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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, 2000, 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.
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(Exact name of registrant as specified in its charter)
Delaware 52-1611421
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer 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:
Title of each class Name of Exchange on which registered
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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
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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 21, 2001, as
reported by the American Stock Exchange): $8,122,330.
Number of shares of common stock, par value $.001, outstanding as of March 21,
2001: 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 4, 2001 (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.
Blonder Tongue's product line includes essentially all the
electronic equipment needed to build a small private cable, small cable TV, or
security system. This one stop shop philosophy builds loyalty with contractors
who can rely on a single supplier of known quality and service. 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. The line now includes digital satellite receivers, cable
modems, fiber communications network components, QPSK to QAM transcoders (for
DirecTV, Echostar and Digicipher II MPEG-2 Satellite Services), 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 slowly 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. All 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.
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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.
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. This alternative supplier, or
"overbuilder," market is also growing rapidly. 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.
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 and interdiction products.
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
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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 2000 and
accelerated growth is anticipated in the year 2001 and beyond as the Company's
contacts and opportunities in the Caribbean and Latin America continue to
mature.
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
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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 except for systems deploying expensive digital decoders at each
television set, 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. In the completely digital environment which may develop over
the long term, all analog headend products will need to be replaced with pure
digital products. The Company and all other suppliers to private cable,
franchise cable and the television industry generally will need to design and
manufacture new products for that environment.
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 General
Instrument Corporation's VideoCipher(R) and DigiCipher(R) encryption
technologies, EchoStar Communication Corp.'s digital technologies and
Hughes Network Systems' digital technologies, and integrates their
decoders into integrated receiver/decoder products, where required. The
Company estimates that Headend Products accounted for approximately 40%
of the Company's revenues in 2000, 60% in 1999, and 70% in 1998.
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.
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
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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 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.
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
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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, 2000.
Marketing and Sales
Blonder Tongue markets and sells its products worldwide to
private cable integrators (which accounted for approximately 56% of the
Company's revenues for fiscal year 2000, approximately 80% for fiscal year 1999,
and approximately 65% for fiscal year 1998), 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 28 employees, which currently includes 14 salespersons (nine
salespersons in Old Bridge, New Jersey, one salesperson in each of Cincinnati,
Ohio, Cudahy, Wisconsin, Folsom, California, Tully, New York 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 $4.0 million and $17.3 million
in purchase orders as of December 31, 2000 and December 31, 1999, respectively.
The significantly higher number in 1999 was primarily the result of a large
purchase order that was booked in the fourth quarter. All of the purchase orders
outstanding as of December 31, 2000 are expected to be shipped prior to December
31, 2001. The purchase orders are for the future delivery of products and are
subject to cancellation by the customer.
Customers
Blonder Tongue has a broad customer base, which in 2000
consisted of more than 1,000 active accounts. Approximately 56%, 26% and 33% of
the Company's revenues in fiscal years 2000, 1999 and 1998, respectively, were
derived from sales of products to the Company's five largest customers. In 2000,
sales to Cablevision Systems Corporation and Toner Cable Equipment, Inc.
accounted for approximately 29% and 11%, respectively 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
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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 2000, 1999 and 1998. 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
General Instrument Corporation, which are standard encryption methodologies
employed on U.S. C-Band and Ku-Band transponders, EchoStar digital satellite
receiver decoders, which are specifically designed to work with the DISH
Network(TM), 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 General
Instrument Corporation or any other supplier. The Company submits purchase
orders to its suppliers on an as-needed basis.
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,
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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 leading supplier to private 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., General
Instrument Corporation ("GI"), Houston Tracker Systems, Inc., a subsidiary of
EchoStar Communications Corp. ("EchoStar"), Hughes Network Systems, a Hughes
Electronics Corporation ("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 GI relating to GI's
VideoCipher(R) encryption technology and is also a party to a private label
agreement with GI 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.
In November, 1996, the Company entered into a license
agreement with EchoStar, pursuant to which the Company is licensed to
manufacture and sell digital satellite receiver systems which are compatible
with digital programming transmitted by EchoStar's DISH Network(TM), for use in
the commercial market. The agreement is for a term of five years, expiring in
November, 2001. The EchoStar license agreement provides for the payment by the
Company of a one-time license fee and for the payment of royalties based upon
unit sales of licensed products.
During 1996, the Company also 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 2000 and does not
anticipate incurring in 2001 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, 2001. 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 2002.
10
Employees
The Company employs approximately 437 people, including 324 in
manufacturing, 22 in research and development, 15 in quality assurance, 28 in
production services, 28 in sales and marketing, and 20 in a general and
administrative capacity. 240 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, 2002. 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 Cincinnati, Ohio and Cudahy, Wisconsin for which it pays
rent of approximately $260 and $300 per month, respectively.
Management believes that the Old Bridge Facility is adequate
to support the Company's anticipated needs in 2001. 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, 2000, 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, 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
Fiscal Year Ended December 31, 1999: High Low
---- ---
First Quarter ............................. 7 7/8 5
Second Quarter............................. 7 3/8 4 7/8
Third Quarter ............................. 9 3/4 5 11/16
Fourth Quarter ............................ 8 5/8 4 3/4
The Company's Common Stock is traded on the American Stock
Exchange under the symbol "BDR".
Holders
As of March 21, 2001, the Company had approximately 67 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 First Union National Bank prohibits the payment of dividends by
the Company on its Common Stock, unless at the time of and after giving effect
to any proposed dividend payment, the Company is not in default under the loan
agreement and is in compliance with certain financial covenants relating to,
among other things, tangible net worth and debt service coverage.
