SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002,
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO
_______________.
COMMISSION FILE NUMBER 1-14120
BLONDER TONGUE LABORATORIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 52-1611421
---------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
ONE JAKE BROWN ROAD, OLD BRIDGE, NEW JERSEY 08857
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 679-4000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Number of shares of common stock, par value $.001, outstanding as of August 13,
2002: 7,613,331
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
June 30, December 31,
2002 2001
-------- --------
(unaudited)
ASSETS (Note 4)
Current assets:
Cash ....................................................................... $ 68 $ 942
Accounts receivable, net of allowance for doubtful
accounts of $2,001 and $1,833, respectively ................................ 5,027 8,564
Inventories, net (Note 3) .................................................. 29,594 30,216
Other current assets ....................................................... 573 932
Deferred income taxes ...................................................... 1,807 1,746
-------- --------
Total current assets ................................................... 37,069 42,400
Property, plant and equipment, net of accumulated
depreciation and amortization ............................................... 6,572 7,137
Patents, net .................................................................... 3,240 3,454
Goodwill, net ................................................................... -- 10,760
Other assets .................................................................... 1,021 585
Deferred income taxes ........................................................... 3,953 50
-------- --------
$ 51,855 $ 64,386
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 4) ................................. $ 2,663 $ 2,917
Accounts payable ........................................................... 1,215 6,672
Accrued compensation ....................................................... 838 867
Accrued benefit liability .................................................. 270 270
Other accrued expenses ..................................................... 179 218
Income taxes ............................................................... 253 202
-------- --------
Total current liabilities .............................................. 5,418 11,146
-------- --------
Long-term debt (Note 4) ......................................................... 13,143 13,278
Commitments and contingencies ................................................... -- --
Stockholders' equity:
Preferred stock, $.001 par value; authorized 5,000 shares;
no shares outstanding ...................................................... -- --
Common stock, $.001 par value; authorized 25,000 shares,
8,444 shares issued ........................................................ 8 8
Paid-in capital ............................................................ 24,145 24,143
Retained earnings .......................................................... 15,778 22,448
Accumulated other comprehensive loss ....................................... (351) (351)
Treasury stock at cost, 831 shares ......................................... (6,286) (6,286)
-------- --------
Total stockholders' equity ............................................. 33,294 39,962
-------- --------
$ 51,855 $ 64,386
======== ========
See accompanying notes to consolidated financial statements.
2
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net sales .................................. $ 11,257 $ 12,752 $ 22,147 $ 23,497
Cost of goods sold ......................... 8,206 8,175 15,780 15,274
-------- -------- -------- --------
Gross profit ............................ 3,051 4,577 6,367 8,223
-------- -------- -------- --------
Operating expenses:
Selling ................................. 1,081 1,213 2,199 2,674
General and administrative .............. 1,171 1,643 2,368 3,206
Research and development ................ 469 603 966 1,132
-------- -------- -------- --------
2,721 3,459 5,533 7,012
-------- -------- -------- --------
Earnings from operations ................... 330 1,118 834 1,211
-------- -------- -------- --------
Other Expense:
Interest expense ........................ (275) (338) (486) (742)
-------- -------- -------- --------
Earnings before income taxes ............... 55 780 348 469
Provision for income taxes ................. 22 282 132 178
-------- -------- -------- --------
Earnings before cumulative effect .......... 33 498 216 291
Cumulative effect of change in accounting
principle, net of tax (Note 2) .......... -- -- (6,886) --
-------- -------- -------- --------
Net (loss) earnings ........................ $ 33 $ 498 $ (6,670) $ 291
======== ======== ======== ========
Basic earnings per share before
cumulative effect ....................... $ 0.01 $ 0.07 $ 0.03 $ 0.04
Cumulative effect of change in accounting
principle, net of tax ................... -- -- (0.90) --
-------- -------- -------- --------
Basic earnings (loss) per share ............ $ 0.01 $ 0.07 $ (0.87) $ 0.04
======== ======== ======== ========
Basic weighted average shares outstanding .. 7,613 7,613 7,613 7,613
======== ======== ======== ========
Diluted earnings per share before
