13, 1999
By: /s/ James A. Luksch
-----------------------
James A. Luksch
President and Chief Executive Officer
By: /s/ Peter Pugielli
-----------------------
Peter Pugielli, Senior Vice President - Finance
(Principal Financial Officer)
12
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 Amended and Restated Loan Agreement dated Filed herewith.
as of February 1, 1999 between First Union
National Bank ("First Union") and the Company
10.2 Second Allonge to Acquisition Loan Note dated as Filed herewith.
of February 1, 1999
10.3 Fourth Amended and Restated Line of Credit Note Filed herewith.
dated as of February 1, 1999
10.4 Second Allonge to Real Estate Note dated as of Filed herewith.
February 1, 1999
10.5 Second Amended and Restated Security Agreement Filed herewith.
dated as of February 1, 1999 between First Union
and the Company
10.6 Amended and Restated Patent Security Agreement Filed herewith.
dated as of February 1, 1999 between First Union
and the Company
27 Financial Data Schedule Electronic Filing only.
13