12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of earnings data presented
below for each of the years ended December 31, 2000, 1999 and 1998, and the
selected consolidated balance sheet data as of December 31, 2000 and 1999, 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, 1997 and 1996 and the selected consolidated balance sheet
data as of December 31, 1998, 1997 and 1996 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,
-----------------------------------------------------------------------
2000 1999 1998(1) 1997 1996
---- ---- ------- ---- ----
(in thousands, except per share data)
Consolidated Statement of Earnings Data:
Net sales............................... $70,196 $56,805 $70,792 $62,057 $48,862
Cost of goods sold...................... 46,974 39,074 45,344 39,656 30,613
--------- --------- --------- --------- ---------
Gross profit.......................... 23,222 17,731 25,448 22,401 18,249
--------- --------- --------- --------- ---------
Operating expenses:
Selling, general and administrative... 13,572 13,598 10,755 9,938 9,135
Research and development.............. 2,125 2,070 2,156 1,954 1,972
--------- --------- --------- --------- ---------
Total operating expenses.............. 15,697 15,668 12,911 11,892 11,107
--------- --------- --------- --------- ---------
Earnings from operations................ 7,525 2,063 12,537 10,509 7,142
Interest expense........................ 1,948 2,008 1,596 414 658
Other (income) expense, net............. (10) (6) (40) (595) --
--------- --------- --------- --------- ---------
Earnings before income taxes ........... 5,587 61 10,981 10,690 6,484
Provisions for income taxes............. 2,011 2 3,868 4,276 2,601
--------- --------- --------- --------- ---------
Net earnings............................ $ 3,576 $ 59 $ 7,113 $ 6,414 $ 3,883
========= ========= ========= ========= =========
Basic earnings per share................ $ 0.47 $ 0.01 $ 0.86 $ 0.78 $ 0.48
Basic weighted average shares
outstanding(2).......................... 7,620 7,916 8,292 8,227 8,144
Diluted earnings per share.............. $ 0.47 $ 0.01 $ 0.84 $ 0.77 $ 0.47
Diluted weighted average shares
outstanding(2).......................... 7,632 7,958 8,471 8,375 8,300
Year Ended December 31,
-------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(in thousands)
Consolidated Balance Sheet Data:
Working capital....................... $27,154 $25,456 $17,049 $26,055 $23,015
Total assets.......................... 62,834 66,076 69,651 42,272 36,165
Long-term debt (including
current maturities) .................. 16,184 20,607 22,359 5,054 6,347
Stockholders' equity.................. 39,096 35,247 40,496 31,795 25,576
- ------------------
(1) On March 26, 1998, the Company acquired all of the assets and technology
rights of Scientific-Atlanta, Inc.'s interdiction business. See Note 11 to
the Company's consolidated financial statements.
(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.
In early 2000, the Company entered into a distributorship
agreement and a license agreement with GAD Line Ltd. in order to offer
high-speed cable modem products and certain telephony products to the franchise
cable market. During the past year, fierce competition among manufacturers of
these products imposed pressure on GAD Line's ability to make technologically
superior products available to the Company at competitive prices, as rapidly
declining market prices for these products and the resultant squeeze on gross
margins have made cable modems almost a commodity. In July, 2000, it was
announced that Com21, a major world supplier of high-speed cable modems, would
acquire GAD Line. Over the past several months, the Company has been negotiating
with Com21 to enter into suitable agreements to replace the existing contracts
with GAD Line, although given the changes that have occurred in this market, the
Company does not anticipate pursuing the sale of telephony products and has
substantially reduced its expectations as to the contribution to revenues that
cable modem products will provide. The Company considers the availability of
cable modems in its product line, however, consistent with its desire to remain
a "one-stop-shop" for its customers.
14
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,
----------------------------------
2000 1999 1998
--------- ---------- ---------
Net sales.................................. 100.0% 100.0% 100.0%
Costs of goods sold........................ 66.9 68.8 64.1
Gross profit............................... 33.1 31.2 35.9
Selling expenses........................... 8.5 10.6 6.8
General and administrative expenses........ 10.9 13.3 8.4
Research and development expenses.......... 3.0 3.6 3.0
Earnings from operations................... 10.7 3.6 17.7
Other (income) expense, net................ 2.8 3.5 2.2
Earnings before income taxes............... 7.9 0.1 15.5
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.
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.
15
1999 Compared with 1998
Net Sales. Net sales decreased $13,987,000, or 19.8%, to
$56,805,000 in 1999 from $70,792,000 in 1998. The decrease in sales is primarily
attributed to the decrease in demand for the Company's products in the private
cable market, due in part to the consolidation of private cable systems
operators in this market which took place during 1999. In addition, the Company
experienced a decrease in sales of interdiction equipment to both the franchise
and private cable markets. Net sales included approximately $11,006,000 of
interdiction equipment for 1999 compared to approximately $15,938,000 for 1998.
The decrease in sales of interdiction equipment was related to a delay in fourth
quarter shipments as a result of the development of the SLIU-II interdiction
product.
Cost of Goods Sold. Cost of goods sold decreased to
$39,074,000 for 1999 from $45,344,000 for 1998, primarily due to decreased
volume, and increased as a percentage of sales to 68.8% in 1999 from 64.1% in
1998. 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 additional start-up costs related to the Company's SLIU-II
interdiction product.
Selling Expenses. Selling expenses increased to $6,025,000 in
1999 from $4,823,000 in 1998, and increased as a percentage of sales to 10.6% in
1999 from 6.8% in 1998. The $1,202,000 increase was primarily due to an increase
in costs incurred for advertising and marketing materials along with an increase
in salaries and employee benefit expenses as a result of an increase in
headcount. The increase in selling expenses is directly related to the Company's
efforts to increase market penetration within the franchise cable market and the
promotion of new product lines such as fiber optic products and interdiction.
General and Administrative Expenses. General and
administrative expenses increased to $7,573,000 in 1999 from $5,932,000 for 1998
and increased as a percentage of sales to 13.3% in 1999 from 8.4% in 1998. The
$1,641,000 increase can be attributed to an increase in the bad debt expense, an
increase in the amortization of intangibles related to the acquisition of
Scientific-Atlanta, Inc.'s interdiction business and an increase in expenditures
for professional services rendered, offset by a decrease in the accrual for
executive bonuses. The increase in the bad debt expense was directly
attributable to customer accounts experiencing financial difficulties related to
the consolidation of the private cable market during 1999.
Research and Development Expenses. Research and development
expenses decreased 4.0% to $2,070,000 in 1999 from $2,156,000 in 1998. The
$86,000 decrease is primarily due to a reduction in the amortization of license
and patent agreements. Research and development expenses increased as a
percentage of sales to 3.6% from 3.0%.
Earnings from Operations. Earnings from operations decreased
83.5% to $2,063,000 for 1999 from $12,537,000 for 1998. Earnings from operations
as a percentage of sales decreased to 3.6% in 1999 from 17.7% in 1998.
Interest and Other Expenses. Other expenses in 1999 consisted
of $2,008,000 of interest expense offset by $6,000 of interest income. Other
expenses in 1998 consisted of $1,596,000 of interest expense offset by $40,000
of interest income. The increase in interest expense is primarily attributed to
increased borrowings under the Company's acquisition loan commitment (converted
to a term loan with the bank during 1999).
Income Taxes. The provision for income taxes for 1999
decreased to $2,000 from $3,868,000 for 1998 as a result of a decrease in
taxable income. The Company's effective tax rate decreased to 3% for 1999 from
35% for 1998 as a result of state tax credits available to the Company not
previously recognized, along with the decrease 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 2000 were
slightly impacted by fewer production days. The Company expects sales each year
in the fourth quarter to be impacted by fewer production days.
