-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RYDxZPUVnJFGV47Hf3O+A6bIM5xuNCfaLDreQtGiptmWMaiCZt9T81Q7ieI/KeCd 5DIbirPPDtKAkbVxKA5LKw== 0000930413-02-001098.txt : 20020415 0000930413-02-001098.hdr.sgml : 20020415 ACCESSION NUMBER: 0000930413-02-001098 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLONDER TONGUE LABORATORIES INC CENTRAL INDEX KEY: 0001000683 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 521611421 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14120 FILM NUMBER: 02592270 BUSINESS ADDRESS: STREET 1: ONE JAKE BROWN RD STREET 2: PO BOX 1000 CITY: OLD BRIDGE STATE: NJ ZIP: 08857 BUSINESS PHONE: 9086794000 MAIL ADDRESS: STREET 1: ONE JAKE BROWN ROAD CITY: OLD BRIDGE STATE: NJ ZIP: 08857 10-K 1 c23861_10k-.txt ANNUAL REPORT FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001, OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________________ to __________________ COMMISSION FILE NUMBER: 1-14120 BLONDER TONGUE LABORATORIES, INC. --------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 52-1611421 - ------------------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 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 Securities registered pursuant to Section 12(b) of the Act: Name of Exchange Title of each class on which registered - ------------------------------------------- --------------------------- COMMON STOCK, PAR VALUE $.001 AMERICAN STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the registrant (computed by using the closing stock price on March 22, 2002, as reported by the American Stock Exchange): $11,198,835. Number of shares of common stock, par value $.001, outstanding as of March 22, 2002: 7,612,664. DOCUMENTS INCORPORATED BY REFERENCE: Certain portions of the registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 3, 2002 (which is expected to be filed with the Commission not later than 120 days after the end of the registrant's last fiscal year) are incorporated by reference into Part III of this report. FORWARD-LOOKING STATEMENTS In addition to historical information, this Annual Report contains forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operation, performance, development and results of the Company's business include, but are not limited to, those matters discussed herein in the sections entitled Item 1 - Business, Item 3 - Legal Proceedings, and Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. The words "believe", "expect", "anticipate", "project" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission. PART I ITEM 1. BUSINESS INTRODUCTION Blonder Tongue Laboratories, Inc. ("BLONDER TONGUE" or the "COMPANY") is a designer, manufacturer and supplier of a comprehensive line of electronics and systems equipment for the cable television ("CATV") industry (both franchise and non-franchise, or "private," cable). The Company's products are used to acquire, distribute and protect the broad range of communications signals carried on fiber optic, coaxial cable and wireless distribution systems. These products are sold to customers providing an array of communications services, including television, high-speed data (Internet) and telephony, to single family dwellings, multiple dwelling units ("MDUS"), the lodging industry and institutions such as hospitals, prisons, schools and marinas. The Company's products are also used in surveillance systems ranging in complexity from simple in-home monitoring systems to advanced business security systems with hundreds of cameras. Staying at the forefront of the telecommunications broadband technology revolution is a continuing challenge. The Company continues to add products to respond to the changes taking place. Blonder Tongue's product line includes digital satellite receivers, cable modems, fiber communications network components, QPSK to QAM transcoders (for DirecTV, Echostar and Digicipher II MPEG-2 Satellite Services) Digicipher II Compatible QAM Set Top Converters, and a broad range of interdiction products to preserve signal security. The Company's principal customers are system integrators (both franchise and private cable operators, as well as contractors) that design, package, install and in most instances operate, upgrade and maintain the systems they build. The Company has historically enjoyed, and continues to enjoy, a dominant market position in the private cable industry, while progressively making inroads into the franchise cable market. As the Company has expanded its market coverage, however, the distinctions between private cable and franchise cable have become blurred. For example, the most efficient, highest revenue-producing private cable systems and small franchise cable systems are built with the same electronic building blocks. Most of the electronics required are available from Blonder Tongue. In fact, some of the most financially successful cable systems in the United States employ Blonder Tongue interdiction equipment. The Company continues to expand its headend, fiber and data product lines to maintain the capability of providing all the electronic equipment needed to build small cable systems and much of the equipment needed in larger systems for most efficient operation and highest profitability in high density areas. 2 INDUSTRY OVERVIEW The broadband signal distribution industry (involving the high-speed transmission of television, telephony and internet signals) is currently dominated by CATV. The markets for wireless, direct-broadcast satellite ("DBS") and digital subscriber line ("DSL") used for this purpose are growing rapidly. Within the CATV market there are an increasing number of metropolitan areas that have awarded second CATV franchises to create competition with the existing franchisee. The government has been in favor of competition in this market and has passed regulations to encourage it. Franchise cable companies are ever watchful of DBS penetration in their franchise areas and react rapidly to competition, all to the eventual benefit of the consumer. To fight competition, the operators offer more services and more TV channels as well as discounted prices. The lineup of services typically includes an analog block of channels from 54 to 550 MHz, high speed data service using high-speed cable modems, cable telephony either interfacing with switched networks or internet protocol networks, and digital television in the 550 to 750 MHz range. These upgraded services are possible in every system that has been rebuilt to 750 MHz of bandwidth. The standard architecture for these enhanced systems contemplates a hybrid distribution network with a combination of fiber optic cable to nodes of 100 to 500 subscribers, with coaxial cable from the node to the customer and full reverse-path capability for the pay-per-view, data and phone services. The traditional customer targeted for these expanded services is a