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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________________ to
__________________
COMMISSION FILE NUMBER: 1-14120
BLONDER TONGUE LABORATORIES, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 52-1611421
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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
Securities registered pursuant to Section 12(b) of the Act:
Name of Exchange
Title of each class on which registered
- ------------------------------------------- ---------------------------
COMMON STOCK, PAR VALUE $.001 AMERICAN STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant (computed by using the closing stock price on March 22, 2002, as
reported by the American Stock Exchange): $11,198,835.
Number of shares of common stock, par value $.001, outstanding as of March 22,
2002: 7,612,664.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 3, 2002 (which is expected to be filed
with the Commission not later than 120 days after the end of the registrant's
last fiscal year) are incorporated by reference into Part III of this report.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual 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 Item 1 - Business, Item 3 - Legal
Proceedings, and Item 7 - 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. The Company 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.
PART I
ITEM 1. BUSINESS
INTRODUCTION
Blonder Tongue Laboratories, Inc. ("BLONDER TONGUE" or the
"COMPANY") is a designer, manufacturer and supplier of a comprehensive line of
electronics and systems equipment for the cable television ("CATV") industry
(both franchise and non-franchise, or "private," cable). The Company's products
are used to acquire, distribute and protect the broad range of communications
signals carried on fiber optic, coaxial cable and wireless distribution systems.
These products are sold to customers providing an array of communications
services, including television, high-speed data (Internet) and telephony, to
single family dwellings, multiple dwelling units ("MDUS"), the lodging industry
and institutions such as hospitals, prisons, schools and marinas. The Company's
products are also used in surveillance systems ranging in complexity from simple
in-home monitoring systems to advanced business security systems with hundreds
of cameras.
Staying at the forefront of the telecommunications broadband
technology revolution is a continuing challenge. The Company continues to add
products to respond to the changes taking place. Blonder Tongue's product line
includes digital satellite receivers, cable modems, fiber communications network
components, QPSK to QAM transcoders (for DirecTV, Echostar and Digicipher II
MPEG-2 Satellite Services) Digicipher II Compatible QAM Set Top Converters, and
a broad range of interdiction products to preserve signal security.
The Company's principal customers are system integrators (both
franchise and private cable operators, as well as contractors) that design,
package, install and in most instances operate, upgrade and maintain the systems
they build.
The Company has historically enjoyed, and continues to enjoy, a
dominant market position in the private cable industry, while progressively
making inroads into the franchise cable market. As the Company has expanded its
market coverage, however, the distinctions between private cable and franchise
cable have become blurred. For example, the most efficient, highest
revenue-producing private cable systems and small franchise cable systems are
built with the same electronic building blocks. Most of the electronics required
are available from Blonder Tongue. In fact, some of the most financially
successful cable systems in the United States employ Blonder Tongue interdiction
equipment.
The Company continues to expand its headend, fiber and data
product lines to maintain the capability of providing all the electronic
equipment needed to build small cable systems and much of the equipment needed
in larger systems for most efficient operation and highest profitability in high
density areas.
2
INDUSTRY OVERVIEW
The broadband signal distribution industry (involving the
high-speed transmission of television, telephony and internet signals) is
currently dominated by CATV. The markets for wireless, direct-broadcast
satellite ("DBS") and digital subscriber line ("DSL") used for this purpose are
growing rapidly. Within the CATV market there are an increasing number of
metropolitan areas that have awarded second CATV franchises to create
competition with the existing franchisee. The government has been in favor of
competition in this market and has passed regulations to encourage it. Franchise
cable companies are ever watchful of DBS penetration in their franchise areas
and react rapidly to competition, all to the eventual benefit of the consumer.
To fight competition, the operators offer more services and more TV channels as
well as discounted prices. The lineup of services typically includes an analog
block of channels from 54 to 550 MHz, high speed data service using high-speed
cable modems, cable telephony either interfacing with switched networks or
internet protocol networks, and digital television in the 550 to 750 MHz range.
These upgraded services are possible in every system that has been rebuilt to
750 MHz of bandwidth. The standard architecture for these enhanced systems
contemplates a hybrid distribution network with a combination of fiber optic
cable to nodes of 100 to 500 subscribers, with coaxial cable from the node to
the customer and full reverse-path capability for the pay-per-view, data and
phone services.
The traditional customer targeted for these expanded services is a
homeowner likely to remain in the same home as a long-term subscriber. For a
variety of reasons, including the transient nature of the residents of many
areas, high levels of theft of service and excessive cost of replacing lost or
stolen converters and modems, approximately 35% of CATV subscribers not only are
not offered the new services, but are never offered the full analog lineup of
channels. Since converters, DBS receivers, digital converters and modems are
offered at very low prices to stimulate sales, the operational costs in these
demographic areas are too high to justify the advanced services. To retain
customers in these areas, a technology must be used that minimizes the
operational losses due to theft and "churn" while providing a level of video,
data and phone service that compares favorably with DBS, DSL and wireless
providers. The Company believes that its lineup of products, which includes
interdiction as well as cable and telephone modems, is the ideal solution for
deployment in these areas.
In October 2001, the Company entered into an agreement to be a
value-added distributor for Motorola's QAM decoder to the United States private
cable and Canadian franchise cable markets. Coupling this product with the
Company's Digicipher(R) II compatible QQQT transcoder provides a low-cost
hardware solution for small system operators that want to offer digital
programming from sources such as HITS(R), WSNET(TM), and Cancom.
CATV
Most CATV operators are building fiber optic networks with
alternative combinations of fiber optic and coaxial cable to deliver television
signal programming data and phone services on one drop cable. CATV's deployment
of fiber optic trunk has been completed in more than 50% of existing systems.
The system architecture being employed to accomplish the combined provision of
television and telephone service is a hybrid fiber coaxial ("HFC") network. In
an HFC network, fiber optic trunk lines connect to nodes which feed 100 to 500
subscribers, using coaxial cable. Extensive rebuilding of a CATV system is
required to provide the full array of expanded services. Consequently, not only
are the alternative suppliers faced with enormous capital expenditures to enter
the broadband signal delivery business, but existing CATV system operators are
faced with similar expenditures to compete with them (or to discourage them from
entering the race) to provide the "information superhighway."
The Company believes that most major metropolitan areas will
eventually have complex networks of two or more independent operators
interconnecting the homes while private cable operators will have large networks
interconnecting many multi-dwelling complexes. All of these networks are
potential users of Blonder Tongue headend, digital and interdiction products.
3
MULTIPLE DWELLING UNITS (MDUs)
MDUs, because they represent a large percentage of the private
cable market, have historically been responsible for a large percentage of the
Company's sales. In the early days of cable television MDUs were served by
franchise cable operators. In 1991, when the FCC allocated a designated
frequency band for private cable, the private cable industry became a major
supplier of TV services to MDUs since they could interconnect buildings with 18
GHz over-the-air links and reduce the cost-per-subscriber in building MDU
networks. This type of networking continues today but presently many MDU private
cable systems are connected using fiber optics since it is more reliable, has
much greater bandwidth, and can handle two-way communication needed for voice,
data and video-on-demand.
MDUs served by franchise cable are also a large revenue source for
Blonder Tongue since they generally fall into the category of customers where
churn, theft of service and converter loss are extremely high. This makes these
areas prime candidates for Blonder Tongue's interdiction products.
LODGING
Until the early 1990's, one system integrator dominated the
lodging market and manufactured much of its own equipment. During the last ten
years, other private cable integrators have successfully entered and expanded
the lodging market by offering systems with more channels, video-on-demand and
interactivity. These systems have been well received in the market, as property
owners have sought additional revenues and guests have demanded increased
in-room conveniences. The integrators leading this market evolution rely upon
outside suppliers for their system electronics and are Blonder Tongue customers.
These companies and others offer lodging establishments VCR-based systems which
provide true video-on-demand movies with a large selection of titles. To meet
these demands, the typical lodging system headend will include as many as 20 to
40 receivers and as many as 60 to 80 modulators, and will be capable of
providing the guest with more free channels, video-on-demand for a broad
selection of movie titles, and interactive services such as remote check-out and
concierge services. This is in contrast to the systems which preceded them which
typically had 10 to 12 receivers and modulators and provided six to ten free
channels and two to five channels of VCR-based movies running at published
scheduled times.
There is an accelerating trend to substitute video file servers
for VCRs, which the Company believes will eventually replace VCRs in
video-on-demand systems. The timing and speed of this transition is dependent on
availability of lower cost servers.
Most of the systems with video-on-demand service were initially in
large hotels, where the economics of high channel capacity systems are more
easily justified. The conversion of hotel pay-per-view systems into
video-on-demand is increasing. Smaller hotels and motels are being provided with
video-on-demand as technology results in reduced headend costs, keeping the
market growth reasonably steady.
INTERNATIONAL
For much of the world, CATV service lags the United States, but is
rapidly expanding as technological advancement reduces the cost to consumers. In
addition, economic development in Latin America and Asia has allowed first time
construction of integrated delivery systems that utilize a variety of
electronics and broadband hardware. The pace of growth is difficult to predict,
but as more alternatives become available and television service becomes
increasingly affordable, it is likely that more equipment will be placed in the
field.
The Company utilizes several distributors in Florida and within
Latin America with an experienced international sales manager supervising this
effort. Earlier efforts to expand the market through exclusive distribution
arrangements were unsatisfactory but some growth was achieved in 2001 and
accelerated growth is anticipated in the year 2002 and beyond as the Company's
contacts and opportunities in the Caribbean and Latin America continue to
mature.
4
ADDITIONAL CONSIDERATIONS
The technological revolution taking place in the communications
industry, which includes DBS, is providing digital television to an increasing
number of homes. Wireless cable systems and DSL over twisted pair phone lines
also utilize digital compression to provide channel capacity which is
competitive with CATV and other television delivery systems. In addition,
franchise cable companies and alternative suppliers are building fiber optic
networks to offer video, data, and telephony. There is also the possibility of
convergence of data and video communications, wherein computer and television
systems merge and the computer monitor replaces the television screen. While it
is not possible to predict with certainty which technology will be dominant in
the future, it is clear that digitized video and advances in the ability to
compress the digitized video signal make both digital television and the
convergence of computer, telephone and television systems technically possible.
Since United States television sets are analog (not digital),
direct satellite television and other digitally compressed programming requires
headend products or expensive set-top decoding receivers or converters to
convert the digitally transmitted satellite signals back to analog. The
replacement of all television sets with digital sets will be costly and take
many years to complete. The Company believes that for many years to come,
program providers will be required to deliver an analog television signal on
standard channels to subscribers' television sets using headend products at some
distribution point in their networks or employ decoding receivers at each
television set. Headend products are a large segment of Blonder Tongue's
business and the Company believes interdiction is an ideal product for a system
operator to use to control access to the multitude of programming that will be
available.
PRODUCTS
Blonder Tongue's products can be separated, according to function,
into the several categories described below:
o HEADEND PRODUCTS used by a system operator for signal acquisition,
processing and manipulation for further transmission. Among the products
offered by the Company in this category are satellite receivers (digital
and analog), integrated receiver/decoders, transcoders, demodulators,
modulators, antennas and antenna mounts, amplifiers, equalizers, and
processors. The headend of a television signal distribution system is the
"brain" of the system, the central location where the multi-channel
signal is initially received, converted and allocated to specific
channels for distribution. In some cases, where the signal is transmitted
in encrypted form or digitized and compressed, the receiver will also be
required to decode the signal or, in the case where digital signals are
to be carried on the distribution system, transcode its modulation from
QPSK (quadrature phase shift key) to QAM (quadrature amplitude
modulation) since one is optimum for satellite transmission and the other
optimum for fiber/coaxial distribution. Blonder Tongue is a licensee of
Motorola, Inc.'s ("Motorola") VideoCipher(R) and DigiCipher(R) encryption
technologies and Hughes Network Systems', a Hughes Electronics
Corporation ("Hughes") digital technologies, and integrates their
decoders into integrated receiver/decoder products, where required. The
Company estimates that Headend Products accounted for approximately 52%
of the Company's revenues in 2001, 40% in 2000 and 60% in 1999.
o DISTRIBUTION PRODUCTS used to permit signals to travel from the
headend to their ultimate destination in a home, apartment unit, hotel
room, office or other terminal location along a distribution network of
fiber optic or coaxial cable. Among the products offered by the Company
in this category are optical transmitters, optical receivers, line
extenders, broadband amplifiers, directional taps, splitters and wall
taps. In CATV systems, the distribution products are either mounted on
exterior telephone poles or encased in pedestals, vaults or other
security devices. In private cable systems the distribution system is
typically enclosed within the walls of the building (if a single
structure) or added to an existing structure using various techniques to
hide the coaxial cable and devices. The non-passive devices within this
category are designed to ensure that the signal distributed from the
headend is of sufficient strength when it arrives at its final
destination to provide high quality audio/video images.