16
Liquidity and Capital Resources
As of December 31, 2000 and 1999, the Company's working
capital was $27,154,000 and $25,456,000, respectively. The increase in working
capital is attributable primarily to the current year net income, a decrease in
accounts receivable of $2,103,000, offset by the payment of accounts payable of
$1,811,000. 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, 2000 was $6,256,000 as a result of the Company's net
earnings, increased by the $2,103,000 decrease in accounts receivable offset by
a $1,952,000 decrease in accounts payable, and accrued expenses and the
$1,257,000 increase in other current assets, compared to cash provided by
operating activities for the year ended December 31, 1999 of $7,383,000.
Cash used in investing activities was $869,000, which was
attributable primarily to capital expenditures for new computers and test
equipment and acquisition of licenses. The Company does not have any present
plans or commitments for material capital expenditures for fiscal year 2001.
Cash used in financing activities was $5,072,000 for the
period ended December 31, 2000, comprised of $4,423,000 in repayments of
long-term debt and a $922,000 reduction in borrowings under the revolving line
of credit.
The Company has a $5.5 million revolving line of credit with
its bank on which funds may be borrowed at either the bank's base rate plus a
margin ranging from 0% to .625%, or LIBOR, plus a margin ranging from 1.50% to
2.625%, in each case depending upon the calculation of certain financial
covenants (8.9375% at December 31, 2000). At December 31, 2000, the Company had
$2,250,000 outstanding under the line of credit. Borrowings under the line of
credit are limited to certain percentages of eligible accounts receivable and
inventory as defined in the credit agreement. The line of credit is
collateralized by a security interest in all of the Company's assets. The
agreement also contains restrictions that require the Company to maintain
certain financial ratios as well as restrictions on the payment of dividends.
In March, 2001, the Company's credit agreement with its bank
was amended to retroactively modify certain financial covenants effective as of
December 31, 2000 and thereafter, as well as to extend the maturity date of the
line of credit until November 30, 2001. The Company is in compliance with all of
such financial covenants, as amended. The Company anticipates that it will
either conclude negotiations with its bank and obtain a further renewal of its
current credit facilities, or enter into new credit facilities with another
bank, prior to November 30, 2001.
The Company also has an outstanding term loan with its bank
related to the acquisition of Scientific-Atlanta's interdiction business (the
"S-A Term Loan"). The S-A Term Loan bears interest at either the bank's base
rate plus a margin ranging from 0% to .875%, or LIBOR plus a margin ranging from
1.75% to 2.875%, in each case depending upon the calculation of certain
financial covenants (9.2375% at December 31, 2000). At December 31, 2000, there
was $12,983,000 outstanding under the S-A Term Loan. The principal balance of
the S-A Term Loan is being amortized in monthly installments of $316,667 with a
final balloon payment of all remaining unpaid principal and accrued interest due
on June 30, 2002.
On February 3, 1999, the Company entered into an interest rate
swap agreement with a notional amount of $10,000,000. The swap agreement has a
maturity date of June 3, 2002 and requires the Company to make fixed rate
interest payments on the notional amount of 8.01% per annum in exchange for
floating rate payments equal to LIBOR plus 2.55%. The Company is exposed to
credit risk in the unlikely event of the nonperformance by the counterparties.
Interest to be paid or received is accrued over the life of the agreement at the
net effective interest rate for the swap and corresponding debt instrument.
The Company currently anticipates that the cash generated from
operations, existing cash balances and amounts available under its existing or a
replacement line of credit, will be sufficient to satisfy its foreseeable
working capital needs.
17
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 133 ("FAS 133").
"Accounting for Derivative Instruments and Hedging Activities." FAS 133 is
required to be adopted by the Company after December 31, 2000. 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.
Since the Company's interest rate swap is considered an effective hedge under
FAS 133, the effect of implementing FAS 133 in the quarter ending March 31, 2001
is not considered material.
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, 2000 and 1999 the principal amount of
the Company's aggregate outstanding variable rate indebtedness was $17,177,782
and $22,086,333, respectively. A hypothetical 1% adverse change in interest
rates would have had an annualized unfavorable impact of approximately $15,852
and $18,030, respectively, on the Company's earnings and cash flows based upon
these year-end debt levels. To ameliorate these risks, in February, 1999, the
Company entered into an interest rate Swap Agreement with a notional amount of
$10,000,000. The specific terms of the Swap Agreement are more fully discussed
above in Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.
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 23.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
18
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 4, 2001, 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............................................................ 24
Consolidated Balance Sheets as of December 31, 2000 and 1999................................................... 25
Consolidated Statements of Earnings for the Years Ended December 31, 2000, 1999 and 1998....................... 26
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998........... 27
Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998..................... 28
Notes to Consolidated Financial Statements..................................................................... 29
(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,
2000.
19
(c) Exhibits:
Exhibit # Description Location
--------- ----------- --------
3.1 Restated Certificate of Incorporation of Blonder Incorporated by reference from Exhibit 3.1
Tongue Laboratories, Inc. to Registrant's S-1 Registration Statement
No. 33-98070, filed October 12, 1995, as
amended.
3.2 Restated Bylaws of Blonder Tongue Laboratories, Incorporated by reference from Exhibit 3.2
Inc. 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 January 1, 1995, Incorporated by reference from Exhibit 10.3
between Blonder Tongue Laboratories, Inc. and to Registrant's S-1 Registration Statement
James H. Williams. No. 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 Director Option Plan. Incorporated by reference from Appendix B
to Registrant's Proxy Statement for its
1998 Annual Meeting of Stockholders, filed
March 27, 1998.
10.5 Employment Agreement, dated August 1, 1995, Incorporated by reference from Exhibit 10.9
between Blonder Tongue Laboratories, Inc. and to Registrant's S-1 Registration Statement
Daniel J. Altiere. No. 33-98070, filed October 12, 1995, as
amended.
10.6 Form of Indemnification Agreement entered into by Incorporated by reference from Exhibit
Blonder Tongue Laboratories, Inc. in favor of each 10.10 to Registrant's S-1 Registration
of its Directors and Officers. Statement No. 33-98070, filed October 12,
1995, as amended.
10.7 VideoCipher(R)IICM Commercial Descrambler Module Incorporated by reference from Exhibit
Master Purchase and License Agreement, dated 10.11 to Registrant's S-1 Registration
August 23, 1990, between Blonder Tongue Statement No. 33-98070, filed October 12,
Laboratories, Inc. and Cable/Home Communication 1995, as amended.
Corp.
+10.8 Patent License Agreement, dated August 21, 1995, Incorporated by reference from Exhibit
between Blonder Tongue Laboratories, Inc. and 10.12 to Registrant's S-1 Registration
Philips Electronics North America Corporation. Statement No. 33-98070, filed October 12,
1995, as amended.