cumulative effect ....................... $ 0.01 $ 0.07 $ 0.03 $ 0.04
Cumulative effect of change in accounting
principle, net of tax ................... -- -- (0.90) --
-------- -------- -------- --------
Diluted earnings (loss) per share .......... $ 0.01 $ 0.07 $ (0.87) $ 0.04
======== ======== ======== ========
Diluted weighted average shares
outstanding ............................... 7,630 7,627 7,613 7,623
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
3
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Six Months Ended June 30,
-------------------------
2002 2001
-------- --------
Cash Flows From Operating Activities:
Net earnings (loss) ...................................... $ (6,670) $ 291
Adjustments to reconcile net earnings (loss) to cash
provided by (used in) operating activities:
Cumulative effect of change in accounting principle ..... 6,886 --
Depreciation ........................................... 642 622
Amortization ........................................... 216 822
Provision for doubtful accounts ........................ 168 179
Deferred income taxes .................................. (90) 16
Changes in operating assets and liabilities:
Accounts receivable .................................... 3,368 (15)
Inventories ............................................ 622 (455)
Other current assets ................................... 359 1,597
Other assets ........................................... (186) --
Income taxes ........................................... 51 (467)
Accounts payable and accrued expenses .................. (5,525) (1,518)
-------- --------
Net cash provided by (used in) operating activities... (159) 1,072
-------- --------
Cash Flows From Investing Activities:
Capital expenditures ..................................... (78) (128)
Investment in Priority Systems Group ..................... (250) --
-------- --------
Net cash used in investing activities .................. (328) (128)
-------- --------
Cash Flows From Financing Activities:
Net borrowings under revolving line of credit ............. -- 1,263
Borrowings of long-term debt ............................. 23,719 --
Repayments of long-term debt ............................. (24,108) (2,176)
Proceeds from exercise of stock options .................. 2 --
-------- --------
Net cash used in financing activities .................. (387) (913)
-------- --------
Net increase (decrease) in cash ............................ (874) 31
Cash, beginning of period .................................. 942 363
-------- --------
Cash, end of period ........................................ $ 68 $ 394
======== ========
Supplemental Cash Flow Information:
Cash paid for interest ................................... $ 470 $ 783
Cash paid for income taxes ............................... 51 618
See accompanying notes to consolidated financial statements.
4
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
NOTE 1 - COMPANY AND BASIS OF PRESENTATION
Blonder Tongue Laboratories, Inc. (the "COMPANY") is a 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. Significant intercompany accounts and transactions have been
eliminated in consolidation.
The results for the second quarter and six months of 2002 are not
necessarily indicative of the results to be expected for the full fiscal year
and have not been audited. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments, consisting
only of normal recurring accruals, necessary for a fair statement of the results
of operations for the period presented and the consolidated balance sheet at
June 30, 2002. Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the SEC rules and
regulations. These financial statements should be read in conjunction with the
financial statements and notes thereto that were included in the Company's
latest annual report on Form 10-K for the year ended December 31, 2001.
NOTE 2 - EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("FAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." FAS 133 was adopted by the
Company on January 1, 2001. FAS 133 requires that all derivative instruments be
recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of the hedge
transaction and the type of hedge transaction. At June 30, 2002 the Company did
not have any derivative financial instruments. The adoption of this
pronouncement did not have a material effect on the Company's financial position
or results of operations.
In July 2001, the FASB issued FAS No. 141, "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets." FAS 141 requires the use of the
purchase method of accounting and prohibits the use of the pooling-of-interests
method of accounting for business combinations initiated after June 30, 2001.
FAS 142 addresses financial accounting and reporting for acquired goodwill and
other intangible assets. FAS 142 requires, among other things, that companies no
longer amortize goodwill, but instead test goodwill for impairment at least
annually. FAS 142 was adopted by the Company on January 1, 2002. The adoption of
this pronouncement resulted in the Company recording a $6,886 one-time, non-cash
charge, net of tax, to reduce the carrying value of its goodwill. Such charge is
non-operational in nature and is reflected as a cumulative effect of a change in
accounting principle. The Company's previous business combinations were
accounted for using the purchase method.