5
o SUBSCRIBER PRODUCTS used to control access to programming at the
subscriber's location and to split and amplify incoming signals for
transmission to multiple sites and multiple television sets within a
site. Among the products offered by the Company in this category are
addressable interdiction devices, cable modems, splitters, couplers and
multiplexers. The Company believes that the most significant products
within this category are: (i) its VideoMask(TM) addressable signal
jammer, licensed from Philips Electronics North America Corporation and
its affiliate Philips Broadband Networks, Inc. in August 1995 under
certain non-exclusive technology and patent license agreements (the
"PHILIPS LICENSE AGREEMENTS"), (ii) the SMI Interdiction product line
acquired from Scientific-Atlanta, Inc. as part of its interdiction
business, and (iii) its recently introduced cable modems for high-speed
Internet access. Interdiction products limit, through jamming of
particular channels, the availability of programs to subscribers. Such
products enable an integrator to control subscriber access to premium
channels and other enhanced services through a computer located
off-premises. They also eliminate the necessity of an operator having to
make a service call to install or remove passive traps and eliminate the
costs associated with damage or loss of analog set-top converters in the
subscribers' locations. Interdiction products are also being successfully
used by CATV operators as an anti-piracy system in conjunction with
set-top converters. The Company believes that the reduction in operating
costs, programming piracy, and converter loss which can be obtained
through the use of interdiction will be a significant factor in further
product penetration into the franchise cable market. While it is not
possible to predict the breadth of market acceptance for these products,
the Company believes the potential is substantial in both the private
cable market and franchise cable market as alternatives to, or in
conjunction with, set-top converters and as a viable option for companies
and municipalities who are overbuilding existing cable infrastructures
and are seeking a more consumer-friendly and cost-effective way to
compete with the incumbent franchise cable operator.
o MICROWAVE PRODUCTS used to transmit the output of a cable system
headend to multiple locations using point-to-point communication links in
the 18 GHz range of frequencies. Among the products offered by the
Company in this category are power amplifiers, repeaters, receivers,
transmitters and compatible accessories. These products convert the
headend output up to the microwave band and transmit this signal using
parabolic antennas. At each receiver site, a parabolic antenna-receiver
combination converts the signal back to normal VHF frequencies for
distribution to subscribers at the receiver site. Due to a Final Rule and
Order adopted by the Federal Communications Commission ("FCC") in June,
2000, coupled with the availability and inherent superiority of fiber
optics in linking adjacent properties in MDU applications, sales of
microwave products have diminished. While microwave products will
continue to be sold to maintain existing systems, the Company does not
anticipate that these products will contribute significantly to the
Company's revenues.
o FIBER PRODUCTS used to transmit the output of a cable system
headend to multiple locations using fiber optic cable. Among the products
offered are optical transmitters, receivers, couplers, splitters and
compatible accessories. These products convert RF frequencies to light
(or infrared) frequencies and launch them on optical fiber. At each
receiver site, an optical receiver is used to convert the signals back to
normal VHF frequencies for distribution to subscribers. Sales of products
in this category continue to increase as they have become the product of
choice in applications formerly suitable to the use of microwave
products.
The Company will modify its products to meet specific customer
requirements. Typically, these modifications are minor and do not materially
alter the functionality of the products. Thus the inability of the customer to
accept such products does not generally result in the Company being otherwise
unable to sell such products to other customers.
6
RESEARCH AND PRODUCT DEVELOPMENT
The markets served by Blonder Tongue are characterized by
technological change, new product introductions, and evolving industry
standards. To compete effectively in this environment, the Company must engage
in continuous research and development in order to (i) create new products, (ii)
expand the frequency range of existing products in order to accommodate customer
demand for greater channel capacity, (iii) license new technology (such as
digital satellite receiver decoders and high-speed cable modems), and (iv)
acquire products incorporating technology that could not otherwise be developed
quickly enough using internal resources, to suit the dynamics of the evolving
marketplace. Research and development projects are often initially undertaken at
the request of and in an effort to address the particular needs of the Company's
customers and customer prospects with the expectation or promise of substantial
future orders from such customers or customer prospects. Additional research and
development efforts are also continuously underway for the purpose of enhancing
product quality and engineering to lower production costs. For the acquisition
of new technologies, the Company may rely upon technology licenses from third
parties when the Company believes that it can obtain such technology more
quickly and/or cost-effectively from such third parties than the Company could
otherwise develop on its own, or when the desired technology is proprietary to a
third party. There were 22 employees in the research and development department
of the Company at December 31, 2001.
MARKETING AND SALES
Blonder Tongue markets and sells its products worldwide to private
cable integrators (which accounted for approximately 48% of the Company's
revenues for fiscal 2001, approximately 56% of the Company's revenues for fiscal
year 2000 and approximately 80% for fiscal year 1999), to alternative suppliers,
and to franchise cable integrators. Sales are made directly to customers by the
Company's internal sales force, as well as through numerous domestic and
international stocking distributors.
The Company's sales and marketing function is predominantly
performed by its internal sales force. Should it be deemed necessary, the
Company may retain independent sales representatives in particular geographic
areas or targeted to specific customer prospects. The Company's internal sales
force consists of 26 employees, which currently includes 12 salespersons (eight
salespersons in Old Bridge, New Jersey, one salesperson in each of Cincinnati,
Ohio, Cudahy, Wisconsin, Folsom, California, and Miami, Florida) and 14
sales-support personnel at the Company headquarters in Old Bridge, New Jersey.
The Company's standard customer payment terms are 2%-10, net 30
days. From time to time where the Company determines that circumstances warrant,
such as when a customer agrees to commit to a large blanket purchase order, the
Company extends payment terms beyond its standard payment terms.
The Company has several marketing programs to support the sale and
distribution of its products. Blonder Tongue participates in industry trade
shows and conferences. The Company also publishes technical articles in trade
and technical journals, distributes sales and product literature and has an
active public relations plan to ensure complete coverage of Blonder Tongue's
products and technology by editors of trade journals. The Company provides
system design engineering for its customers, maintains extensive ongoing
communications with many original equipment manufacturer customers and provides
one-on-one demonstrations and technical seminars to potential new customers.
Blonder Tongue supplies sales and applications support, product literature and
training to its sales representatives and distributors. The management of the
Company travels extensively, identifying customer needs and meeting potential
customers.
The Company had approximately $1.0 million and $4.0 million in
purchase orders as of December 31, 2001 and December 31, 2000, respectively. All
of the purchase orders outstanding as of December 31, 2001 are expected to be
shipped prior to December 31, 2002. The purchase orders are for the future
delivery of products and are subject to cancellation by the customer.
7
CUSTOMERS
Blonder Tongue has a broad customer base, which in 2001 consisted
of more than 800 active accounts. Approximately 39%, 56%, and 26% of the
Company's revenues in fiscal years 2001, 2000, and 1999, respectively, were
derived from sales of products to the Company's five largest customers. In 2001,
sales to Toner Cable Equipment, Inc. accounted for approximately 14% of the
Company's revenues. There can be no assurance that any sales to these entities,
individually or as a group, will reach or exceed historical levels in any future
period. However, the Company anticipates that these customers will continue to
account for a significant portion of the Company's revenues in future periods,
although none of them is obligated to purchase any specified amount of products
(beyond outstanding purchase orders) or to provide the Company with binding
forecasts of product purchases for any future period.
The complement of leading customers may shift as the most
efficient and better financed integrators grow more rapidly than others. The
Company believes that many integrators will grow rapidly, and as such the
Company's success will depend in part on the viability of those customers and on
the Company's ability to maintain its position in the overall marketplace by
shifting its emphasis to those customers with the greatest growth and growth
prospects. Any substantial decrease or delay in sales to one or more of the
Company's leading customers, the financial failure of any of these entities, or
the Company's inability to develop and maintain solid relationships with the
integrators which may replace the present leading customers, would have a
material adverse effect on the Company's results of operations and financial
condition.
The Company's revenues are derived primarily from customers in the
continental United States, however, the Company also derives revenues from
customers outside the continental United States, primarily in underdeveloped
countries. Television service is less developed in many international markets,
particularly Latin America and Asia, creating opportunity for those participants
who offer quality products at a competitive price. Sales to customers outside of
the United States represented approximately 2% of the Company's revenues in
fiscal years 2001, 2000 and 1999. All of the Company's transactions with
customers located outside of the continental United States are denominated in
U.S. dollars, therefore, the Company has no material foreign currency
transactions.
MANUFACTURING AND SUPPLIERS
Blonder Tongue's manufacturing operations are located at the
Company's headquarters in Old Bridge, New Jersey. The Company's manufacturing
operations are vertically integrated and consist principally of the assembly and
testing of electronic assemblies built from fabricated parts, printed circuit
boards and electronic devices and the fabrication from raw sheet metal of
chassis and cabinets for such assemblies. Management continues to implement a
significant number of changes to the manufacturing process to increase
production volume and reduce product cost, including logistics modifications on
the factory floor, an increased use of surface mount, axial lead and radial lead
robotics to place electronic components on printed circuit boards, a continuing
program of circuit board redesign to make more products compatible with robotic
insertion equipment and an increased integration in machining and fabrication.
All of these efforts are consistent with and part of the Company's strategy to
provide its customers with high performance-to-cost ratio products.
Outside contractors supply standard components, etch-printed
circuit boards, and electronic subassemblies to the Company's specifications.
While the Company generally purchases electronic parts which do not have a
unique source, certain electronic component parts used within the Company's
products are available from a limited number of suppliers and can be subject to
temporary shortages because of general economic conditions and the demand and
supply for such component parts. If the Company were to experience a temporary
shortage of any given electronic part, the Company believes that alternative
parts could be obtained or system design changes implemented. However, in such
situations the Company may experience temporary reductions in its ability to
ship products affected by the component shortage. The Company purchases several
products from sole suppliers for which alternative sources are not available,
such as the VideoCipher(R) and DigiCipher(R) encryption systems manufactured by
Motorola, which are standard encryption methodologies employed on U.S. C-Band
and Ku-Band transponders and Hughes digital satellite receivers for delivery of
DIRECTV(TM) programming. An inability to timely obtain sufficient quantities of
these components could have a material adverse effect on the Company's operating
results. The Company does not have a supply agreement with Motorola or any other
supplier. The Company submits purchase orders to its suppliers on an as-needed
basis.
8
Blonder Tongue maintains a quality assurance program which tests
samples of component parts purchased, as well as its finished products, on an
ongoing basis and also conducts tests throughout the manufacturing process using
commercially available and in-house built testing systems that incorporate
proprietary procedures. Blonder Tongue performs final product tests on 100% of
its products prior to shipment to customers.
COMPETITION
All aspects of the Company's business are highly competitive. The
Company competes with national, regional and local manufacturers and
distributors, including companies larger than Blonder Tongue which have
substantially greater resources. Various manufacturers who are suppliers to the
Company sell directly as well as through distributors into the franchise and
private cable marketplaces. Because of the convergence of the cable,
telecommunications and computer industries and rapid technological development,
new competitors may seek to enter the principal markets served by the Company.
Many of these potential competitors have significantly greater financial,
technical, manufacturing, marketing, sales and other resources than Blonder
Tongue. The Company expects that direct and indirect competition will increase
in the future. Additional competition could result in price reductions, loss of
market share and delays in the timing of customer orders. The principal methods
of competition are product differentiation, performance and quality, price and
terms, service, and technical and administrative support.
INTELLECTUAL PROPERTY
The Company currently holds 30 United States patents and 14
foreign patents covering a wide range of electronic systems and circuits, of
which 19 United States patents and 10 foreign patents were obtained in the
Company's acquisition of Scientific-Atlanta, Inc.'s interdiction business during
1998. Other than certain of the patents acquired from Scientific-Atlanta, Inc.,
none of the Company's patents are considered material to the Company's present
operations because they do not relate to high volume applications. Because of
the rapidly evolving nature of the CATV industry, the Company believes that its
market position as a supplier to cable integrators derives primarily from its
ability to develop a continuous stream of new products which are designed to
meet its customers' needs and which have a high performance-to-cost ratio.
The Company is a licensee of Philips Electronics North America
Corporation and its affiliate Philips Broadband Networks, Inc., Motorola, Hughes
and several smaller software development companies.
Under the Philips License Agreements, the Company is granted a
non-exclusive license for a term which expires in 2010, concurrently with the
last to expire of the relevant patents. The Philips License Agreements provide
for the payment by the Company of a one-time license fee and for the payment by
the Company of royalties based upon unit sales of licensed products.
The Company is a licensee of Motorola relating to Motorola's
VideoCipher(R) encryption technology and is also a party to a private label
agreement with Motorola relating to its DigiCipher(R) technology. Under the
VideoCipher(R) license agreement, the Company is granted a non-exclusive license
under certain proprietary know-how, to design and manufacture certain licensed
products to be compatible with the VideoCipher(R) commercial descrambler module.
The VideoCipher(R) license agreement provides for the payment by the Company of
a one-time license fee for the Company's first model of licensed product and
additional one-time license fees for each additional model of licensed product.