+10.9 Interdiction Technology License Agreement, dated Incorporated by reference from Exhibit
August 21, 1995, between Blonder Tongue 10.13 to Registrant's S-1 Registration
Laboratories, Inc. and Philips Broadband Networks, Statement No. 33-98070, filed October 12,
Inc. 1995, as amended.
20
Exhibit # Description Location
--------- ----------- --------
10.10 401(k) Savings & Investment Retirement Plan. Incorporated by reference from 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, and Security Incorporated by reference from Exhibit 10.2
Agreement dated May 23, 1996 by Blonder Tongue to Registrant's Quarterly Report on Form
Laboratories, Inc. in favor of CoreStates Bank, 10-Q for the period ended June 30, 1996,
N.A., successor to Meridian Bank. filed August 14, 1996.
10.13 Real Estate Loan Note dated May 23, 1996 from Incorporated by reference from Exhibit 10.3
Blonder Tongue Laboratories, Inc. in favor of to Registrant's Quarterly Report on Form
CoreStates Bank, N.A., successor to Meridian Bank. 10-Q for the period ended June 30, 1996,
filed August 14, 1996.
10.14 Allonge to Real Estate Loan Note, dated September Incorporated by reference from Exhibit 10.3
26, 1996 from Blonder Tongue Laboratories, Inc., to Registrant's Quarterly Report on Form
in favor of CoreStates Bank, N.A., successor to 10-Q for the period ended September 30,
Meridian Bank. 1996, filed November 14, 1996.
+10.15 License Agreement dated November 12, 1996 between Incorporated by reference from Exhibit
Blonder Tongue Laboratories, Inc. and Houston 10.31 to Registrant's Annual Report on Form
Tracker Systems, Inc. 10-K for fiscal year ended December 31,
1996, filed March 27, 1997.
10.16 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.
10.17 Third Amendment to 1995 Long Term Incentive Plan Incorporated by reference from Appendix A
to Registrant's Proxy Statement for its
2000 Annual Meeting of Stockholders, filed
April 4, 2000.
10.18 Fifth Amended and Restated Loan Agreement dated Incorporated by reference from Exhibit
November 12, 1999 between Blonder Tongue 10.18 to Registrant's Annual Report on Form
Laboratories, Inc. and First Union National Bank 10-K for fiscal year ended December 31,
1999, filed March 30, 2000.
10.19 Third Allonge to Real Estate Note dated November Incorporated by reference from Exhibit
12, 1999 from Blonder Tongue Laboratories, Inc. to 10.20 to Registrant's Annual Report on Form
First Union National Bank 10-K for fiscal year ended December 31,
1999, filed March 30, 2000.
10.20 Term Note dated November 12, 1999 by Blonder Incorporated by reference from Exhibit
Tongue Laboratories, Inc. in favor of First Union 10.21 to Registrant's Annual Report on Form
National Bank 10-K for fiscal year ended December 31,
1999, filed March 30, 2000.
10.21 First Amendment and Waiver to Fifth Amended and Incorporated by reference from Exhibit 10.1
Restated Loan Agreement dated March 24, 2000 to Registrant's Quarterly Report on Form
10-Q for the period ended March 31, 2000, filed
May 12, 2000.
10.22 Second Restatement of the Fifth Amended and Incorporated by reference from Exhibit 10.1
Restated Line of Credit Note dated as of August to Registrant's Quarterly Report on Form
11, 2000 10-Q for the period ended September 30,
2000, filed November 14, 2000.
21
Exhibit # Description Location
--------- ----------- --------
10.23 Second Amendment and Waiver to Fifth Amended and Incorporated by reference from Exhibit 10.2
Restated Loan Agreement dated as of August 11, 2000 to Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 2000,
filed November 14, 2000.
10.24 Second Amendment to Consulting and Non-Competition Incorporated by reference from Exhibit 10.1
Agreement between Registrant and James H. to Registrant's Quarterly Report on Form
Williams, dated as of June 30, 2000. 10-Q for the period ended June 30, 2000,
filed August 14, 2000.
21 Subsidiaries of Blonder Tongue Laboratories, Inc. Filed herewith.
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.
22
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants........................................................ 24
Consolidated Balance Sheets as of December 31, 2000 and 1999.............................................. 25
Consolidated Statements of Earnings for the Years Ended December 31, 2000, 1999 and 1998.................. 26
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998...... 27
Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................ 28
Notes to Consolidated Financial Statements................................................................ 29
23
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, 2000 and 1999 and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 2000. 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, 2000 and 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America.
BDO Seidman, LLP
Woodbridge, New Jersey
March 14, 2001
24
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
December 31,
------------------------
2000 1999
-------- ------
Assets (Note 4)
Current assets:
Cash ................................................................... $ 363 $ 48
Accounts receivable, net of allowance for doubtful
accounts of $1,424 and $683, respectively (Note 8) ..................... 7,125 9,969
Inventories (Note 2) ................................................... 26,333 26,793
Other current assets (Note 6) .......................................... 3,264 2,007
Deferred income taxes (Note 13) ........................................ 1,804 1,182
-------- --------
Total current assets ............................................... 38,889 39,999
Property, plant and equipment, net of accumulated
depreciation and amortization (Notes 3 and 5) ........................... 7,644 8,740
Patents, net (Note 11) ...................................................... 3,943 4,242
Goodwill, net (Note 11) ..................................................... 11,730 12,437
Other assets ................................................................ 628 658
-------- --------
$ 62,834 $ 66,076
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Revolving line of credit (Note 4) ...................................... $ 2,250 $ 3,172
Current portion of long-term debt (Note 4) ............................. 4,382 4,470
Accounts payable ....................................................... 2,833 4,644
Accrued compensation ................................................... 1,143 1,040
Other accrued expenses ................................................. 659 903
Income taxes ........................................................... 468 314
-------- --------
Total current liabilities .......................................... 11,735 14,543
-------- --------
Deferred income taxes (Note 13) ............................................. 201 149
Long-term debt (Note 4) ..................................................... 11,802 16,137
Commitments and contingencies (Notes 5, 6 and 7) ............................ -- --
Stockholders' equity (Notes 9, 10, 11 and 12):
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 at December 31, 2000 and 8,392 shares issued at December 31, 1999 8 8
Paid-in capital ........................................................ 24,143 23,870
Retained earnings ...................................................... 21,231 17,655
Treasury stock, at cost, 831 shares (Note 9) ........................... (6,286) (6,286)
-------- --------
Total stockholders' equity ......................................... 39,096 35,247
-------- --------
$ 62,834 $ 66,076
======== ========
See accompanying notes to consolidated financial statements
25
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