If FAS 142 had been in effect in 2001, the Company's six-month earnings
would have been improved because of reduced amortization, as described below:
Basic Net Diluted Net
Net Earnings Earnings Per Share Earnings Per Share
------------ ------------------ ------------------
Reported Net Earnings $291 $0.04 $0.04
Add Amortization, Net of Tax 312 0.04 0.04
---- ----- -----
Adjusted Net Earnings $603 $0.08 $0.08
==== ===== =====
5
The Company continues to amortize its patents over their estimated useful lives
with no significant residual value. Amortization expense for intangible assets
excluding goodwill was $216 and $334 for the six- month period ending June 30,
2002 and 2001, respectively. Intangibles amortization is projected to be
approximately $400 to $500 per year for the next five years.
In August 2001, the FASB issued FAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." The new guidance resolves significant
implementation issues related to FAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." FAS 144
supersedes FAS 121, but it retains its fundamental provisions. It also amends
Accounting Research Bulletin No. 51, Consolidated Financial Statements, to
eliminate the exception to consolidate a subsidiary for which control is likely
to be temporary. FAS 144 retains the requirement of FAS 121 to recognize an
impairment loss only if the carrying amount of a long-lived asset within the
scope of FAS 144 is not recoverable from its undiscounted cash flows and exceeds
its fair value.
FAS 144 is effective for fiscal years beginning after December 15, 2001,
and interim periods within those fiscal years, with early application
encouraged. The provisions of FAS 144 generally are to be applied prospectively.
The adoption of FAS 144 did not have a material impact on the Company's
financial position or results of operations.
NOTE 3 - INVENTORIES
Inventories net of reserves are summarized as follows:
June 30, 2002 Dec. 31, 2001
------------- -------------
Raw Materials ....... $13,386 $13,071
Work in process ..... 1,438 2,797
Finished Goods ...... 14,770 14,348
------- -------
$29,594 $30,216
======= =======
NOTE 4 - DEBT
On March 20, 2002 the Company executed a credit agreement with Commerce
Bank, N.A. for a $19,500 credit facility, comprised of (i) a $7,000 revolving
line of credit under which funds may be borrowed at LIBOR, plus a margin ranging
from 1.75% to 2.50%, in each case depending on the calculation of certain
financial covenants, with a floor of 5% through March 19, 2003 (5% at June 30,
2002), (ii) a $9,000 term loan which bears interest at a rate of 6.75% through
September 30, 2002, and thereafter at a fixed rate ranging from 6.50% to 7.25%
to reset quarterly depending on the calculation of certain financial covenants
(6.75% at June 30, 2002) and (iii) a $3,500 mortgage loan bearing interest at
7.5%. Borrowings under the revolving line of credit are limited to certain
percentages of eligible accounts receivable and inventory, as defined in the
credit agreement. The credit facility is collateralized by a security interest
in all of the Company's assets. The agreement also contains restrictions that
require the Company to maintain certain financial ratios as well as restrictions
on the payment of cash dividends. The maturity date of the new line of credit
with Commerce Bank is March 20, 2004. The term loan requires equal monthly
principal payments of $187 and matures on April 1, 2006. The mortgage loan
requires equal monthly principal payments of $19 and matures on April 1, 2017.
The mortgage loan is callable after five years at the lender's option.
Upon execution of the credit agreement with Commerce Bank, $14,954 was
advanced to the Company, of which $14,827 was used to pay all unpaid principal
and accrued interest under the Company's prior line of credit and term loans
with First Union National Bank ("FIRST UNION").
At June 30, 2002, there was $2,990, $8,438 and $3,442 outstanding under the
revolving line of credit, term loan and mortgage loan, respectively.
6
Prior to March 20, 2002, the Company had a $5,500,000 revolving line of
credit with First Union on which funds could be borrowed at either the bank's
base rate plus a margin ranging from 0% to .625%, or LIBOR, plus a margin
ranging from 1.50% to 2.625%, in each case depending upon the calculation of
certain financial covenants. The agreement contained restrictions that required
the Company to maintain certain financial ratios as well as restrictions on the
payment of dividends. The Company also had, prior to March 20, 2002, two
outstanding term loans with First Union which accrued interest at a variable
interest rate.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report contains
forward-looking statements relating to such matters as anticipated financial
performance, business prospects, technological developments, new products,
research and development activities and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the Company
notes that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. The risks
and uncertainties that may affect the operation, performance, development and
results of the Company's business include, but are not limited to, those matters
discussed herein in the section entitled Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations. The words "believe",
"expect", "anticipate", "project" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's analysis only as of
the date hereof. 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, including without limitation, the Company's Annual Report
on Form 10-K for the year ended December 31, 2001 (See Item 10 - Business; Item
3 - Legal Proceedings; and Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations).