The VideoCipher(R) license agreement also provides for the payment by the
Company of royalties based upon unit sales of licensed products. Under the
DigiCipher(R) private label agreement, the Company is granted the non-exclusive
right to sell DigiCipher(R) II integrated receiver decoders bearing the Blonder
Tongue name for use in the commercial market. The DigiCipher(R) private label
agreement provides for the payment by the Company of a one-time license fee for
the Company's first model of licensed product and additional one-time license
fees for each additional model of licensed product.
During 1996, the Company entered into several software development
and license agreements for specifically designed controller and interface
software necessary for the operation of the Company's Video Central(TM) remote
interdiction control system, which is used for remote operation of VideoMask(TM)
signal jammers installed at subscriber locations. These licenses are perpetual
and require the payment of a one-time license fee and in one case additional
payments, the aggregate of which are not material.
9
In February, 1998, the Company entered into an exclusive license
agreement with Hughes, pursuant to which the Company is licensed to design,
manufacture, and market commercial digital satellite receivers which are
compatible with DIRECTV(TM) programming, for use in headend applications in both
the franchised and private cable markets. The agreement is for a term of five
(5) years, expiring in February 2003.
The Company relies on a combination of contractual rights and
trade secret laws to protect its proprietary technologies and know-how. There
can be no assurance that the Company will be able to protect its technologies
and know-how or that third parties will not be able to develop similar
technologies and know-how independently. Therefore, existing and potential
competitors may be able to develop products that are competitive with the
Company's products and such competition could adversely affect the prices for
the Company's products or the Company's market share. The Company also believes
that factors such as the technological and creative skills of its personnel, new
product developments, frequent product enhancements, name recognition and
reliable product maintenance are essential to establishing and maintaining its
leadership position.
REGULATION
Private cable, while in some cases subject to certain FCC
licensing requirements, is not presently burdened with extensive government
regulations. Franchise cable operators had been subject to extensive government
regulation pursuant to the Cable Television Consumer Protection and Competition
Act of 1992, which among other things provided for rate rollbacks for basic tier
cable service, further rate reductions under certain circumstances and
limitations on future rate increases. The Telecommunications Act of 1996 has
deregulated many aspects of franchise cable system operation and has opened the
door to competition among cable operators and telephone companies in each of
their respective industries. The Company believes that this legislation will
increase the base of potential customers for the Company's products.
In June, 2000, the FCC adopted and issued a Final Rule and Order
relating to the re-designation of portions of the 18GHz-frequency band among the
various currently allocated services. This matter was first discussed in 1998,
at which time the FCC issued a Notice of Proposed Rulemaking, proposing to grant
primary status for use of the 18GHz frequency band to Fixed Satellite Service
Operators ("FSSO"), to the detriment of existing and future terrestrial fixed
service operators ("TFSO"). The Final Rules regarding this issue provide for the
grandfathering, for a period of ten years, of certain pre-existing (installed)
TFSOs and TFSOs that had made application for a license prior to a certain date.
The FCC segmented the 18GHz-frequency band into several sub-bands and has
provided for varying obligations and rights as between the TFSOs and the FSSOs.
Overall, the Final Rules are complex and place a measure of uncertainty upon
TFSOs considering the use of microwave gear in new systems. These issues,
coupled with the recent advances in the use of fiber optic cable and the
inherent superiority in fiber due to its greater bandwidth capability, have
resulted in a shift in customer purchases away from microwave gear and toward
fiber optics.
ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of federal, state and local
governmental regulations related to the storage, use, discharge and disposal of
toxic, volatile or otherwise hazardous chemicals used in its manufacturing
processes. The Company did not incur in 2001 and does not anticipate incurring
in 2002 material capital expenditures for compliance with federal, state and
local environmental laws and regulations. There can be no assurance, however,
that changes in environmental regulations will not result in the need for
additional capital expenditures or otherwise impose additional financial burdens
on the Company. Further, such regulations could restrict the Company's ability
to expand its operations. Any failure by the Company to obtain required permits
for, control the use of, or adequately restrict the discharge of, hazardous
substances under present or future regulations could subject the Company to
substantial liability or could cause its manufacturing operations to be
suspended.
The Company presently holds a permit from the New Jersey
Department of Environmental Protection ("NJDEP"), Division of Environmental
Quality, Air Pollution Control Program relating to its operation of certain
process equipment, which permit expires in June, 2003. The Company has held such
a permit for this equipment on a substantially continuous basis since
approximately April, 1989. The Company also has authorization under the New
Jersey Pollution Discharge Elimination System/Discharge to Surface Waters
General Industrial Stormwater Permit, Permit No. NJ0088315. This permit will
expire January 2003.
10
EMPLOYEES
The Company employs approximately 418 people, including 320 in
manufacturing, 22 in research and development, 15 in quality assurance, 16 in
production services, 26 in sales and marketing, and 19 in a general and
administrative capacity. 235 of the Company's employees are members of the
International Brotherhood of Electrical Workers Union, Local 2066, which has a
three year labor agreement with the Company expiring in February, 2005. The
Company considers its relations with its employees to be good.
ITEM 2. PROPERTIES
The Company's principal manufacturing, engineering, sales and
administrative facilities consist of one building totaling approximately 130,000
square feet located on approximately 20 acres of land in Old Bridge, New Jersey
(the "OLD BRIDGE FACILITY") which is owned by the Company. The Company also
leases office space in Cudahy, Wisconsin for which it pays rent of approximately
$300 per month.
Management believes that the Old Bridge Facility is adequate to
support the Company's anticipated needs in 2002. Subject to compliance with
applicable zoning and building codes, the Old Bridge real property is large
enough to double the size of the plant to accommodate expansion of the Company's
operations should the need arise.
ITEM 3. 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, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter ended December 31, 2001, through the solicitation of proxies or
otherwise.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock has been traded on the American Stock
Exchange since the Company's initial public offering on December 14, 1995. The
following table sets forth for the fiscal quarters indicated, the high and low
sale prices for the Company's Common Stock on the American Stock Exchange.
MARKET INFORMATION
Fiscal Year Ended December 31, 2001: HIGH LOW
---- ---
First Quarter .................................. 4.125 2.120
Second Quarter.................................. 4.000 2.160
Third Quarter .................................. 4.230 2.960
Fourth Quarter ................................. 4.290 3.000
Fiscal Year Ended December 31, 2000: HIGH LOW
---- ---
First Quarter .................................. 10 3/4 5
Second Quarter.................................. 9 3/4 6 7/16
Third Quarter .................................. 8 6
Fourth Quarter.................................. 6 1/4 2 5/8
The Company's Common Stock is traded on the American Stock
Exchange under the symbol "BDR".
HOLDERS
As of March 22, 2002, the Company had approximately 65 holders of
record of the Common Stock. Since a portion of the Company's common stock is
held in "street" or nominee name, the Company is unable to determine the exact
number of beneficial holders.
DIVIDENDS
The Company currently anticipates that it will retain all of its
earnings to finance the operation and expansion of its business, and therefore
does not intend to pay dividends on its Common Stock in the foreseeable future.
Other than in connection with certain "S" corporation distributions prior to its
initial public offering, the Company has never declared or paid any cash
dividends on its Common Stock. Any determination to pay dividends in the future
is at the discretion of the Company's Board of Directors and will depend upon
the Company's financial condition, results of operations, capital requirements,
limitations contained in loan agreements and such other factors as the Board of
Directors deems relevant. The Company's loan agreement with Commerce Bank, N.A.
prohibits the payment of cash dividends by the Company on its Common Stock.
12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of earnings data presented
below for each of the years ended December 31, 2001, 2000 and 1999, and the
selected consolidated balance sheet data as of December 31, 2001 and 2000, are
derived from, and are qualified by reference to, the audited consolidated
financial statements of the Company and notes thereto included elsewhere in this
Form 10-K. The selected consolidated statement of earnings data for the years
ended December 31, 1998 and 1997 and the selected consolidated balance sheet
data as of December 31, 1999, 1998 and 1997 are derived from audited
consolidated financial statements not included herein. The data set forth below
is qualified in its entirety by, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements, notes thereto and other
financial and statistical information appearing elsewhere herein.
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2001 2000 1999 1998(1) 1997
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF EARNINGS DATA:
Net sales .................................. $53,627 $70,196 $56,805 $70,792 $62,057
Cost of goods sold ......................... 36,928 46,974 39,074 45,344 39,656
------- ------- ------- ------- -------
Gross profit ............................. 16,699 23,222 17,731 25,448 22,401
------- ------- ------- ------- -------
Operating expenses:
Selling, general and administrative ...... 11,209 13,572 13,598 10,755 9,938
Research and development ................. 2,200 2,125 2,070 2,156 1,954
------- ------- ------- ------- -------
Total operating expenses ................. 13,409 15,697 15,668 12,911 11,892
------- ------- ------- ------- -------
Earnings from operations ................... 3,290 7,525 2,063 12,537 10,509
Interest expense ........................... 1,369 1,948 2,008 1,596 414
Other (income) expense, net ................ 0 (10) (6) (40) (595)
------- ------- ------- ------- -------
Earnings before income taxes ............... 1,921 5,587 61 10,981 10,690
Provision for income taxes ................. 704 2,011 2 3,868 4,276
------- ------- ------- ------- -------
Net earnings ............................... $ 1,217 $ 3,576 $ 59 $ 7,113 $ 6,414
======= ======= ======= ======= =======
Basic earnings per share ................... $ 0.16 $ 0.47 $ 0.01 $ 0.86 $ 0.78
Basic weighted average shares
outstanding(2) ........................... 7,613 7,620 7,916 8,292 8,227
Diluted earnings per share ................. $ 0.16 $ 0.47 $ 0.01 $ 0.84 $ 0.77
Diluted weighted average shares
outstanding(2) ........................... 7,637 7,632 7,958 8,471 8,375
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2001 2000 1999 1998(1) 1997
------- ------- ------- ------- -------
(In thousands)
CONSOLIDATED BALANCE SHEET DATA:
Working capital ............................ $31,254 $27,154 $25,456 $17,049 $26,055
Total assets ............................... 64,386 62,834 66,076 69,651 42,272
Long-term debt (including
current maturities) ...................... 16,195 16,184 20,607 22,359 5,054
Stockholders' equity ....................... 39,962 39,096 35,247 40,496 31,795
- ----------
(1) On March 26, 1998, the Company acquired all of the assets and technology
rights of Scientific-Atlanta, Inc.'s interdiction business.
(2) Weighted average shares are calculated in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE COMPANY'S HISTORICAL
RESULTS OF OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES SHOULD BE READ IN
CONJUNCTION WITH "SELECTED CONSOLIDATED FINANCIAL DATA" AND THE CONSOLIDATED
FINANCIAL STATEMENTS OF THE COMPANY AND NOTES THERETO APPEARING ELSEWHERE
HEREIN.
OVERVIEW
The Company was incorporated in November, 1988, under the laws of
Delaware as GPS Acquisition Corp. for the purpose of acquiring the business of
Blonder-Tongue Laboratories, Inc., a New Jersey corporation which was founded in
1950 by Ben H. Tongue and Isaac S. Blonder (the "FORMER BLONDER-TONGUE") to
design, manufacture and supply a line of electronics and systems equipment
principally for the Private Cable industry. Following the acquisition, the
Company changed its name to Blonder Tongue Laboratories, Inc.
The Company's success is due in part to management's efforts to
leverage the Company's reputation by broadening its product line to offer
one-stop shop convenience to private cable and franchise cable system
integrators and to deliver products having a high performance-to-cost ratio.
In December 1995, the Company successfully concluded an initial
public offering of 2,200,000 shares of its Common Stock. Thereafter, in January
1996, the Company's underwriters exercised their over-allotment option, as a
result of which an additional 181,735 shares of the Company's Common Stock were
sold. The proceeds received by the Company from the sale of its Common Stock in
the offering (including shares sold pursuant to the over-allotment option), net
of expenses of the offering and certain S Corporation distributions to the
Company's principal stockholders, were approximately $14,045,000. These funds
were used to acquire the Company's Old Bridge Facility and to reduce the
Company's outstanding bank debt. The Company has further enhanced its liquidity
through a long-term loan secured by a mortgage against the Old Bridge Facility.
On March 26, 1998, the Company acquired all of the assets and
technology rights, including the SMI Interdiction product line, of the
interdiction business (the "INTERDICTION BUSINESS") of Scientific-Atlanta, Inc.
("SCIENTIFIC") for a purchase price consisting of (i) $19 million in cash, (ii)
67,889 shares of the Company's common stock, (iii) a warrant to purchase 150,000
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 other current liabilities of the Interdiction Business. The Company is
utilizing the SMI Interdiction product line acquired from Scientific, which has
been engineered primarily to serve the franchise cable market, as a supplement
to the Company's VideoMask(TM) Interdiction 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 position in the franchise cable market.