Year Ended December 31,
------------------------------------------
2000 1999 1998
---------- ---------- ----------
Net sales (Note 8) .................................. $ 70,196 $ 56,805 $ 70,792
Cost of goods sold .................................. 46,974 39,074 45,344
-------- -------- --------
Gross profit .................................... 23,222 17,731 25,448
-------- -------- --------
Operating expenses:
Selling expenses ................................ 5,943 6,025 4,823
General and administrative ...................... 7,629 7,573 5,932
Research and development ........................ 2,125 2,070 2,156
-------- -------- --------
15,697 15,668 12,911
-------- -------- --------
Earnings from operations ............................ 7,525 2,063 12,537
-------- -------- --------
Other income (expense):
Interest expense ................................ (1,948) (2,008) (1,596)
Other income .................................... 10 6 40
-------- -------- --------
(1,938) (2,002) (1,556)
-------- -------- --------
Earnings before income taxes ........................ 5,587 61 10,981
Provision for income taxes (Note 13) ................ 2,011 2 3,868
-------- -------- --------
Net earnings .................................... $ 3,576 $ 59 $ 7,113
======== ======== ========
Basic earnings per share (Note 10) .................. $ 0.47 $ 0.01 $ 0.86
======== ======== ========
Basic weighted average shares outstanding (Note 10) . 7,620 7,916 8,292
======== ======== ========
Diluted earnings per share (Note 10) ................ $ 0.47 $ 0.01 $ 0.84
======== ======== ========
Diluted weighted average shares outstanding (Note 10) 7,632 7,958 8,471
======== ======== ========
See accompanying notes to consolidated financial statements
26
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Common Stock
-------------------- Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
-------- ---------- --------- ----------- --------- ----------
Balance at January 1, 1998 ................... 8,273 $ 8 $ 21,802 $ 10,483 $ (498) $ 31,795
Proceeds from exercise of stock options ... 29 -- 166 -- -- 166
Acquisition of treasury stock ............. -- -- -- -- (353) (353)
Issuance of common stock for acquired
business ................................ 68 -- 1,000 -- -- 1,000
Issuance of warrant for acquired business . -- -- 775 -- -- 775
Net earnings .............................. -- -- -- 7,113 -- 7,113
-------- -------- -------- -------- -------- --------
Balance at December 31, 1998 ................. 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
======== ======== ======== ======== ======== ========
See accompanying notes to consolidated financial statements
27
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
--------------------------------------
2000 1999 1998
----------- ----------- ----------
Cash Flows From Operating Activities:
Net earnings ....................................................... $ 3,576 $ 59 $ 7,113
Adjustments to reconcile net earnings to cash provided by operating
activities:
Depreciation and amortization .................................. 3,001 2,994 2,365
Provision for doubtful accounts ................................ 741 1,043 598
Deferred income taxes .......................................... (570) 67 (576)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable .......................................... 2,103 4,976 (3,456)
Inventories .................................................. 460 (2,576) (4,147)
Other current assets ......................................... (1,257) (1,410) (279)
Other assets ................................................. -- (47) (428)
Income taxes ................................................. 154 44 217
Accounts payable and accrued expenses ........................ (1,952) 2,233 (486)
-------- -------- --------
Net cash provided by operating activities ................. 6,256 7,383 921
-------- -------- --------
Cash Flows From Investing Activities:
Capital expenditures ............................................... (368) (1,197) (879)
Acquisition of licenses ............................................ (501) -- --
Acquisition of business ............................................ -- -- (19,000)
-------- -------- --------
Net cash used in investing activities .............................. (869) (1,197) (19,879)
-------- -------- --------
Cash Flows From Financing Activities:
Net borrowings (repayments) under revolving line of credit ......... (922) 1,345 1,827
Proceeds from long-term debt ....................................... -- -- 19,199
Repayments of long-term debt ....................................... (4,423) (2,717) (1,894)
Proceeds from exercise of stock options ............................ 273 127 166
Acquisition of treasury stock ...................................... -- (5,435) (353)
-------- -------- --------
Net cash (used in) provided by financing activities ....... (5,072) (6,680) 18,945
-------- -------- --------
Net increase (decrease) in cash ......................................... 315 (494) (13)
Cash, beginning of year ................................................. 48 542 555
-------- -------- --------
Cash, end of year ....................................................... $ 363 $ 48 $ 542
======== ======== ========
Supplemental Cash Flow Information:
Cash paid for interest ............................................. $ 1,955 $ 2,025 $ 1,261
Cash paid for income taxes ......................................... 2,070 660 4,276
======== ======== ========
Non-cash investing and financing activities:
Common stock issued for acquired business .......................... $ -- $ -- $ 1,000
Warrant issued for acquired business ............................... -- -- 775
Capital lease obligations .......................................... -- 965 --
See accompanying notes to consolidated financial statements
28
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
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 $16,301 and $17,337 as of December 31,
2000 and 1999, 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
$5,126 and $3,589 for 2000 and 1999, 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, 2000.
(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, 2000, 1999 and 1998.
(h) Research and Development
Research and development expenditures for the Company's projects are
expensed as incurred.
29
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(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 57% of the Company's employees are covered by a three
year collective bargaining agreement, which expires in February 2002.
The Company estimates that headend products accounted for approximately
40% of the Company's revenues in 2000, 60% in 1999 and 70% in 1998. 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 General Instrument Corporation,
which are standard encryption methodologies employed on U.S. C-Band and Ku-Band
transponders and EchoStar digital satellite receiver decoders, which are
specifically designed to work with the DISH Network(TM) 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 General Instrument Corporation 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.
30
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(o) New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 133 ("FAS 133").
"Accounting for Derivative Instruments and Hedging Activities." FAS 133 is
required to be adopted by the Company after December 31, 2000. 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.
Since the Company's interest rate swap is considered an effective hedge under
FAS 133, the effect of implementing FAS 133 in the quarter ending March 31, 2001
is not considered material.