GENERAL
During June, 2002, the Company formed a joint venture with Priority
Systems, LLC and Paradigm Capital Investments, LLC for the purpose of acquiring
the rights-of-entry for certain multiple dwelling unit cable television systems
(the "Systems") owned by affiliates of Verizon Communications, Inc. The joint
venture entity, Priority Systems Group, LLC (the "Joint Venture"), has signed a
definitive purchase agreement to acquire the Systems, which are comprised of
approximately 4,350 existing MDU cable television subscribers and 9,500 passings
for the purchase price of $575 per subscriber. The actual subscriber count and
purchase price will be determined on the final closing date, which is
anticipated to occur on or before September 1, 2002. The Systems are expected to
be cashflow positive in the first year. It is planned that the Systems will be
upgraded with interdiction and other products of the Company over the course of
operation.
In consideration for its majority interest in the Joint Venture, the
Company advanced to the Joint Venture $250,000, which was paid to the sellers as
a down payment against the final purchase price for the Systems. The Company
also agreed to guaranty payment of the aggregate purchase price for the Systems
by the Joint Venture. The approximately $2.25 million balance of the purchase
price must be paid by the Joint Venture on or before three months after the
final closing date under the purchase agreement pursuant to the terms of a
promissory note (the "Seller Note") to be executed by the Joint Venture in favor
of the sellers.
The Company is assisting the Joint Venture in obtaining long term financing
to replace the Seller Note and believes the Joint Venture will be able to obtain
such replacement financing on or before the maturity date of the Seller Note. If
the Joint Venture is unable to obtain such replacement financing, however, the
Company will be required to pay the balance of the purchase price for the
Systems at the final maturity date of the Seller Note. The Company believes
that, if necessary, it would be able to fund this amount through a combination
of cashflow from operations, financing from its existing lender and/or financing
from other lenders. However, there can be no assurance that such financing will
be available on terms acceptable to the Company or at all.
7
Second three months of 2002 Compared with second three months of 2001
Net Sales. Net sales decreased $1,495,000, or 11.7%, to $11,257,000 in the
second three months of 2002 from $12,752,000 in the second three months of 2001.
The decrease in sales is primarily attributed to a decrease in sales of
interdiction products. Net sales included approximately $866,000 of interdiction
equipment for the second three months of 2002 compared to approximately
$2,430,000 for the second three months of 2001.
Cost of Goods Sold. Cost of goods sold increased to $8,206,000 for the
second three months of 2002 from $8,175,000 for the second three months of 2001
and increased as a percentage of sales to 72.9% from 64.1%. The increase as a
percentage of sales was caused primarily by a higher proportion of sales during
the period being comprised of lower margin products, including the Motorola QAM
decoder which was introduced in the fourth quarter of 2001.
Selling Expenses. Selling expenses decreased to $1,081,000 for the second
three months of 2002 from $1,213,000 in the second three months of 2002,
primarily due to a decrease in wages and fringe benefits related to a reduction
in headcount along with a decrease in travel and advertising achieved through
implementation of expense control programs.
General and Administrative Expenses. General and administrative expenses
decreased to $1,171,000 for the second three months of 2002 from $1,643,000 for
the second three months of 2001 and decreased as a percentage of sales to 10.4%
for the second three months of 2002 from 12.9% for the second three months of
2001. The $472,000 decrease can be primarily attributed to a reduction in
amortization expense due to the adoption of FAS 142 which required the Company
to discontinue amortizing goodwill as well as a reduction in professional fees.
Research and Development Expenses. Research and development expenses
decreased to $469,000 in the second three months of 2002 from $603,000 in the
second three months of 2001, primarily due to a decrease in consulting expenses,
licensing fees, and departmental supplies.