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal periods indicated,
certain consolidated statement of earnings data as a percentage of net sales:
Year Ended December 31,
---------------------------------------
2001 2000 1999
---------- --------- ---------
Net sales 100.0% 100.0% 100.0%
Costs of goods sold 68.9 66.9 68.8
Gross profit 31.1 33.1 31.2
Selling expenses 9.3 8.5 10.6
General and administrative expenses 11.6 10.9 13.3
Research and development expenses 4.1 3.0 3.6
Earnings from operations 6.1 10.7 3.6
Other (income) expense, net 2.5 2.8 3.5
Earnings before income taxes 3.6 7.9 0.1
14
2001 COMPARED WITH 2000
NET SALES. Net sales decreased $16,569,000 or 23.6%, to
$53,627,000 in 2001 from $70,196,000 in 2000. The substantially higher sales
recorded in the prior fiscal year were primarily attributable to shipments
against a large interdiction order booked in the fourth quarter of 1999. Net
sales included approximately $7,962,000 of interdiction equipment for 2001
compared to approximately $29,400,000 in 2000.
COST OF GOODS SOLD. Cost of goods sold decreased to $36,928,000
for 2001 from $46,974,000 for 2000, primarily due to decreased volume, and
increased as a percentage of sales to 68.9% in 2001 from 66.9% in 2000. The
increase as a percentage of sales was caused primarily by a greater proportion
of sales during the period being comprised of lower margin products, including
the Motorola QAM decoder which was introduced in the fourth quarter of 2001, as
well as an increase in obsolescence reserves.
SELLING EXPENSES. Selling expenses decreased to $5,009,000 in 2001
from $5,943,000 in 2000, and increased as a percentage of sales to 9.3% in 2001
from 8.5% in 2000. The $934,000 decrease is primarily attributable to a decrease
in wages and fringe benefits related to the decrease in headcount along with a
decrease in commissions and freight expense as a result of reduced sales.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses decreased to $6,200,000 in 2001 from $7,629,000 in 2000, and increased
as a percentage of sales to 11.6% in 2001 from 10.9% in 2000. The $1,429,000
decrease is primarily attributable to a decrease in consulting fees, investor
relations fees, travel and entertainment, and bad debts.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development
expenses increased to $2,200,000 in 2001 from $2,125,000 in 2000, and increased
as a percentage of sales to 4.1% in 2001 from 3.0% in 2000. The $75,000 increase
is primarily attributable to an increase in wages, fringe benefits and
consulting expenses.
EARNINGS FROM OPERATIONS. Earnings from operations decreased 56.3%
to $3,290,000 in 2001 from $7,525,000 in 2000. Earnings from operations as a
percentage of sales decreased to 6.1% in 2001 from 10.7% in 2000.
INTEREST AND OTHER EXPENSE. Interest and other expenses consisted
of $1,369,000 of interest expense in 2001. Interest and other expenses in 2000
consisted of $1,948,000 of interest expense offset by $10,000 of interest
income. The decrease in interest expense is primarily attributable to a
reduction in the Company's long term debt and lower average interest rates.
INCOME TAXES. The provision for income taxes for 2001 decreased to
$704,000 from $2,011,000 in 2000, as a result of a decrease in taxable income.
2000 COMPARED WITH 1999
NET SALES. Net sales increased $13,391,000 or 23.6%, to
$70,196,000 in 2000 from $56,805,000 in 1999. The increase in sales is primarily
attributed to an increase in sales of interdiction equipment primarily to the
franchise cable market. Net sales included approximately $29,400,000 of
interdiction equipment for 2000 compared to approximately $11,006,000 in 1999.
COST OF GOODS SOLD. Cost of goods sold increased to $46,974,000
for 2000 from $39,074,000 for 1999, primarily due to increased volume, and
decreased as a percentage of sales to 66.9% in 2000 from 68.8% in 1999. 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 decreased to $5,943,000 in 2000
from $6,025,000 in 1999, and decreased as a percentage of sales to 8.5% in 2000
from 10.6% in 1999. The $82,000 decrease is primarily attributable to a decrease
in the costs incurred for advertising and marketing materials.
15
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased to $7,629,000 in 2000 from $7,573,000 in 1999 and decreased
as a percentage of sales to 10.9% in 2000 from 13.3% in 1999. The $56,000
increase can be attributable primarily to an increase in depreciation expense
related to computer equipment.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development
expenses increased 2.7 % to $2,125,000 in 2000 from $2,070,000 in 1999. The
increase is primarily due to an increase in departmental supplies. Research and
development expenses decreased as a percentage of sales to 3.0% from 3.6%.
EARNINGS FROM OPERATIONS. Earnings from operations increased
264.8% to $7,525,000 in 2000 from $2,063,000 in 1999. Earnings from operations
as a percentage of sales increased to 10.7% in 2000 from 3.6% in 1999.
INTEREST AND EXPENSES. Other expenses in 2000 consisted of
$1,948,000 of interest expense offset by $10,000 of interest income. Other
expenses in 1999 consisted of $2,008,000 of interest expense offset by $6,000 of
interest income. The decrease in interest expense is primarily attributed to
decreased borrowings under the Company's revolving line of credit and a
reduction in the Company's long term debt.
INCOME TAXES. The provision for income taxes for 2000 increased to
$2,011,000 from $2,000 for 1999 as a result of an increase in taxable income.
The Company's effective rate increased to 36% for 2000 from 3% in 1999 as a
result of state tax credits available to the Company and recognized in 1999,
along with an increase in taxable income.
INFLATION AND SEASONALITY
Inflation and seasonality have not had a material impact on the
results of operations of the Company. Fourth quarter sales in 2001 were slightly
impacted by fewer production days. The Company expects sales each year in the
fourth quarter to be impacted by fewer production days.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2001 and 2000, the Company's working capital
was $31,254,000 and $27,154,000, respectively. The increase in working capital
is attributable primarily to the reclassification as long term debt, of the
Company's obligations under its line of credit from First Union, as a result of
the refinancing transaction consummated during the first quarter of 2002 of the
Company's credit agreement. Historically, the Company has satisfied its cash
requirements primarily from net cash provided by operating activities and from
borrowings under its line of credit.
The Company's net cash provided by operating activities for the
year ended December 31, 2001 was $3,711,000 as a result of the Company's net
earnings, increased by a $3,169,000 increase in accounts payable and accrued
expenses, offset by the $4,423,000 increase in inventory, compared to cash
provided by operating activities for the year ended December 31, 2000 of
$6,256,000. Although sales decreased in 2001 as compared to 2000, accounts
receivable and inventory increased. Accounts receivable was lower in 2000
despite higher sales, primarily due to the fact that accounts receivable
relating to substantial purchases by Cablevision in 2000 were paid on an
accelerated basis to take advantage of the Company's 2%-10, net 30 day terms.
Inventory increased in connection with the Company becoming a value-added
distributor of Motorola's QAM decoder under an agreement signed in October,
2001.
Cash used in investing activities was $803,000, which was
attributable primarily to capital expenditures for new computers and test
equipment. The Company does not have any present plans or commitments for
material capital expenditures for fiscal year 2002.
Cash used in financing activities was $2,329,000 for the period
ended December 31, 2001, comprised of $4,356,000 in repayments of long-term debt
and $2,117,000 of increased borrowings under the First Union revolving line of
credit.
16
During 2001, the Company commenced efforts to refinance its line
of credit with First Union, and on March 20, 2002 the Company executed a credit
agreement with Commerce Bank, N.A. for a $19.5 million credit facility,
comprised of (i) a $7 million revolving line of credit under which funds may be
borrowed at LIBOR, plus a margin ranging from 1.75% to 2.50%, in each case
depending on the calculation of certain financial covenants, with a floor of 5%
through March 30, 2003, (ii) a $9 million term loan which bears interest at a
rate of 6.75% through September 30, 2002, and thereafter at a fixed rate ranging
from 6.50% to 7.25% to reset quarterly depending on the calculation of certain
financial covenants and (iii) a $3.5 million mortgage loan bearing interest at
7.5%. Borrowings under the revolving line of credit are limited to certain
percentages of eligible accounts receivable and inventory, as defined in the
credit agreement. The credit facility is collateralized by a security interest
in all of the Company's assets. The agreement also contains restrictions that
require the Company to maintain certain financial ratios as well as restrictions
on the payment of cash dividends. The maturity date of the new line of credit
with Commerce Bank is March 20, 2004. The term loan requires equal monthly
principal payments of $187,800 and matures on March 20, 2006. The mortgage loan
requires equal monthly principal payments of $19,444 and matures on March 20,
2017. The mortgage loan is callable after five years at the lender's option.
Upon execution of the credit agreement with Commerce Bank,
$14,953,900 was advanced to the Company, of which $14,827,000 was used to pay
all unpaid principal and accrued interest under the Company's prior line of
credit and term loans with First Union National Bank ("FIRST UNION").
As a result of the new credit agreement, the First Union debt has
been reflected based on the new terms in the accompanying balance sheet.
Prior to March 20, 2002, the Company had a $5.5 million revolving
line of credit with First Union on which funds could be borrowed at either the
bank's base rate plus a margin ranging from 0% to .625%, or LIBOR, plus a margin
ranging from 1.50% to 2.625%, in each case depending upon the calculation of
certain financial covenants (5.25% at December 31, 2001). At December 31, 2001,
the Company had $4,367,000 outstanding under the First Union line of credit. The
agreement contained restrictions that required the Company to maintain certain
financial ratios as well as restrictions on the payment of dividends. The
Company also had, prior to March 20, 2002, two outstanding term loans with First
Union (Old Term Loan A and Old Term Loan B) which accrued interest at a variable
interest rate. At December 31, 2001, the aggregate amount outstanding under both
term loans was $10,941,000.
At June 30, 2001, September 30, 2001 and December 31, 2001, the
Company was unable to meet certain of its financial covenants under the First
Union credit agreement, compliance with which was waived by First Union as of
June 30, 2001 and September 30, 2001. Also, in November 2001, the maturity date
of the First Union line of credit was extended until March 31, 2002 and the
Company agreed that one of the financial covenants which had previously been
deleted from the credit agreement would again become effective as of December
31, 2001. The average amount outstanding on the line of credit during 2001 was
$3,661,000 at a weighted average interest rate of 7.02%. The maximum amount
outstanding on the line of credit during 2001 was $5,183,000.
Annual maturities of long-term debt at December 31, 2001 are:
2002....................... $ 2,917,000
2003....................... 2,632,000
2004....................... 7,008,000
2005....................... 2,649,000
2006....................... 989,000
Thereafter................. --
-----------
$16,195,000
===========
The Company leases certain factory and automotive equipment under
noncancellable operating leases expiring at various dates through December,
2006.
17
Future minimum rental payments, required for all noncancellable
leases are as follows:
Capital Operating
---------- ---------
2002 ................................................. $ 327,000 $ 78,000
2003 ................................................. 194,000 58,000
2004 ................................................. 191,000 12,000
2005 ................................................. 186,000 --
2006 ................................................. 157,000 --
Thereafter ........................................... -- --
---------- --------
Total future minimum lease payments .................. 1,055,000 $148,000
========
Less: amounts representing interest ................. 168,000
----------
Present value of minimum lease payments .............. $ 887,000
==========
The Company currently anticipates that the cash generated from
operations, existing cash balances and amounts available under its credit
facility with Commerce Bank, will be sufficient to satisfy its foreseeable
working capital needs.
CRITICAL ACCOUNTING POLICIES
The Company prepares its financial statements in accordance with
accounting principles generally accepted in the United States. Preparing
financial statements in accordance with generally accepted accounting principles
requires the Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. The following paragraphs
include a discussion of some critical areas where estimates are required. You
should also review Note 1 to the financial statements for further discussion of
significant accounting policies.
The Company records revenue when products are shipped. Legal title
and risk of loss with respect to the products pass to customers at the point of
shipment. Customers do not have a right to return products shipped. The Company
provides an allowance for doubtful accounts on an estimated basis.
The Company evaluates its long-lived assets for impairment based
on the undiscounted future cash flows of such assets. If a long-lived asset is
identified as impaired, the value of the asset will be reduced to its fair
value.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("FAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." FAS 133 was adopted by the
Company on January 1, 2001. FAS 133 requires that all derivative instruments be
recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of the hedge
transaction and the type of hedge transaction. In August, 2001 the Company
terminated a previous interest rate swap agreement and recorded $82,000 in
additional interest expense. At December 31, 2001, the Company did not have any
derivative financial instruments. The adoption of this pronouncement did not
have a material effect on the Company's financial position or results of
operations.
In July 2001, the FASB issued FAS No. 141, "Business Combinations" and
No. 142, "Goodwill and Other Intangible Assets." FAS 141 requires the use of the
purchase method of accounting and prohibits the use of the pooling-of-interests
method of accounting for business combinations initiated after June 30, 2001.