Note 2 - Inventories
Inventories are summarized as follows:
December 31,
----------------------------
2000 1999
---- ----
Raw materials........................... $11,346 $11,484
Work in process......................... 3,261 5,058
Finished goods.......................... 11,726 10,251
------- -------
$26,333 $26,793
======= =======
Note 3 - Property, Plant and Equipment
Property, plant and equipment are summarized as follows:
December 31,
----------------------
2000 1999
---- ----
Land................................................ $ 1,000 $ 1,000
Building............................................ 3,361 3,361
Machinery and equipment............................. 6,817 6,534
Furniture and fixtures.............................. 398 398
Office equipment.................................... 1,482 1,412
Building improvements............................... 616 601
------- -------
13,674 13,306
Less: Accumulated depreciation and amortization.... (6,030) (4,566)
------- -------
$ 7,644 $ 8,740
======= =======
Note 4 - Debt
The Company has a $5,500 revolving line of credit with its
bank ($7,500 prior to August 1, 2000) on which funds may be borrowed at either
the bank's base rate plus a margin ranging from 0% to .625%, or LIBOR, plus a
margin ranging from 1.50% to 2.625%, in each case depending upon the calculation
of certain financial covenants (8.9375% at December 31, 2000). At December 31,
2000, the Company had $2,250 outstanding under the line of credit. Borrowings
under the line of credit are limited to certain percentages of eligible accounts
receivable and inventory as defined in the credit agreement. The line of credit
is collateralized by a security interest in all of the Company's assets. The
agreement also contains restrictions that require the Company to maintain
certain financial ratios as well as restrictions on the payment of dividends.
In March, 2001, the Company's credit agreement with its bank
was amended to retroactively modify certain financial covenants effective as of
December 31, 2000 and thereafter, as well as to extend the maturity date of the
31
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
line of credit until November 30, 2001. The Company is in compliance with all of
such financial covenants, as amended. The Company anticipates that it will
either conclude negotiations with its bank and obtain a further renewal of its
current credit facilities, or enter into new credit facilities with another
bank, prior to November 30, 2001. The average amount outstanding on the line of
credit during 2000 was $3,469 at a weighted average interest rate of 8.7813%.
The maximum amount outstanding on the line of credit during 2000 was $6,403.
As of November 12, 1999, the Company's acquisition loan
commitment under its Former Credit Line was converted to a term loan with its
bank (the "S-A Term Loan"). The S-A Term Loan bears interest at either the
bank's base rate plus a margin ranging from 0% to .875%, or LIBOR plus a margin
ranging from 1.75% to 2.875%, in each case depending upon the calculation of
certain financial covenants (9.2375 at December 31, 2000). At December 31, 2000,
there was $12,983 outstanding under the S-A Term Loan. The principal balance of
the S-A Term Loan is being amortized in monthly installments of $317 with a
final balloon payment of all remaining unpaid principal and accrued interest due
on June 30, 2002.
On May 24, 1996, the Company borrowed $2,800 for a ten year
term secured by a mortgage against the Company's Old Bridge Facility. The loan
accrued interest at a fixed rate of 7.25% through May 1999. Effective June 1,
1999, the loan was converted to a variable interest rate based upon the bank's
base rate (9.5% at December 31, 2000).
Long-term debt consists of the following:
December 31,
------------------------------
2000 1999
---------- ---------
Term loan with a bank bearing interest at 7.25% until
May 30, 1999, converted on June 1, 1999 to a variable
interest rate based on the bank's base rate, payable
in monthly installments....................................... $ 1,944 $ 2,131
Loan with a bank bearing interest at LIBOR plus 2.875%........ 12,983 16,783
Capital leases (Note 5)....................................... 1,257 1,693
------- -------
16,184 20,607
Less: Current portion......................................... (4,382) (4,470)
------- -------
$11,802 $16,137
======= =======
Annual maturities of long-term debt at December 31, 2000 are:
2001....................... $4,382
2002....................... 9,627
2003....................... 327
2004....................... 336
2005....................... 349
Thereafter................. 1,163
-------
$16,184
=======
32
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
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.
Future minimum rental payments, required for all
noncancellable leases are as follows:
Capital Operating
---------- -------------
2001 ......................................... $ 484 $ 115
2002 ......................................... 318 36
2003 ......................................... 186 17
2004 ......................................... 184 7
2005 ......................................... 183 3
Thereafter ................................... 157 --
------- -------
Total future minimum lease payments .......... 1,512 $ 178
=======
Less: amounts representing interest ......... (255)
-------
Present value of minimum lease payments ...... $ 1,257
=======
Property, plant and equipment included capitalized leases of
$2,514, less accumulated amortization of $1,149, at December 31, 2000, and
capitalized leases of $2,514, less accumulated amortization of $758, at December
31, 1999.
Rent expense was $160, $217, and $295 for the years ended
December 31, 2000, 1999 and 1998, 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 $185, $254 and $122 for the years
ended December 31, 2000, 1999 and 1998, 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:
33
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
December 31,
--------------------------------------
Components of net periodic pension cost: 2000 1999 1998
----- ----- ------
Service cost.............................. $ 121 $ 121 $ 118
Interest cost............................. 80 76 64
Actual return on plan assets.............. (148) (29) (57)
Recognized net actuarial (gain) loss...... 63 (33) 6
----- ----- ------
Net periodic pension cost................. $ 116 $ 135 $ 131
===== ===== ======
The funded status of the plan and the amounts recorded in the
Company's consolidated balance sheets are as follows:
December 31,
------------------------
2000 1999
--------- ---------
Change in benefit obligation:
Benefit obligation at beginning of year ........ $ 1,248 $ 1,106
Service cost ................................... 121 121
Interest cost .................................. 80 76
Actuarial (gain) loss .......................... (87) (15)
Benefits paid .................................. (63) (40)
------- -------
Benefit obligation at end of year .............. 1,299 1,248
------- -------
Change in plan assets:
Fair value of plan assets at beginning of year . 1,158 915
Actual return on plan assets ................... 148 29
Employer contribution .......................... 184 254
Benefits paid .................................. (63) (40)
------- -------
Fair value of plan assets at end of year ....... 1,427 1,158
------- -------
Funded status .................................. 129 (90)
Unrecognized net actuarial loss ................ 209 369
Unrecognized net transition liability .......... (60) (69)
------- -------
Prepaid benefit cost ........................... $ 278 $ 210
======= =======
Key economic assumptions used in these determinations were:
December 31,
----------------------
2000 1999
--------- -------
Discount rate................................... 7.0% 7.0%
Expected long-term rate of return............... 7.0% 7.0%
34
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
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).
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, and an interest rate swap agreement.
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 ten of the Company's customers. These customers accounted for
approximately 63% and 55% of the Company's outstanding trade accounts receivable
at December 31, 2000 and 1999, 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.
For the year ended December 31, 2000, the Company's largest
customer accounted for approximately 29% of the Company's sales. At December 31,
2000, this customer accounted for approximately 12% of the Company's outstanding
trade accounts receivable. Management believes these amounts to be collectible.
Another customer accounted for approximately 11% of the Company's sales for the
year ended December 31, 2000. This customer also accounted for approximately 14%
of the Company's sales in 1999 and for approximately 10% of the Company's sales
in 1998.
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.