Operating Income. Operating income decreased 70.5% to $330,000 for the
second three months of 2002 from $1,118,000 for the second three months of 2001.
Operating income as a percentage of sales decreased to 2.9% in the second three
months of 2002 from 8.8% in the second three months of 2001.
Interest Expense. Interest expense decreased to $275,000 in the second
three months of 2002 from $338,000 in the second three months of 2001. The
decrease is the result of lower average borrowing and lower average interest
rates.
Income Taxes. The provision for income taxes for the second three months of
2002 decreased to $22,000 from $282,000 for the second three months of 2001 as a
result of a decrease in taxable income.
First six months of 2002 Compared with first six months of 2001
Net Sales. Net sales decreased $1,350,000 or 5.8% to $22,147,000 in the
first six months of 2002 from $23,497,000 in the first six months of 2001. The
decrease is attributed to a reduction in interdiction sales, offset by sales of
the Motorola QAM decoder, which was introduced in the fourth quarter of 2001.
Net sales included approximately $1,880,000 of interdiction equipment for the
first six months of 2002 compared to approximately $5,309,000 for the first six
months of 2001.
Cost of Goods Sold. Cost of goods sold increased to $15,780,000 for the
first six months of 2002 from $15,274,000 for the first six months of 2001 and
also increased as a percentage of sales to 71.3% from 65.0%. The increase as a
percentage of sales was caused primarily by a higher portion of sales during the
period being comprised of lower margin products, including the Motorola QAM
decoder, which was introduced in the fourth quarter of 2001.
8
Selling Expenses. Selling expenses decreased to $2,199,000 for the first
six months of 2002 from $2,674,000 in the first six months of 2001 and decreased
as a percentage of sales to 9.9% for the first six months of 2002 from 11.4% for
the first six months of 2001. This $475,000 decrease is primarily attributable
to a decrease in wages, fringe benefits, and commissions due to a reduction in
headcount, along with a reduction in telecommunications, advertising and travel
expenses achieved through implementation of expense control programs.
General and Administrative Expenses. General and administrative expenses
decreased to $2,368,000 for the first six months of 2002 from $3,206,000 for the
first six months of 2001 and decreased as a percentage of sales to 10.7% for the
first six months of 2002 from 13.6% for the first six months of 2001. The
$838,000 decrease can be primarily attributed to a reduction in amortization
expense due to the adoption of FAS 142 which required the Company to discontinue
amortizing goodwill as well as a reduction in professional fees.
Research and Development Expenses. Research and development expenses
decreased to $966,000 in the first six months of 2002 from $1,132,000 in the
first six months of 2001, primarily due to a decrease in consulting expenses,
licensing fees, and departmental supplies.
Operating Income. Operating income decreased to $834,000 for the first six
months of 2002 from $1,211,000 for the first six months of 2001.
Interest Expense. Interest expense decreased to $486,000 in the first six
months of 2002 from $742,000 in the first six months of 2001. The decrease is
the result of lower average borrowing and lower average interest rates.
Income Taxes. The provision for income taxes for the first six months of
2002 decreased to $132,000 from $178,000 for the first six months of 2001 as a
result of a decrease in taxable income.
Cumulative Effect. During the first six months of 2002, the Company
implemented FAS 142, which resulted in the write off of $10,760,000 of the net
book value of goodwill, offset by the future tax benefit thereof in the amount
of $3,874,000. The net cumulative effect of this change in accounting principles
was a one-time non-recurring $6,886,000 charge against earnings in the first
three months of 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash used in operating activities for the six-month
period ended June 30, 2002 was $159,000, compared to cash provided by operating
activities of $1,072,000 for the six month period ended June 30, 2001, primarily
due to a decrease in accounts payable and accrued expenses, offset by a decrease
in accounts receivable.
Cash used in investing activities was $328,000, which was attributable to
capital expenditures for new equipment and an investment in Priority Systems
Group. The Company anticipates total capital expenditures during calendar year
2002 aggregating approximately $100,000, which will be used for the purchase of
automated assembly and test equipment.
Cash used in financing activities was $387,000 for the first six months of
2002 primarily comprised of $23,719,000 of borrowings offset by $24,108,000 of
repayments of long term debt.