FAS 142 addresses financial accounting and reporting for acquired goodwill and
other intangible assets. FAS 142 requires, among other things, that companies no
longer amortize goodwill, but instead test goodwill for impairment at least
annually. FAS 142 is required to be applied for fiscal years beginning after
December 15, 2001. This statement also requires that entities complete a
transitional goodwill impairment test six months from the date of adoption and
reassess the useful lives of other intangible assets within the first quarter of
its adoption. The Company is in the process of completing this test and,
accordingly, has not yet determined what effect the adoption of this statement
18
will have on its financial statements. The Company's previous business
combinations were accounted for using the purchase method. As of December 31,
2001, the net carrying amount of goodwill is $10,760,000 and other intangible
assets is $4,038,000. Amortization of goodwill during the year ended December
31, 2001 was $970,000.
In August 2001, the FASB issued FAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The new guidance resolves
significant implementation issues related to FAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
FAS 144 supersedes FAS 121, but it retains its fundamental provisions. It also
amends Accounting Research Bulletin No. 51, Consolidated Financial Statements,
to eliminate the exception to consolidate a subsidiary for which control is
likely to be temporary. FAS 144 retains the requirement of FAS 121 to recognize
an impairment loss only if the carrying amount of a long-lived asset within the
scope of FAS 144 is not recoverable from its undiscounted cash flows and exceeds
its fair value.
FAS 144 is effective for fiscal years beginning after December 15, 2001,
and interim periods within those fiscal years, with early application
encouraged. The provisions of FAS 144 generally are to be applied prospectively.
The Company believes that the adoption of FAS 144 will not have a material
impact on the Company's financial position or results of operations.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK
Blonder Tongue's business operates in a rapidly changing
environment that involves a number of risks, some of which are beyond the
Company's control. The following discussion highlights some of these risks which
are not otherwise addressed elsewhere in this Annual Report. There can be no
assurance that the Company will anticipate the evolution of industry standards
in CATV or the communications industry generally, changes in the market and
customer needs, or that technologies and applications under development by the
Company will be successfully developed, or if they are successfully developed,
that they will achieve market acceptance. The competition to attract and retain
highly-skilled engineering, manufacturing, marketing and managerial personnel is
intense. Capital spending by cable operators for constructing, rebuilding,
maintaining or upgrading their systems (upon which the Company's sales and
profitability are dependent) is dependent on a variety of factors, including
access to financing, demand for their cable services, availability of
alternative video delivery technologies, and general economic conditions.
Factors such as announcements of technological innovations or new products by
the Company, its competitors or third parties, quarterly variations in the
Company's actual or anticipated results of operations, market conditions for
emerging growth stocks or cable industry stocks in general, or the failure of
revenues or earnings in any quarter to meet the investment community's
expectations, may cause the market price of the Company's Common Stock to
fluctuate significantly. The stock price may also be affected by broader market
trends unrelated to the Company's performance.
ITEM 7A. 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 December 31, 2001 and 2000 the principal amount of the
Company's aggregate outstanding variable rate indebtedness was $15,308,000 and
$17,178,000, respectively. A hypothetical 1% adverse change in interest rates
would have had an annualized unfavorable impact of approximately $7,191 and
$15,852, respectively, on the Company's earnings and cash flows based upon these
year-end debt levels. At December 31, 2001, the Company did not have any
derivative financial instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference from the consolidated financial
statements and notes thereto of the Company which are attached hereto beginning
on page 24.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
19
PART III
ITEMS 10. THROUGH 13. INCORPORATED BY REFERENCE
The information called for by Item 10 "Directors and Executive
Officers of the Registrant," Item 11 "Executive Compensation," Item 12 "Security
Ownership of Certain Beneficial Owners and Management" and Item 13 "Certain
Relationships and Related Transactions" is incorporated herein by reference to
the Company's definitive proxy statement for its Annual Meeting of Stockholders
scheduled to be held May 3, 2002, which definitive proxy statement is expected
to be filed with the Commission not later than 120 days after the end of the
fiscal year to which this report relates. Note that the sections in the
definitive proxy statement entitled "Report of Compensation Committee on
Executive Compensation Policies" and "Comparative Stock Performance" pursuant to
Regulation S-K, Item 402(a)(9), are not deemed "soliciting material" or "filed"
as part of this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Independent Certified Public Accountants ............. 25
Consolidated Balance Sheets as of December 31, 2001 and 2000 ... 26
Consolidated Statements of Earnings for the Years Ended
December 31, 2001, 2000 and 1999 ............................. 27
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 2001, 2000 and 1999 ....................... 28
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2001, 2000 and 1999 ....................... 29
Notes to Consolidated Financial Statements ..................... 30
(A)(2) FINANCIAL STATEMENT SCHEDULES.
Included in Part IV of this report:
Schedule II Valuation and Qualifying Accounts and Reserves
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the applicable instructions or are inapplicable and therefore
have been omitted.
(A)(3) EXHIBITS
The exhibits are listed in the Index to Exhibits appearing below
and are filed herewith or are incorporated by reference to exhibits previously
filed with the Commission.
(B) No reports on Form 8-K were filed in the quarter ended December
31, 2001.
20
(C) EXHIBITS:
EXHIBIT # DESCRIPTION LOCATION
- --------- ----------- --------
3.1 Restated Certificate of Incorporated by reference from
Incorporation of Blonder Tongue Exhibit 3.1 to Registrant's S-1
Laboratories, Inc. Registration Statement No.
33-98070, filed October 12, 1995,
as amended.
3.2 Restated Bylaws of Blonder Tongue Incorporated by reference from
Laboratories, Inc. Exhibit 3.2 to Registrant's S-1
Registration Statement No.
33-98070, filed October 12, 1995,
as amended.
4.1 Specimen of stock certificate Incorporated by reference from
Exhibit 4.1 to Registrant's S-1
Registration Statement No.
33-98070, filed October 12, 1995,
as amended.
10.1 Consulting Agreement, dated Incorporated by reference from
January 1, 1995, between Blonder Exhibit 10.3 to Registrant's S-1
Tongue Laboratories, Inc. and Registration Statement No.
James H. Williams. 33-98070, filed October 12, 1995,
as amended.
10.2 1994 Incentive Stock Option Plan. Incorporated by reference from
Exhibit 10.5 to Registrant's S-1
Registration Statement No.
33-98070, filed October 12, 1995,
as amended.
10.3 1995 Long Term Incentive Plan. Incorporated by reference from
Exhibit 10.6 to Registrant's S-1
Registration Statement No.
33-98070, filed October 12, 1995,
as amended.
10.4 Amended and Restated 1996 Incorporated by reference from
Director Option Plan. Appendix B to Registrant's Proxy
Statement for its 1998 Annual
Meeting of Stockholders, filed
March 27, 1998.
10.5 Employment Agreement, dated Incorporated by reference from
August 1, 1995, between Blonder Exhibit 10.9 to Registrant's S-1
Tongue Laboratories, Inc. and Registration Statement No.
Daniel J. Altiere. 33-98070, filed October 12, 1995,
as amended.
10.6 Form of Indemnification Agreement Incorporated by reference from
entered into by Blonder Tongue Exhibit 10.10 to Registrant's S-1
Laboratories, Inc. in favor of Registration Statement No.
each of its Directors and 33-98070, filed October 12, 1995,
Officers. as amended.
10.7 VideoCipher(R) IICM Commercial Incorporated by reference from
Descrambler Module Master Exhibit 10.11 to Registrant's S-1
Purchase and License Agreement, Registration Statement No.
dated August 23, 1990, between 33-98070, filed October 12, 1995,
Blonder Tongue Laboratories, Inc. as amended.
and Cable/Home Communication
Corp.
+10.8 Patent License Agreement, dated Incorporated by reference from
August 21, 1995, between Blonder Exhibit 10.12 to Registrant's S-1
Tongue Laboratories, Inc. and Registration Statement No.
Philips Electronics North America 33-98070, filed October 12, 1995,
Corporation. as amended.
+10.9 Interdiction Technology License Incorporated by reference from
Agreement, dated August 21, 1995, Exhibit 10.13 to Registrant's S-1
between Blonder Tongue Registration Statement No.
Laboratories, Inc. and Philips 33-98070, filed October 12, 1995,
Broadband Networks, Inc. as amended.
21
EXHIBIT # DESCRIPTION LOCATION
- --------- ----------- --------
10.10 401(k) Savings & Investment Incorporated by reference from
Retirement Plan. Exhibit 10.21 to S-1 Registration
Statement No. 33-98070, filed
October 12, 1995, as amended.
10.11 Bargaining Unit Pension Plan. Incorporated by reference from
Exhibit 10.22 to S-1 Registration
Statement No. 33-98070, filed
October 12, 1995, as amended.
10.12 Mortgage, Assignment of Leases, Incorporated by reference from
and Security Agreement dated May Exhibit 10.2 to Registrant's
23, 1996 by Blonder Tongue Quarterly Report on Form 10-Q for
Laboratories, Inc. in favor of the period ended June 30, 1996,
CoreStates Bank, N.A., successor filed August 14, 1996.
to Meridian Bank.
10.13 Real Estate Loan Note dated May Incorporated by reference from
23, 1996 from Blonder Tongue Exhibit 10.3 to Registrant's
Laboratories, Inc. in favor of Quarterly Report on Form 10-Q for
CoreStates Bank, N.A., successor the period ended June 30, 1996,
to Meridian Bank. filed August 14, 1996.
10.14 Allonge to Real Estate Loan Note, Incorporated by reference from
dated September 26, 1996 from Exhibit 10.3 to Registrant's
Blonder Tongue Laboratories, Quarterly Report on Form 10-Q for
Inc., in favor of CoreStates the period ended September 30,
Bank, N.A., successor to Meridian 1996, filed November 14, 1996.
Bank.
10.15 Executive Officer Bonus Plan Incorporated by reference from
Exhibit 10.3 to Registrant's
Quarterly Report on Form 10-Q for
the period ended March 31, 1997,
filed May 13, 1997.
10.16 Third Amendment to 1995 Long Term Incorporated by reference from
Incentive Plan Appendix A to Registrant's Proxy
Statement for its 2000 Annual
Meeting of Stockholders, filed
April 4, 2000.
10.17 Fifth Amended and Restated Loan Incorporated by reference from
Agreement dated November 12, 1999 Exhibit 10.18 to Registrant's
between Blonder Tongue Annual Report on Form 10-K for
Laboratories, Inc. and First fiscal year ended December 31,
Union National Bank 1999, filed March 30, 2000.
10.18 Third Allonge to Real Estate Note Incorporated by reference from
dated November 12, 1999 from Exhibit 10.20 to Registrant's
Blonder Tongue Laboratories, Inc. Annual Report on Form 10-K for
to First Union National Bank fiscal year ended December 31,
1999, filed March 30, 2000.
10.19 Term Note dated November 12, 1999 Incorporated by reference from
by Blonder Tongue Laboratories, Exhibit 10.21 to Registrant's
Inc. in favor of First Union Annual Report on Form 10-K for
National Bank fiscal year ended December 31,
1999, filed March 30, 2000.
10.20 First Amendment and Waiver to Incorporated by reference from
Fifth Amended and Restated Loan Exhibit 10.1 to Registrant's
Agreement dated March 24, 2000 Quarterly Report on Form 10-Q for
the period ended March 31, 2000,
filed May 12, 2000.
10.21 Second Restatement of the Fifth Incorporated by reference from
Amended and Restated Line of Exhibit 10.1 to Registrant's
Credit Note dated as of August Quarterly Report on Form 10-Q for
11, 2000 the period ended September 30,
2000, filed November 14, 2000.
10.22 Second Amendment and Waiver to Incorporated by reference from
Fifth Amended and Restated Loan Exhibit 10.2 to Registrant's
Agreement dated as of August 11, Quarterly Report on Form 10-Q for
2000 the period ended September 30,
2000, filed November 14, 2000.
22
EXHIBIT # DESCRIPTION LOCATION
- --------- ----------- --------
10.23 Second Amendment to Consulting Incorporated by reference from
and Non-Competition Agreement Exhibit 10.1 to Registrant's
between Registrant and James H. Quarterly Report on Form 10-Q for
Williams, dated as of June 30, the period ended June 30, 2000,
2000. filed August 14, 2000.
10.24 Fourth Amendment to Fifth Amended Incorporated by reference from
and Restated Loan Agreement dated Exhibit 10.1 to Registrant's
as of March 27, 2001 between Quarterly Report on Form 10-Q for
Blonder Tongue Laboratories, Inc. the period ended March 31, 2001,
and First Union National Bank. filed May 14, 2001.
10.25 Waiver dated August 13, 2001, to Incorporated by reference from
Fifth Amended and Restate Loan Exhibit 10.1 to Registrant's
Agreement between Blonder Tongue Quarterly Report on Form 10-Q for
Laboratories, Inc. and First the period ended September 30,
Union National Bank. 2001, filed November 14, 2001.
21 Subsidiaries of Blonder Tongue Filed herewith.
Laboratories, Inc.
23 Consent of BDO Seidman, LLP Filed herewith.
- ----------
+ Certain portions of exhibit have been afforded confidential treatment by
the Securities and Exchange Commission.
(D) FINANCIAL STATEMENT SCHEDULES:
Report of BDO Seidman, LLP on financial statement schedule.