Stock Repurchase Program
On April 1, 1997, the Company announced that its Board of
Directors authorized management to purchase up to 100 shares of its common
stock. Purchases were made from time to time in the open market, funded from
operating cash flow and then-existing bank facilities. As of December 31, 2000,
the Company had repurchased 81 shares under this program.
35
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Note 10 - Earnings Per Share
Basic and diluted earnings per share for each of the three
years ended December 31, 2000, 1999 and 1998 are calculated as follows:
Net Income Shares Per Share
(Numerator) (Denominator) Amount
-------------------------------------
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
=====================================
For the year ended December 31, 1998:
Basic earnings per share $7,113 8,292 $ 0.86
Effect of assumed conversion of employee
stock options -- 179
-------------------------------------
$7,113 8,471 $ 0.84
Diluted earnings per share
=====================================
The diluted share base excludes incremental shares of 850, 837
and 199 related to stock options and a warrant for December 31, 2000, 1999 and
1998, respectively. These shares were excluded due to their antidilutive effect.
Note 11 - Acquisition
On March 26, 1998, the Company acquired all of the assets and
technology rights of the interdiction business (the "Interdiction Business") of
Scientific-Atlanta, Inc. ("Scientific") for a purchase price consisting of (i)
$19,000 in cash, (ii) 68 shares of the Company's common stock, (iii) a warrant
to purchase 150 additional shares of the Company's common stock at an exercise
price of $14.25 per share and (iv) assumption by the Company of certain
obligations under executory contracts with vendors and customers and certain
warranty obligations and current liabilities of the Interdiction Business. The
Company believes that Scientific's interdiction products, which have been
engineered primarily to serve the franchise cable market, supplement the
Company's VideoMask(TM) products, which are primarily focused on the private
36
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
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.
The acquisition has been accounted for under the purchase
method of accounting in accordance with Accounting Principles Board Opinion No.
16 with the net assets recorded at fair market value and operations included in
the financial statements from the date of acquisition. The allocation of the
purchase price was recorded to inventory $2,518, property, plant and equipment
$472, patents $4,200 and goodwill $13,585. In 1999, as a result of adjustments
to inventory, goodwill was increased by $323.
The following table presents the unaudited pro forma results
of operations as though the acquisition of Scientific-Atlanta, Inc.'s
Interdiction Business occurred on January 1, 1998:
Net sales $76,782
Earnings from operations 13,682
Net income 8,251
Basic earnings per share 1.00
Diluted earnings per share 0.97
Note 12 - 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.
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.
Generally, options granted under the 1995 Plan are exercisable
over the term of the option, as provided by the Compensation Committee. Upon any
merger or consolidation, if the Company is not the surviving corporation, all
outstanding options granted shall terminate unless such options are assumed or
other options are substituted therefor by the successor corporation, or the
vesting of such shares is accelerated by the Compensation Committee.
37
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Under the 1995 Plan awards may be made to key executive
employees of restricted stock which is forfeitable unless the employee remains
in the employ of the Company for five years and does not violate other terms of
the award, such as non-transferability. Exceptions to forfeiture are provided
for the cases of retirement at age 65 or death while in employment. No
restricted shares have been awarded under the 1995 Plan.
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.
Stock Option Repricing
During the third quarter of 1998, the Compensation Committee
of the Board of Directors observed that, despite the strong financial
performance of the Company over the past several months attributable to the
contributions of the Company's employees, officers and Directors, the market
price of the Company's Common Stock had recently declined significantly due to
market forces and other outside factors. The decline in the Company's stock
price caused many of its outstanding stock options granted to employees,
officers and Directors to have exercise prices above (in many cases
significantly above) the current market price for the Common Stock. The
Compensation Committee was of the view that stock options with exercise prices
well above the market value of the Company's Common Stock do not serve any
incentive function and do not serve to retain employees of the Company.
Accordingly, in an effort to ensure that the Company continues to provide
meaningful, long-term incentive compensation to and retains its employees,
officers and Directors through stock option grants, on September 4, 1998, the
Compensation Committee recommended and the Board approved a repricing (the
"Repricing") of all outstanding, unexercised stock options held by the Company's
employees, officers and Directors having exercise prices exceeding the fair
market value of the Common Stock as of September 17, 1998 (the "Affected
Options"), provided, that no options would be repriced if the fair market value
for the Common Stock exceeded $7.50 per share on September 17, 1998 (the
"Effective Date"). The fair market value for the Common Stock as of the
Effective Date was determined by the Board to be $6.88 per share (the "New
Exercise Price"), which was the average of the high and low sales prices for the
Common Stock on the American Stock Exchange on the Effective Date.
All of the Company's optionholders were required to elect
whether or not they wished to have their Affected Options repriced as of the
Effective Date. Those who elected not to reprice their options retained their
existing options without change. Those who elected to have their Affected
Options repriced had such options cancelled as of the Effective Date, with new
options (the "New Options") being granted as of such date on the same terms and
in the same amounts except (i) all New Options have an exercise price equal to
the New Exercise Price and (ii) the New Options retained the same vesting
schedule as the options they replaced, except that (x) options which were
already vested as of the Effective Date were treated as first becoming vested on
the Effective Date and (y) in certain cases the vesting of a portion of the New
Options was delayed in order to preserve the "incentive stock option" status of
such options under the Internal Revenue Code.
38
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Neither James A. Luksch nor Robert J. Palle, Jr. elected to
reprice any of their stock options in the Company. The Company has not conducted
any other repricings of stock options during the last ten fiscal years.
The following tables summarize information about stock options
outstanding for each of the years ended December 31, 1998, 1999 and 2000.
Weighted-
Average Weighted-Average
1994 Exercise 1995 Exercise 1996 Weighted-Average
Plan (#) Price ($) Plan (#) Price ($) Plan (#) Exercise Price ($)
---------------------------------------------------------------------------------------------
Shares under option:
Outstanding at
January 1, 1998 141 5.13 434 9.49 2 8.50
Granted 6 6.88 903 7.86 49 9.41
Exercised (19) 3.23 (11) 9.63 -- --
Canceled (6) 9.38 (665) 9.74 (25) 11.90
Outstanding at
December 31, 1998 122 5.30 661 7.00 26 6.91
Granted -- -- 51 6.54 8 6.53
Exercised (8) 3.97 (14) 6.88 -- --
Canceled (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 -- --
Canceled -- -- (55) 6.82 -- --
Outstanding at
December 31, 2000 88 5.93 729 6.94 54 6.90
Options exercisable
at December 31, 2000 88 5.93 438 7.04 34 6.82
Weighted-average fair
value of options granted
during: 1998 $4.67 $5.42 $4.88
1999 -- $4.93 $4.97
2000 -- $4.49 $4.51
Total options available for grant were 106 at December 31,
2000.