On March 20, 2002 the Company executed a credit agreement with Commerce
Bank, N.A. for a $19,500,000 credit facility, comprised of (i) a $7,000,000
revolving line of credit under which funds may be borrowed at LIBOR, plus a
margin ranging from 1.75% to 2.50%, in each case depending on the calculation of
certain financial covenants, with a floor of 5% through March 19, 2003 (5% at
June 30, 2002), (ii) a $9,000,000 term loan which bears interest at a rate of
6.75% through September 30, 2002, and thereafter at a fixed rate ranging from
6.50% to 7.25% to reset quarterly depending on the calculation of certain
financial covenants (6.75% at June 30, 2002) and (iii) a $3,500,000 mortgage
loan bearing interest at 7.5%. Borrowings under the revolving line of credit are
limited to certain percentages of eligible accounts receivable and inventory, as
defined in the credit agreement. The credit facility is collateralized by a
security interest in all of the Company's assets. The agreement also contains
restrictions that require the Company to maintain certain financial ratios as
well as restrictions on the
9
payment of cash dividends. The maturity date of the new line of credit with
Commerce Bank is March 20, 2004. The term loan requires equal monthly principal
payments of $187,000 and matures on April 1, 2006. The mortgage loan requires
equal monthly principal payments of $19,000 and matures on April 1, 2017. The
mortgage loan is callable after five years at the lender's option.
Upon execution of the credit agreement with Commerce Bank, $14,954,000 was
advanced to the Company, of which $14,827,000 was used to pay all unpaid
principal and accrued interest under the Company's prior line of credit and term
loans with First Union National Bank ("First Union").
At June 30, 2002, there was $2,990,000, $8,438,000 and $3,442,000
outstanding under the revolving line of credit, term loan and mortgage loan,
respectively.
Prior to March 20, 2002, the Company had a $5,500,000 revolving line of
credit with First Union on which funds could be borrowed at either the bank's
base rate plus a margin ranging from 0% to .625%, or LIBOR, plus a margin
ranging from 1.50% to 2.625%, in each case depending upon the calculation of
certain financial covenants. The agreement contained restrictions that required
the Company to maintain certain financial ratios as well as restrictions on the
payment of dividends. The Company also had, prior to March 20, 2002, two
outstanding term loans with First Union which accrued interest at a variable
interest rate.
The Company currently anticipates that the cash generated from operations,
existing cash balances and amounts available under its existing line of credit,
will be sufficient to satisfy its foreseeable working capital needs.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("FAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." FAS 133 was adopted by the
Company on January 1, 2001. FAS 133 requires that all derivative instruments be
recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of the hedge
transaction and the type of hedge transaction. At June 30, 2002 the Company did
not have any derivative financial instruments. The adoption of this
pronouncement did not have a material effect on the Company's financial position
or results of operations.
In July 2001, the FASB issued FAS No. 141, "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets." FAS 141 requires the use of the
purchase method of accounting and prohibits the use of the pooling-of-interests
method of accounting for business combinations initiated after June 30, 2001.
FAS 142 addresses financial accounting and reporting for acquired goodwill and
other intangible assets. FAS 142 requires, among other things, that companies no
longer amortize goodwill, but instead test goodwill for impairment at least
annually. FAS 142 was adopted by the Company on January 1, 2002. The adoption of
this pronouncement resulted in the Company recording a $6,886,000 one-time,
non-cash charge, net of tax, to reduce the carrying value of its goodwill. Such
charge is non-operational in nature and is reflected as a cumulative effect of a
change in accounting principle. The Company's previous business combinations
were accounted for using the purchase method.
If FAS 142 had been in effect in 2001, the Company's six month earnings
would have been improved because of reduced amortization, as described below:
Basic Net Diluted Net
Earnings Earnings
Net Earnings Per Share Per Share
------------ --------- ---------
Reported Net Earnings $291,000 $0.04 $0.04
Add Amortization, Net of Tax 312,000 0.04 0.04
-------- ----- -----
Adjusted Net Earnings $603,000 $0.08 $0.08
======== ===== =====
The Company continues to amortize its patents over their estimated useful lives
with no significant residual value. Amortization expense for intangible assets
excluding goodwill was $216,000 and $334,000 for the six month period
10
ending June 30, 2002 and 2001, respectively. Intangibles amortization is
projected to be approximately $400,000 to $500,000 per year for the next five
years.