The following financial statement schedule is included on page 45 of this
Annual Report on Form 10-K: Schedule II. Valuation and Qualifying Accounts
and Reserves
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the applicable
instructions or are inapplicable and therefore have been omitted.
23
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Certified Public Accountants .......................... 25
Consolidated Balance Sheets as of December 31, 2001 and 2000 ................ 26
Consolidated Statements of Earnings for the Years Ended
December 31, 2001, 2000 and 1999 .......................................... 27
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 2001, 2000 and 1999 .................................... 28
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999 .......................................... 29
Notes to Consolidated Financial Statements .................................. 30
24
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
The Board of Directors and Stockholders
Blonder Tongue Laboratories, Inc.:
We have audited the accompanying consolidated balance sheets of Blonder Tongue
Laboratories, Inc. and subsidiaries as of December 31, 2001 and 2000 and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Blonder
Tongue Laboratories, Inc. and subsidiaries as of December 31, 2001 and 2000, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America.
BDO Seidman, LLP
Woodbridge, New Jersey
February 22, 2002, except for Note 4 which is dated March 20, 2002
25
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
December 31,
--------------------
2001 2000
-------- --------
ASSETS (Note 4)
Current assets:
Cash .................................................. $ 942 $ 363
Accounts receivable, net of allowance for doubtful
accounts of $1,833 and $1,424 respectively (Note 8) ... 8,564 7,125
Inventories, net (Note 2) ............................. 30,216 26,333
Other current assets .................................. 932 3,264
Deferred income taxes (Note 12) ....................... 1,746 1,804
-------- --------
Total current assets ................................ 42,400 38,889
Property, plant and equipment, net of accumulated
depreciation and amortization (Notes 3 and 5) ......... 7,137 7,644
Patents, net ............................................ 3,454 3,943
Goodwill, net ........................................... 10,760 11,730
Other assets ............................................ 585 628
Deferred income taxes (Note 12) ......................... 50
-------- --------
$ 64,386 $ 62,834
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit (Note 4) ..................... $ -- $ 2,250
Current portion of long-term debt (Note 4) ............ 2,917 4,382
Accounts payable ...................................... 6,672 2,833
Accrued compensation .................................. 867 1,143
Accrued benefit liability ............................. 270 --
Other accrued expenses ................................ 218 659
Income taxes .......................................... 202 468
-------- --------
Total current liabilities ........................... 11,146 11,735
-------- --------
Deferred income taxes (Note 12) ......................... -- 201
Long-term debt (Note 4) ................................. 13,278 11,802
Commitments and contingencies (Notes 5, 6 and 7) ........ -- --
Stockholders' equity (Notes 9 and 11):
Preferred stock, $.001 par value; authorized
5,000 shares; no shares outstanding ................... -- --
Common stock, $.001 par value; authorized
25,000 shares, 8,444 shares issued .................... 8 8
Paid-in capital ....................................... 24,143 24,143
Retained earnings ..................................... 22,448 21,231
Accumulated other comprehensive loss (Note 6) ......... (351) --
Treasury stock, at cost, 831 shares (Note 9) .......... (6,286) (6,286)
-------- --------
Total stockholders' equity .......................... 39,962 39,096
-------- --------
$ 64,386 $ 62,834
======== ========
See accompanying notes to consolidated financial statements
26
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended December 31,
----------------------------------
2001 2000 1999
-------- -------- --------
Net sales (Note 8) ....................... $ 53,627 $ 70,196 $ 56,805
Cost of goods sold ....................... 36,928 46,974 39,074
-------- -------- --------
Gross profit ......................... 16,699 23,222 17,731
-------- -------- --------
Operating expenses:
Selling expenses ..................... 5,009 5,943 6,025
General and administrative ........... 6,200 7,629 7,573
Research and development ............. 2,200 2,125 2,070
-------- -------- --------
13,409 15,697 15,668
-------- -------- --------
Earnings from operations ................. 3,290 7,525 2,063
-------- -------- --------
Other income (expense):
Interest expense ..................... (1,369) (1,948) (2,008)
Other income ......................... -- 10 6
-------- -------- --------
(1,369) (1,938) (2,002)
-------- -------- --------
Earnings before income taxes ............. 1,921 5,587 61
Provision for income taxes (Note 12) ..... 704 2,011 2
-------- -------- --------
Net earnings ......................... $ 1,217 $ 3,576 $ 59
======== ======== ========
Basic earnings per share (Note 10) ....... $ 0.16 $ 0.47 $ 0.01
======== ======== ========
Basic weighted average shares
outstanding (Note 10) .................. 7,613 7,620 7,916
======== ======== ========
Diluted earnings per share (Note 10) ..... $ 0.16 $ 0.47 $ 0.01
======== ======== ========
Diluted weighted average shares
outstanding (Note 10) .................. 7,637 7,632 7,958
======== ======== ========
See accompanying notes to consolidated financial statements
27
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
Accumulated
Common Stock Other
------------------ Paid-in Retained Comprehensive Treasury
Shares Amount Capital Earnings Loss Stock Total
------ ------- ------- ------- ------- -------- --------
Balance at January 1, 1999 .................. 8,370 $ 8 $23,743 $17,596 $ -- $ (851) $ 40,496
Proceeds from exercise of stock options ... 22 -- 127 -- -- -- 127
Acquisition of treasury stock ............. -- -- -- -- -- (5,435) (5,435)
Net earnings .............................. -- -- -- 59 -- -- 59
----- ------- ------- ------- ------- -------- --------
Balance at December 31, 1999 ................ 8,392 8 23,870 17,655 -- (6,286) 35,247
Proceeds from exercise of stock options ... 52 -- 273 -- -- -- 273
Net earnings .............................. -- -- -- 3,576 -- -- 3,576
----- ------- ------- ------- ------- -------- --------
Balance at December 31, 2000 ................ 8,444 8 24,143 21,231 -- (6,286) 39,096
Net earnings ................................ -- -- -- 1,217 -- -- 1,217
Unrecognized pension liability,
net of tax (Note 6) ....................... -- -- -- -- (351) -- (351)
--------
Comprehensive income ........................ 866
----- ------- ------- ------- ------- -------- --------
Balance at December 31, 2001 ................ 8,444 $ 8 $24,143 $22,448 $ (351) $ (6,286) $ 39,962
===== ======= ======= ======= ======= ======== ========
See accompanying notes to consolidated financial statements
28
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Year Ended December 31,
--------------------------
2001 2000 1999
------ ------ ------
Cash Flows From Operating Activities:
Net earnings .................................... $1,217 $3,576 $ 59
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation .................................. 1,310 1,464 1,464
Amortization .................................. 1,502 1,537 1,530
Provision for inventory reserves .............. 540 211 119
Provision for doubtful accounts ............... 307 741 1,043
Deferred income taxes ......................... 4 (570) 67
Changes in operating assets and liabilities:
Accounts receivable ......................... (1,746) 2,103 4,976
Inventories ................................. (4,423) 249 (2,695)
Other current assets ........................ 2,054 (1,257) (1,410)
Other assets ................................ 43 -- (47)
Income taxes ................................ (266) 154 44
Accounts payable and accrued expenses ....... 3,169 (1,952) 2,233
------ ------ ------
Net cash provided by operating activities . 3,711 6,256 7,383
------ ------ ------
Cash Flows From Investing Activities:
Capital expenditures ......................... (803) (368) (1,197)
Acquisition of licenses ...................... -- (501) --
------ ------ ------
Net cash used in investing activities ..... (803) (869) (1,197)
------ ------ ------
Cash Flows From Financing Activities:
Net borrowings (repayments) under
revolving line of credit ...................... 2,117 (922) 1,345
Repayments of long-term debt .................... (4,356) (4,423) (2,717)
Deferred financing costs ........................ (90) -- --
Proceeds from exercise of stock options ......... -- 273 127
Acquisition of treasury stock ................... -- -- (5,435)
------ ------ ------
Net cash used in financing activities ..... (2,329) (5,072) (6,680)
------ ------ ------
Net increase (decrease) in cash ................... 579 315 (494)
Cash, beginning of year ........................... 363 48 542
------ ------ ------
Cash, end of year ................................. $ 942 $ 363 $ 48
====== ====== ======
Supplemental Cash Flow Information:
Cash paid for interest .......................... $1,447 $1,955 $2,025
Cash paid for income taxes ...................... 966 2,070 660
====== ====== ======
Non-cash investing and financing activities:
Capital lease obligations ....................... $ -- $ -- $ 965
See accompanying notes to consolidated financial statements
29
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) COMPANY AND BASIS OF PRESENTATION
Blonder Tongue Laboratories, Inc. (the "COMPANY") is a designer,
manufacturer and supplier of electronics and systems equipment for the cable
television industry, primarily throughout the United States. The consolidated
financial statements include the accounts of Blonder Tongue Laboratories, Inc.
and subsidiaries as discussed below. Significant intercompany accounts and
transactions have been eliminated in consolidation.
(B) INVENTORIES
Inventories are stated at the lower of cost, determined by the
first-in, first-out ("FIFO") method, or market.
(C) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The Company provides
for depreciation generally on the straight-line method based upon estimated
useful lives of 3 to 5 years for office equipment, 5 to 7 years for furniture
and fixtures, 6 to 10 years for machinery and equipment, 10 to 15 years for
building improvements and 40 years for the manufacturing and administrative
office facility.
(D) INCOME TAXES
The Company accounts for income taxes under the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Deferred income taxes are provided for temporary differences in the recognition
of certain income and expenses for financial and tax reporting purposes.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
(E) INTANGIBLE ASSETS
Intangible assets, net totaling $14,799 and $16,301 as of December 31,
2001 and 2000, respectively, consist of goodwill, prepaid licensing fees, and
acquired patent rights, and are carried at cost less accumulated amortization.
Amortization is computed utilizing the straight-line method over the estimated
useful life of the respective asset, 3 to 15 years. Accumulated amortization was
$6,628 and $5,126 for 2001 and 2000, respectively.
(F) LONG-LIVED ASSETS
The Company follows Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 standardized the accounting
practices for the recognition and measurement of impairment losses on certain
long-lived assets based on non-discounted cash flows. No impairment losses have
been recorded through December 31, 2001.
(G) STATEMENTS OF CASH FLOWS
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments with a maturity of less than three
months at purchase to be cash equivalents. The Company did not have any cash
equivalents at December 31, 2001, 2000 and 1999.
(H) RESEARCH AND DEVELOPMENT
Research and development expenditures for the Company's projects are
expensed as incurred.
30
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(I) REVENUE RECOGNITION
The Company records revenues when products are shipped. Customers do
not have a right to return products shipped. The Company provides an allowance
for doubtful accounts on an estimated basis.
(J) EARNINGS PER SHARE
Earnings per share are calculated in accordance with the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 128, "Earnings per Share" ("SFAS 128"), which provides for the calculation
of "basic" and "diluted" earnings per share. Basic earnings per share includes
no dilution and is computed by dividing net earnings by the weighted average
number of common shares outstanding for the period. Diluted earnings per share
reflect, in periods in which they have a dilutive effect, the effect of common
shares issuable upon exercise of stock options.
(K) TREASURY STOCK
Treasury Stock is recorded at cost. Gains and losses on disposition are
recorded as increases or decreases to additional paid-in capital with losses in
excess of previously recorded gains charged directly to retained earnings.
(L) DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes interest rate swaps to manage interest rate
exposures. The Company specifically designates interest rate swaps as hedges of
debt instruments and recognizes interest differentials as adjustments to
interest expense in the period they occur. The Company does not hold or issue
financial instruments for trading purposes.
(M) SIGNIFICANT RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Approximately 56% of the Company's employees are covered by a three
year collective bargaining agreement, which expires in February 2005.
The Company estimates that headend products accounted for approximately
52% of the Company's revenues in 2001, 40% in 2000 and 60% in 1999. Any
substantial decrease in sales of headend products could have a material adverse
effect on the Company's results of operations, financial condition, and cash
flows.
The Company purchases several products from sole suppliers for which
alternative sources are not available, such as the VideoCipher(R) and
DigiCipher(R) encryption systems manufactured by Motorola, Inc., which are
standard encryption methodologies employed on U.S. C-Band and Ku-Band
transponders and Hughes Network Systems digital satellite receivers for delivery
of DIRECTV(TM) programming. An inability to timely obtain sufficient quantities
of these components could have a material adverse effect on the Company's
operating results. The Company does not have a supply agreement with Motorola,
Inc. or any other supplier. The Company submits purchase orders to its suppliers
on an as-needed basis.
(N) SHIPPING AND HANDLING COSTS
Shipping and handling costs are recorded as a component of selling
expenses. Revenues from shipping and handling are not significant.
31
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(O) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standard ("FAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities." FAS 133 was
adopted by the Company on January 1, 2001. FAS 133 requires that all derivative
instruments be recorded on the balance sheet at fair value. Changes in the fair
value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
the hedge transaction and the type of hedge transaction. In August, 2001 the
Company terminated a previous interest rate swap agreement and recorded $82 in
additional interest expense. At December 31, 2001 the Company did not have any
derivative financial instruments. The adoption of this pronouncement did not
have a material effect on the Company's financial position or results of
operations.