39
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------------------------------------
Number of
Options Weighted-Average Weighted-Average Number Weighted-
Range of Exercise Outstanding at Remaining Exercise Price Exercisable at Average
Prices ($) 12/31/00 Contractual Life ($) 12/31/00 Exercise Price ($)
- -------------------------------------------------------------------------------------------------------------
1994 Plan:
2.57 24 3.6 2.57 24 2.57
4.33 33 4.4 4.33 33 4.33
6.88 3 5.9 6.88 3 6.88
10.59 28 .6 10.59 28 10.59
-- --
2.57 to 10.59 88 3.0 5.93 88 5.93
== ==
1995 Plan:
5.88 to 7.38 703 7.7 6.82 415 6.87
8.63 to 10.59 26 3.0 10.20 23 10.23
-- --
5.88 to 10.59 729 7.5 6.94 438 7.04
=== ===
1996 Plan:
6.83 to 8.50 54 7.8 6.90 34 6.82
== ==
40
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
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,
--------------------------------------
2000 1999 1998
---- ---- ----
Net earnings - as reported $3,576 $ 59 $7,113
Net (loss) earnings - pro forma 3,103 (625) 6,851
Basic earnings per share - as reported 0.47 0.01 0.86
Basic (loss) earnings per share - pro forma 0.41 (0.08) 0.83
Diluted earnings per share - as reported 0.47 0.01 0.84
Diluted (loss) earnings per share - pro forma 0.41 (0.08) 0.81
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,
------------------------------
2000 1999 1998
------ ------ ------
Expected volatility 68% 63% 61%
Risk-free interest rate 6.2% 5.7% 5.6%
Expected lives 6 10 8
Dividend yield none none none
Note 13 - Income Taxes
The following summarizes the provision for income taxes:
Year Ended December 31,
--------------------------------------
2000 1999 1998
----------- ----------- ------------
Current:
Federal........................ $ 2,438 $ 59 $ 3,844
State and local................ 143 10 600
----------- ----------- ------------
2,581 69 4,444
Deferred:
Federal........................ (554) (58) (495)
State and local................ (16) (9) (81)
----------- ----------- ------------
(570) (67) (576)
----------- ----------- ------------
Provision for income taxes........ $ 2,011 $ 2 $ 3,868
=========== =========== ============
41
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
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,
---------------------------------------------
2000 1999 1998
------------ ------------ ------------
Provision for Federal income taxes at the statutory rate............... $1,900 $21 $3,734
State and local income taxes, net of Federal benefit................... 75 6 549
Adjustment of prior year's accruals.................................... -- (25) (415)
Other, net............................................................. 36 -- --
------ --- ------
Provision for income taxes............................................. $2,011 $ 2 $3,868
====== === ======
Significant components of the Company's deferred tax assets
and liabilities are as follows:
December 31,
-----------------------------
2000 1999
----------- -----------
Deferred tax assets:
Allowance for doubtful accounts $ 513 $ 252
Inventory 633 686
Accrued vacation 240 265
Other 522 145
------ -----
Total deferred tax assets 1,908 1,348
------ ------
Deferred tax liabilities:
Depreciation (305) (315)
------ ------
Total deferred tax liabilities (305) (315)
------ ------
$1,603 $1,033
====== ======
Note 14 - Export Sales
The Company exports its products to countries in North and
South America, Europe, and Asia. The Company's export sales were approximately
2% in 2000, 2% in 1999 and 2% in 1998. The Company's export sales were
concentrated to customers in North and South America for all periods presented.
Note 15 - Quarterly Financial Information - Unaudited
2000 Quarters 1999 Quarters
------------- ------------------
First Second Third Fourth First Second Third Fourth
---------------------------------------------------------------------------------
Net sales $21,180 $18,062 $18,937 $12,017 $13,756 $14,656 $17,307 $11,086
Gross profit 6,990 7,028 5,651 3,553 4,766 4,766 5,620 2,579
Net earnings (loss) 1,581 1,752 828 (585) 443 333 691 (1,408)
Basic earnings (loss) per share .21 .23 .11 (.08) .05 .04 .09 (.19)
Diluted earnings (loss) per share .21 .23 .11 (.08) .05 .04 .09 (.19)
42
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Note 16 - Financial Instruments
On February 3, 1999, the Company entered into an interest rate
swap agreement with a notional amount of $10,000. The swap agreement has a
maturity date of June 3, 2002 and requires the Company to make fixed rate
interest payments on the notional amount of 8.01% per annum in exchange for
floating rate payments equal to LIBOR plus 2.55%. The Company is exposed to
credit risk in the unlikely event of the nonperformance by the counterparties.
Interest to be paid or received is accrued over the life of the agreement at the
net effective interest rate for the swap and corresponding debt instrument. At
December 31, 2000, the notional amount was $6,833 and $70 was included in
interest expense related to the swap agreement.
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.
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 March 14, 2001 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
March 14, 2001
44
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
for the years ended December 31, 2000, 1999 and 1998
(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, 2000: $ 683 $741 -- -- $1,424
Year ended December 31, 1999: $1,201 $1,043 -- ($1,561) $ 683
Year ended December 31, 1998: $ 607 $598 -- ($4) $1,201
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 29, 2001 By: /S/ JAMES A. LUKSCH
---------------------------------------
James A. Luksch
President and Chief Executive Officer
By: /S/ ERIC SKOLNIK
---------------------------------------
Eric Skolnik, Interim 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
- ---- ----- ----
/S/ JAMES A. LUKSCH Director, President and Chief March 29, 2001
- ------------------------------------ Executive Officer (Principal
James A. Luksch Executive Officer)
/S/ ERIC SKOLNIK Interim Chief Financial Officer March 29, 2001
- ------------------------------------ (Principal Financial Officer and
Eric Skolnik Principal Accounting Officer)
/S/ ROBERT J. PALLE, JR. Director, Executive Vice March 29, 2001
- ------------------------------------ President, Chief Operating
Robert J. Palle, Jr. Officer, Secretary and Treasurer
/S/ JOHN E. DWIGHT Director March 29, 2001
- ------------------------------------
John E. Dwight
/S/ JAMES H. WILLIAMS Director March 29, 2001
- ------------------------------------
James H. Williams
/S/ JAMES F. WILLIAMS Director March 29, 2001
- ------------------------------------
James F. Williams
46
/S/ ROBERT B. MAYER Director March 29, 2001
- ------------------------------------
Robert B. Mayer
/S/ GARY P. SCHARMETT Director March 29, 2001
- ------------------------------------
Gary P. Scharmett
/S/ ROBERT E. HEATON Director March 29, 2001
- ------------------------------------
Robert E. Heaton
47