In August 2001, the FASB issued FAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." The new guidance resolves significant
implementation issues related to FAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." FAS 144
supersedes FAS 121, but it retains its fundamental provisions. It also amends
Accounting Research Bulletin No. 51, Consolidated Financial Statements, to
eliminate the exception to consolidate a subsidiary for which control is likely
to be temporary. FAS 144 retains the requirement of FAS 121 to recognize an
impairment loss only if the carrying amount of a long-lived asset within the
scope of FAS 144 is not recoverable from its undiscounted cash flows and exceeds
its fair value.
FAS 144 is effective for fiscal years beginning after December 15, 2001,
and interim periods within those fiscal years, with early application
encouraged. The provisions of FAS 144 generally are to be applied prospectively.
The adoption of FAS 144 did not have a material impact on the Company's
financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Company's financial instruments and
positions represents the potential loss arising from adverse changes in interest
rates. At June 30, 2002 and 2001 the principal amount of the Company's aggregate
outstanding variable rate indebtedness was $2,990,000 and $14,596,000
respectively. A hypothetical 1% adverse change in interest rates would have had
an annualized unfavorable impact of approximately $1,500 and $11,000,
respectively, on the Company's earnings and cash flows based upon these
quarter-end debt levels. At June 30, 2002, the Company did not have any
derivative financial investments.
11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to certain proceedings incidental to the ordinary
course of its business, none of which, in the current opinion of management, is
likely to have a material adverse effect on the Company's business, financial
condition, or results of operations.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders (the "Meeting") on May
3, 2002. The Company solicited proxies in connection with the Meeting. At the
record date of the Meeting (March 20, 2002), there were 7,612,664 shares of
Common Stock outstanding and entitled to vote. The following were the matters
voted upon at the Meeting:
1. Election of Directors. The following directors were elected at the
Meeting: John E. Dwight, Robert E. Heaton and James A. Luksch. The number of
votes cast for and withheld from each director are as follows:
DIRECTORS FOR WITHHELD
--------- --- --------
John E. Dwight 7,140,165 188,145
Robert E. Heaton 7,296,565 31,745
James A. Luksch 7,141,165 188,780
Robert B. Mayer, James F. Williams, Robert J. Palle, Jr., Gary
Scharmett and James H. Williams, continued as directors after the
meeting.
2. Approval of Amendment to 1995 Long Term Incentive Plan. The amendment to
the 1995 Long Term Incentive Plan to increase the shares issuable pursuant to
options granted thereunder from 900,000 to 1,150,000 shares was approved by the
following vote of the Common Stock:
FOR AGAINST ABSTAIN
--- ------- -------
6,971,978 349,907 7,125
3. Ratification of Auditors. The appointment of BDO Seidman, LLP as the
Company's independent auditors for the year ending December 31, 2002 was
ratified by the following vote of Common Stock:
FOR AGAINST ABSTAIN
--- ------- -------
7,265,570 56,780 5,960
12
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits are listed in the Exhibit Index appearing at page 13 herein.
(b) No reports on Form 8-K were filed in the quarter ended June 30, 2002.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BLONDER TONGUE LABORATORIES, INC.
Date: August 14, 2002 By: /s/ James A. Luksch
-------------------------------------
James A. Luksch
President and Chief Executive Officer
By: /s/ Eric Skolnik
-------------------------------------
Eric Skolnik
Vice President and Chief Financial
Officer
(Principal Financial Officer)
14
EXHIBIT INDEX
Exhibit # Description Location
- --------- ----------- --------
3.1 Restated Certificate of Incorporation of Blonder Incorporated by reference from Exhibit 3.1
Tongue Laboratories, Inc. to S-1 Registration Statement No. 33-98070
originally filed October 12, 1995, as
amended.
3.2 Restated Bylaws of Blonder Tongue Laboratories, Incorporated by reference from Exhibit 3.2
Inc. to S-1 Registration Statement No. 33-98070
originally filed October 12, 1995, as
amended.
99.1 Certification pursuant to Section 906 of Filed herewith
Sarbanes-Oxley Act of 2002
15