In July 2001, the FASB issued FAS No. 141, "Business Combinations" and
No. 142, "Goodwill and Other Intangible Assets." FAS 141 requires the use of the
purchase method of accounting and prohibits the use of the pooling-of-interests
method of accounting for business combinations initiated after June 30, 2001.
FAS 142 addresses financial accounting and reporting for acquired goodwill and
other intangible assets. FAS 142 requires, among other things, that companies no
longer amortize goodwill, but instead test goodwill for impairment at least
annually. FAS 142 is required to be applied for fiscal years beginning after
December 15, 2001. This statement also requires that entities complete a
transitional goodwill impairment test six months from the date of adoption and
reassess the useful lives of other intangible assets within the first quarter of
its adoption. The Company is in the process of completing this test and,
accordingly, has not yet determined what effect the adoption of this statement
will have on its financial statements. The Company's previous business
combinations were accounted for using the purchase method. As of December 31,
2001, the net carrying amount of goodwill is $10,760 and other intangible assets
is $4,038. Amortization of goodwill during the year ended December 31, 2001 was
$970.
In August 2001, the FASB issued FAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The new guidance resolves
significant implementation issues related to FAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
FAS 144 supersedes FAS 121, but it retains its fundamental provisions. It also
amends Accounting Research Bulletin No. 51, Consolidated Financial Statements,
to eliminate the exception to consolidate a subsidiary for which control is
likely to be temporary. FAS 144 retains the requirement of FAS 121 to recognize
an impairment loss only if the carrying amount of a long-lived asset within the
scope of FAS 144 is not recoverable from its undiscounted cash flows and exceeds
its fair value.
FAS 144 is effective for fiscal years beginning after December 15,
2001, and interim periods within those fiscal years, with early application
encouraged. The provisions of FAS 144 generally are to be applied prospectively.
The Company believes that the adoption of FAS 144 will not have a material
impact on the Company's financial position or results of operations.
NOTE 2 - INVENTORIES
Inventories, net of reserves, are summarized as follows:
December 31,
------------------
2001 2000
------- -------
Raw materials ............................................ $13,071 $11,346
Work in process .......................................... 2,797 3,261
Finished goods ........................................... 14,348 11,726
------- -------
$30,216 $26,333
======= =======
32
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
December 31,
------------------
2001 2000
------- -------
Land ..................................................... $ 1,000 $ 1,000
Building ................................................. 3,361 3,361
Machinery and equipment .................................. 7,365 6,817
Furniture and fixtures ................................... 398 398
Office equipment ......................................... 1,713 1,482
Building improvements .................................... 640 616
------- -------
14,477 13,674
Less: Accumulated depreciation and amortization ......... (7,340) (6,030)
------- -------
$ 7,137 $ 7,644
======= =======
NOTE 4 - DEBT
During 2001, the Company commenced efforts to refinance its
line of credit with First Union, and on March 20, 2002 the Company executed a
credit agreement with Commerce Bank, N.A. for a $19,500 credit facility,
comprised of (i) a $7,000 revolving line of credit under which funds may be
borrowed at LIBOR, plus a margin ranging from 1.75% to 2.50%, in each case
depending on the calculation of certain financial covenants, with a floor of 5%
through March 30, 2003, (ii) a $9,000 term loan which bears interest at a rate
of 6.75% through September 30, 2002, and thereafter at a fixed rate ranging from
6.50% to 7.25% to reset quarterly depending on the calculation of certain
financial covenants and (iii) a $3,500 mortgage loan bearing interest at 7.5%.
Borrowings under the revolving line of credit are limited to certain percentages
of eligible accounts receivable and inventory, as defined in the credit
agreement. The credit facility is collateralized by a security interest in all
of the Company's assets. The agreement also contains restrictions that require
the Company to maintain certain financial ratios as well as restrictions on the
payment of cash dividends. The maturity date of the new line of credit with
Commerce Bank is March 20, 2004. The term loan requires equal monthly principal
payments of $187 and matures on March 20, 2006. The mortgage loan requires equal
monthly principal payments of $19 and matures on March 20, 2017. The mortgage
loan is callable after five years at the lender's option.
Upon execution of the credit agreement with Commerce Bank,
$14,954 was advanced to the Company, of which $14,827 was used to pay all unpaid
principal and accrued interest under the Company's prior line of credit and term
loans with First Union National Bank ("FIRST UNION").
As a result of the new credit agreement, the First Union debt
has been reflected based on the new terms in the accompanying balance sheet.
Prior to March 20, 2002, the Company had a $5,500 revolving
line of credit with First Union on which funds could be borrowed at either the
bank's base rate plus a margin ranging from 0% to .625%, or LIBOR, plus a margin
ranging from 1.50% to 2.625%, in each case depending upon the calculation of
certain financial covenants (5.25% at December 31, 2001). At December 31, 2001,
the Company had $4,367 outstanding under the First Union line of credit. The
agreement contained restrictions that required the Company to maintain certain
financial ratios as well as restrictions on the payment of dividends. The
Company also had, prior to March 20, 2002, two outstanding term loans with First
Union (Old Term Loan A and Old Term Loan B) which accrued interest at a variable
interest rate. At December 31, 2001, the aggregate amount outstanding under both
term loans was $10,941.
At June 30, 2001, September 30, 2001 and December 31, 2001,
the Company was unable to meet certain of its financial covenants under the
First Union credit agreement, compliance with which was waived by First Union as
of June 30, 2001 and September 30, 2001. Also, in November 2001, the maturity
date of the First
33
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
Union line of credit was extended until March 31, 2002 and the Company agreed
that one of the financial covenants which had previously been deleted from the
credit agreement would again become effective as of December 31, 2001. The
average amount outstanding on the line of credit during 2001 was $3,661 at a
weighted average interest rate of 7.02%. The maximum amount outstanding on the
line of credit during 2001 was $5,183.
The fair value of the debt approximates the recorded value
based on the borrowing rates currently available to the Company for loans with
similar terms and maturities.
Long-term debt consists of the following:
December 31,
------------------
2001 2000
------- -------
Revolving Line of Credit ................................. $ 4,367 $ --
Term Loan ................................................ 9,000 --
Mortgage loan ............................................ 1,941 --
Old Term Loan B .......................................... -- 1,944
Old Term Loan A .......................................... -- 12,983
Capital leases (Note 5) .................................. 887 1,257
------- -------
16,195 16,184
Less: Current portion ................................... (2,917) (4,382)
------- -------
$13,278 $11,802
======= =======
Annual maturities of long-term debt at December 31, 2001 are:
2002....................... $ 2,917
2003....................... 2,632
2004....................... 7,008
2005....................... 2,649
2006....................... 989
Thereafter................. -
---------
$ 16,195
=========
NOTE 5 - COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain factory and automotive equipment
under noncancellable operating leases expiring at various dates through
December, 2006.
34
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
Future minimum rental payments, required for all
noncancellable leases are as follows:
Capital Operating
------- -------
2002 ..................................................... $ 327 $ 78
2003 ..................................................... 194 58
2004 ..................................................... 191 12
2005 ..................................................... 186 --
2006 ..................................................... 157 --
Thereafter ............................................... -- --
------- -------
Total future minimum lease payments ...................... 1,055 $ 148
=======
Less: amounts representing interest ..................... 168
-------
Present value of minimum lease payments .................. $ 887
=======
Property, plant and equipment included capitalized leases of
$2,552, less accumulated amortization of $1,477, at December 31, 2001, and
capitalized leases of $2,514, less accumulated amortization of $1,149, at
December 31, 2000.
Rent expense was $111, $160 and $217 for the years ended
December 31, 2001, 2000 and 1999, respectively.
LITIGATION
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, results of operations or cash flows.
NOTE 6 - BENEFIT PLANS
DEFINED CONTRIBUTION PLAN
The Company has a defined contribution plan covering all full
time non-union employees qualified under Section 401(k) of the Internal Revenue
Code, in which the Company matches a portion of an employee's salary deferral.
The Company's contributions to this plan were $208, $185, and $254 for the years
ended December 31, 2001, 2000 and 1999, respectively.
DEFINED BENEFIT PENSION PLAN
Substantially all union employees who meet certain
requirements of age, length of service and hours worked per year are covered by
a Company sponsored non-contributory defined benefit pension plan. Benefits paid
to retirees are based upon age at retirement and years of credited service. Net
periodic pension cost for this plan includes the following components:
December 31,
---------------------------
Components of net periodic pension cost: ...... 2001 2000 1999
----- ----- -----
Service cost .................................. $ 155 $ 121 $ 121
Interest cost ................................. 116 80 76
Actual return on plan assets .................. (105) (148) (29)
Recognized net actuarial (gain) loss .......... 27 63 (33)
----- ----- -----
Net periodic pension cost ..................... $ 193 $ 116 $ 135
===== ===== =====
35
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
The funded status of the plan and the amounts recorded in the
Company's consolidated balance sheets are as follows:
December 31,
------------------
2001 2000
------- -------
Change in benefit obligation:
Benefit obligation at beginning of year .......... $ 1,299 $ 1,248
Service cost ..................................... 155 121
Interest cost .................................... 116 80
Actuarial (gain) loss ............................ 369 (87)
Benefits paid .................................... (34) (63)
------- -------
Benefit obligation at end of year ................ 1,905 1,299
------- -------
Change in plan assets:
Fair value of plan assets at beginning of year ... 1,427 1,158
Actual return on plan assets ..................... (9) 148
Employer contribution ............................ 191 184
Benefits paid .................................... (34) (63)
------- -------
Fair value of plan assets at end of year ......... 1,575 1,427
------- -------
Funded status..................................... (329) 129
Unrecognized net actuarial loss .................. 694 209
Unrecognized net transition liability ............ (50) (60)
------- -------
Prepaid benefit cost ............................. $ 315 $ 278
======= =======
Key economic assumptions used in these determinations were:
December 31,
------------------
2001 2000
------- -------
Discount rate .................................... 7.0% 7.0%
Expected long-term rate of return ................ 7.0% 7.0%
During 2001, the Company recorded an unrecognized pension
liability of $351 as an accumulated other comprehensive loss adjustment to
stockholders' equity. This amount represents a portion of the unrecognized net
actuarial loss for the year ending December 31, 2001.
NOTE 7 - RELATED PARTY TRANSACTIONS
On January 1, 1995, the Company entered into a consulting and
non-competition agreement with a director, who is also the second largest
stockholder. Under the agreement, the director provides consulting services on
various operational and financial issues and is currently paid at an annual rate
of $158 but in no event is such annual rate permitted to exceed $200. The
director also agreed to keep all Company information confidential and will not
compete directly or indirectly with the Company for the term of the agreement
and for a period of two years thereafter. The initial term of this Agreement
expires on December 31, 2004 and automatically renews thereafter for successive
one-year terms (subject to termination at the end of the initial term or any
renewal term on at least 90 days' notice).
36
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 8 - CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash deposits
and trade accounts receivable.
The Company maintains cash balances at several banks located
in the northeastern United States. As part of its cash management process, the
Company periodically reviews the relative credit standing of these banks.
Credit risk with respect to trade accounts receivable is
concentrated with five of the Company's customers. These customers accounted for
approximately 29% and 35% of the Company's outstanding trade accounts receivable
at December 31, 2001 and 2000, respectively. These customers are distributors of
telecommunications and private cable television components, and providers of
franchise and private cable television service. The Company performs ongoing
credit evaluations of its customers' financial condition, uses credit insurance
and requires collateral, such as letters of credit, to mitigate its credit risk.
The deterioration of the financial condition of one or more of its major
customers could adversely impact the Company's operations. From time to time
where the Company determines that circumstances warrant, such as when a customer
agrees to commit to a large blanket purchase order, the Company extends payment
terms beyond its standard payment terms.
For the year ended December 31, 2001, the Company's largest
customer accounted for approximately 14% of the Company's sales. This customer
also accounted for approximately 11% of the Company's sales in 2000 and for
approximately 14% of the Company's sales in 1999. At December 31, 2001, this
customer accounted for approximately 11% of the Company's outstanding trade
accounts receivable. At December 31, 2001, two other customers accounted for 12%
and 11%, respectively, of the Company's outstanding trade accounts receivable.
Management believes these amounts to be collectible. For the year ending
December 31, 2000, the Company's largest customer accounted for approximately
29% of the Company's sales.
NOTE 9 - STOCKHOLDERS' EQUITY
On May 17, 1999, the Company commenced a self tender offer to
purchase 750 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 shares were
tendered and the Company accepted 750 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.
37
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 10 - EARNINGS PER SHARE
Basic and diluted earnings per share for each of the three
years ended December 31, 2001, 2000 and 1999 are calculated as follows:
Net Income Shares Per Share
(Numerator) (Denominator) Amount
-------------------------------------
For the year ended December 31, 2001:
Basic earnings per share $1,217 7,613 $0.16
Effect of assumed conversion of
employee stock options -- 24 --
--------------------------------
Diluted earnings per share $1,217 7,637 $0.16
================================
For the year ended December 31, 2000:
Basic earnings per share $3,576 7,620 $0.47
Effect of assumed conversion of
employee stock options -- 12 --
--------------------------------
Diluted earnings per share $3,576 7,632 $0.47
================================
For the year ended December 31, 1999:
Basic earnings per share $ 59 7,916 $0.01
Effect of assumed conversion of
employee stock options -- 42 --
--------------------------------
Diluted earnings per share $ 59 7,958 $0.01
================================
The diluted share base excludes incremental shares of 888,
850, and 837 related to stock options and a warrant for December 31, 2001, 2000
and 1999, respectively. These shares were excluded due to their antidilutive
effect.
NOTE 11 - STOCK OPTION PLANS
In 1994, the Company established the 1994 Incentive Stock
Option Plan (the "1994 PLAN"). The 1994 Plan provides for the granting of
Incentive Stock Options to purchase shares of the Company's common stock to
officers and key employees at a price not less than the fair market value at the
date of grant as determined by the compensation committee of the Board of
Directors. The maximum number of shares available for issuance under the plan
was 298. Options become exercisable as determined by the compensation committee
of the Board of Directors at the date of grant. Options expire ten years from
the date of grant.
38
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
In October, 1995, the Company's Board of Directors and
stockholders approved the 1995 Long Term Incentive Plan (the "1995 PLAN"). The
1995 Plan provides for grants of "incentive stock options" or nonqualified stock
options, and awards of restricted stock, to executives and key employees,
including officers and employee Directors. The 1995 Plan is administered by the
Compensation Committee of the Board of Directors, which determines the optionees
and the terms of the options granted under the 1995 Plan, including the exercise
price, number of shares subject to the option and the exercisability thereof, as
well as the recipients and number of shares awarded for restricted stock awards;
provided, however, that no employee may receive stock options or restricted
stock awards which would result, separately or in combination, in the
acquisition of more than 100 shares of Common Stock of the Company under the
1995 Plan. The exercise price of incentive stock options granted under the 1995
Plan must be equal to at least the fair market value of the Common Stock on the
date of grant. With respect to any optionee who owns stock representing more
than 10% of the voting power of all classes of the Company's outstanding capital
stock, the exercise price of any incentive stock option must be equal to at
least 110% of the fair market value of the Common Stock on the date of grant,
and the term of the option may not exceed five years. The term of all other
incentive stock options granted under the 1995 Plan may not exceed ten years.
The aggregate fair market value of Common Stock (determined as of the date of
the option grant) for which an incentive stock option may for the first time
become exercisable in any calendar year may not exceed $100. The exercise price
for nonqualified stock options is established by the Compensation Committee, and
may be more or less than the fair market value of the Common Stock on the date
of grant.
Stockholders have previously approved a total of 900 shares of
common stock for issuance under the 1995 Plan, as amended to date.
In May, 1998, the stockholders of the Company approved the
Amended and Restated 1996 Director Option Plan (the "AMENDED 1996 PLAN"). Under
the plan, Directors who are not currently employed by the Company or any
subsidiary of the Company and have not been so employed within the preceding six
months are eligible to receive options from time to time to purchase the number
of shares of Common Stock determined by the Board in its discretion; provided,
however, that no Director is permitted to receive options to purchase more than
5 shares of Common Stock in any one calendar year. The exercise price for such
shares is the fair market value thereof on the date of grant, and the options
vest as determined in each case by the Board of Directors. Options granted under
the Amended 1996 Plan must be exercised within 10 years from the date of grant.
A maximum of 100 shares of Common Stock are subject to issuance under the
Amended 1996 Plan. The plan is administered by the Board of Directors.
In 1996, the Board of Directors granted a non-plan,
non-qualified option for 10 shares to an individual, who was not an employee or
director of the Company at the time of the grant. The option was originally
exercisable at $10.25 per share and expires in 2006. This option was repriced to
$6.88 per share on September 17, 1998.
39
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
The following tables summarize information about stock options
outstanding for each of the three years ended December 31, 1999, 2000 and 2001:
Weighted-
Average Weighted-Average
1994 Exercise 1995 Exercise 1996 Weighted-Average
Plan (#) Price ($) Plan (#) Price ($) Plan (#) Exercise Price ($)
---------------------------------------------------------------------------------------------
Shares under option:
Outstanding at
January 1, 1999 122 5.30 661 7.00 26 6.91
Granted -- -- 51 6.54 8 6.53
Exercised (8) 3.97 (14) 6.88 -- --
Forfeited (3) 4.33 (42) 6.88 -- --
Outstanding at
December 31, 1999 111 5.42 656 6.97 34 6.82
Granted -- -- 156 6.78 20 7.03
Exercised (23) 3.44 (28) 6.88 -- --
Forfeited -- -- (55) 6.82 -- --
Outstanding at
December 31, 2000 88 5.93 729 6.94 54 6.90
Granted 34 2.88 130 2.95 20 2.88
Exercised -- -- -- -- -- --
Forfeited (35) 9.19 (92) 7.72 -- --
Outstanding at
December 31, 2001 87 3.42 767 6.18 74 5.80
Options exercisable at
December 31, 2001 56 3.72 497 6.85 54 6.90
Weighted-average fair
value of options granted
during: 1999 -- $4.93 $4.97
2000 -- $4.49 $4.51
2001 $2.22 $2.28 $2.22
Total options available for grant were 105 and 106 at December 31, 2001
and December 31, 2000, respectively.
40
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
Options Outstanding Options Exercisable
--------------------------------------- ----------------------------------
Range of Number of Options Weighted-Average Weighted-Average Number Weighted-Average
Exercise Outstanding at Remaining Exercise Price Exercisable Exercise Price
Prices ($) 12/31/01 Contractual Life ($) at 12/31/01 ($)
- ------------------ -------------------- ------------------ ------------------ -------------- ------------------
1994 Plan:
2.57 to 2.88 55 6.3 2.74 24 2.57
4.33 29 3.4 4.33 29 4.33
6.88 3 4.9 6.88 3 6.88
---- ----
2.57 to 6.88 87 5.3 3.42 56 3.72
==== ====
1995 Plan:
2.79 to 3.19 120 9.1 2.89 - -
3.64 10 9.6 3.64 - -
5.88 to 6.75 159 8.4 6.63 67 6.57
6.88 to 7.38 473 5.4 6.89 427 6.88
8.63 5 7.7 8.63 3 8.63
---- ----
767 6.6 6.18 497 6.85
==== ====
1996 Plan:
2.88 20 9.1 2.88 - -
6.53 8 7.5 6.53 8 6.53
6.88 to 7.03 45 6.9 6.95 45 6.95
8.50 1 1.0 8.50 1 8.50
---- ----
74 7.5 5.80 54 6.90
==== ====
41
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
The Corporation has adopted the disclosures only provisions of
SFAS 123. Accordingly, no compensation cost has been recognized for the stock
option plans. Had compensation cost been recognized for the stock option plans
based on the fair value at the date of grant consistent with the provisions of
SFAS No. 123, the Corporation's net earnings and net earnings per share would
have been reduced to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31,
------------------------
2001 2000 1999
------ ------ ------
Net earnings - as reported $1,217 $3,576 $ 59
Net (loss) earnings - pro forma 748 3,103 (625)
Basic earnings per share - as reported 0.16 0.47 0.01
Basic (loss) earnings per share - pro forma 0.10 0.41 (0.08)
Diluted earnings per share - as reported 0.16 0.47 0.01
Diluted (loss) earnings per share - pro forma 0.10 0.41 (0.08)
The fair market value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants:
Year Ended December 31,
-----------------------------
2001 2000 1999
------- ------- -------
Expected volatility 71% 68% 63%
Risk-free interest rate 5.03% 6.2% 5.7%
Expected lives 9.5 6 10
Dividend yield none none none
NOTE 12 - INCOME TAXES
The following summarizes the provision for income taxes:
Year Ended December 31,
--------------------------
2001 2000 1999
------- ------- ----
Current:
Federal ....................................... $ 660 $ 2,438 $ 59
State and local ............................... 40 143 10
------- ------- ----
700 2,581 69
Deferred:
Federal ....................................... 3 (554) (58)
State and local ............................... 1 (16) (9)
------- ------- ----
4 (570) (67)
------- ------- ----
Provision for income taxes ....................... $ 704 $ 2,011 $ 2
======= ======= ====
42
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
The provision for income taxes on adjusted historical income
differs from the amounts computed by applying the applicable Federal statutory
rates due to the following:
Year Ended December 31,
----------------------
2001 2000 1999
---- ------ ----
Provision for Federal income taxes at
the statutory rate .................................. $653 $1,900 $ 21
State and local income taxes, net of
Federal benefit ..................................... 26 75 6
Adjustment of prior year's accruals ................... -- -- (25)
Other, net ............................................ 25 36 --
---- ------ ----
Provision for income taxes ............................ $704 $2,011 $ 2
==== ====== ====
Significant components of the Company's deferred tax assets
and liabilities are as follows:
December 31,
------------------
2001 2000
------- -------
Deferred tax assets:
Allowance for doubtful accounts $ 660 $ 513
Inventory 946 633
Accrued vacation 140 240
Other - Long Term 316 522
------- -------
Total deferred tax assets 2,062 1,908
------- -------
Deferred tax liabilities:
Depreciation (266) (305)
------- -------
Total deferred tax liabilities (266) (305)
------- -------
$ 1,796 $ 1,603
======= =======
NOTE 13 - QUARTERLY FINANCIAL INFORMATION - UNAUDITED
2001 QUARTERS 2000 QUARTERS
-------------------------------------- ----------------------------------------
First Second Third Fourth First Second Third Fourth
----------------------------------------------------------------------------------
Net sales $10,745 $12,752 $16,064 $14,066 $21,180 $18,062 $18,937 $12,017
Gross profit 3,646 4,577 5,251 3,225 6,990 7,028 5,651 3,553
Net earnings (loss) (207) 498 1,034 (108) 1,581 1,752 828 (585)
Basic earnings (loss) per share (.03) .07 .14 (.02) .21 .23 .11 (.08)
Diluted earnings (loss) per share (.03) .07 .14 (.02) .21 .23 .11 (.08)
43
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Blonder Tongue Laboratories, Inc.:
The audits referred to in our report dated February 22, 2002, except for Note 4
which is dated March 20, 2002, relating to the consolidated financial statements
of Blonder Tongue Laboratories, Inc. and subsidiaries, which is contained in
Item 8 of this Form 10-K, included the audit of the financial statement schedule
listed in the accompanying index. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO Seidman, LLP
Woodbridge, New Jersey
February 22, 2002
44
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- --------- -------- --------
Additions
Balance at Charged Charged
Allowance for Doubtful Beginning to to Other Deductions Balance at
Accounts of Period Expenses Accounts Write-offs End of Period
-------- --------- -------- -------- ---------- -------------
Year ended December 31, 2001: $1,424 $ 409 -- -- $1,833
Year ended December 31, 2000: $ 683 $ 741 -- -- $1,424
Year ended December 31, 1999: $1,201 $1,043 -- ($1,561) $ 683
INVENTORY RESERVE
Year ended December 31, 2001: $1,403 $ 540 -- -- $1,943
Year ended December 31, 2000: $1,192 $ 211 -- -- $1,403
Year ended December 31, 1999: $1,073 $ 119 -- -- $1,192
45
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: March 28, 2002 By: /s/ JAMES A. LUKSCH
------------------------------------------
James A. Luksch
President and Chief Executive Officer
By: /s/ ERIC SKOLNIK
-------------------------------------------
Eric Skolnik, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
Director, President and Chief March 28, 2002
/s/ JAMES A. LUKSCH Executive Officer (Principal
- --------------------------- Executive Officer)
James A. Luksch
Chief Financial Officer March 28, 2002
/s/ ERIC SKOLNIK (Principal Financial
- --------------------------- Officer and Principal
Eric Skolnik Accounting Officer)
Director, Executive Vice March 28, 2002
/s/ ROBERT J. PALLE, JR. President, Chief Operating
- --------------------------- Officer, Secretary
Robert J. Palle, Jr. and Treasurer
/s/ JOHN E. DWIGHT Director March 28, 2002
- ---------------------------
John E. Dwight
/s/ JAMES H. WILLIAMS Director March 28, 2002
- ---------------------------
James H. Williams
/s/ JAMES F. WILLIAMS Director March 28, 2002
- ---------------------------
James F. Williams
46
/s/ ROBERT B. MAYER Director March 28, 2002
- ---------------------------
Robert B. Mayer
/s/ GARY P. SCHARMETT Director March 28, 2002
- ---------------------------
Gary P. Scharmett
/s/ ROBERT E. HEATON Director March 28, 2002
- ---------------------------
Robert E. Heaton
47