homeowner likely to remain in the same home as a long-term subscriber. For a variety of reasons, including the transient nature of the residents of many areas, high levels of theft of service and excessive cost of replacing lost or stolen converters and modems, approximately 35% of CATV subscribers not only are not offered the new services, but are never offered the full analog lineup of channels. Since converters, DBS receivers, digital converters and modems are offered at very low prices to stimulate sales, the operational costs in these demographic areas are too high to justify the advanced services. To retain customers in these areas, a technology must be used that minimizes the operational losses due to theft and "churn" while providing a level of video, data and phone service that compares favorably with DBS, DSL and wireless providers. The Company believes that its lineup of products, which includes interdiction as well as cable and telephone modems, is the ideal solution for deployment in these areas. In October 2001, the Company entered into an agreement to be a value-added distributor for Motorola's QAM decoder to the United States private cable and Canadian franchise cable markets. Coupling this product with the Company's Digicipher(R) II compatible QQQT transcoder provides a low-cost hardware solution for small system operators that want to offer digital programming from sources such as HITS(R), WSNET(TM), and Cancom. CATV Most CATV operators are building fiber optic networks with alternative combinations of fiber optic and coaxial cable to deliver television signal programming data and phone services on one drop cable. CATV's deployment of fiber optic trunk has been completed in more than 50% of existing systems. The system architecture being employed to accomplish the combined provision of television and telephone service is a hybrid fiber coaxial ("HFC") network. In an HFC network, fiber optic trunk lines connect to nodes which feed 100 to 500 subscribers, using coaxial cable. Extensive rebuilding of a CATV system is required to provide the full array of expanded services. Consequently, not only are the alternative suppliers faced with enormous capital expenditures to enter the broadband signal delivery business, but existing CATV system operators are faced with similar expenditures to compete with them (or to discourage them from entering the race) to provide the "information superhighway." The Company believes that most major metropolitan areas will eventually have complex networks of two or more independent operators interconnecting the homes while private cable operators will have large networks interconnecting many multi-dwelling complexes. All of these networks are potential users of Blonder Tongue headend, digital and interdiction products. 3 MULTIPLE DWELLING UNITS (MDUs) MDUs, because they represent a large percentage of the private cable market, have historically been responsible for a large percentage of the Company's sales. In the early days of cable television MDUs were served by franchise cable operators. In 1991, when the FCC allocated a designated frequency band for private cable, the private cable industry became a major supplier of TV services to MDUs since they could interconnect buildings with 18 GHz over-the-air links and reduce the cost-per-subscriber in building MDU networks. This type of networking continues today but presently many MDU private cable systems are connected using fiber optics since it is more reliable, has much greater bandwidth, and can handle two-way communication needed for voice, data and video-on-demand. MDUs served by franchise cable are also a large revenue source for Blonder Tongue since they generally fall into the category of customers where churn, theft of service and converter loss are extremely high. This makes these areas prime candidates for Blonder Tongue's interdiction products. LODGING Until the early 1990's, one system integrator dominated the lodging market and manufactured much of its own equipment. During the last ten years, other private cable integrators have successfully entered and expanded the lodging market by offering systems with more channels, video-on-demand and interactivity. These systems have been well received in the market, as property owners have sought additional revenues and guests have demanded increased in-room conveniences. The integrators leading this market evolution rely upon outside suppliers for their system electronics and are Blonder Tongue customers. These companies and others offer lodging establishments VCR-based systems which provide true video-on-demand movies with a large selection of titles. To meet these demands, the typical lodging system headend will include as many as 20 to 40 receivers and as many as 60 to 80 modulators, and will be capable of providing the guest with more free channels, video-on-demand for a broad selection of movie titles, and interactive services such as remote check-out and concierge services. This is in contrast to the systems which preceded them which typically had 10 to 12 receivers and modulators and provided six to ten free channels and two to five channels of VCR-based movies running at published scheduled times. There is an accelerating trend to substitute video file servers for VCRs, which the Company believes will eventually replace VCRs in video-on-demand systems. The timing and speed of this transition is dependent on availability of lower cost servers. Most of the systems with video-on-demand service were initially in large hotels, where the economics of high channel capacity systems are more easily justified. The conversion of hotel pay-per-view systems into video-on-demand is increasing. Smaller hotels and motels are being provided with video-on-demand as technology results in reduced headend costs, keeping the market growth reasonably steady. INTERNATIONAL For much of the world, CATV service lags the United States, but is rapidly expanding as technological advancement reduces the cost to consumers. In addition, economic development in Latin America and Asia has allowed first time construction of integrated delivery systems that utilize a variety of electronics and broadband hardware. The pace of growth is difficult to predict, but as more alternatives become available and television service becomes increasingly affordable, it is likely that more equipment will be placed in the field. The Company utilizes several distributors in Florida and within Latin America with an experienced international sales manager supervising this effort. Earlier efforts to expand the market through exclusive distribution arrangements were unsatisfactory but some growth was achieved in 2001 and accelerated growth is anticipated in the year 2002 and beyond as the Company's contacts and opportunities in the Caribbean and Latin America continue to mature. 4 ADDITIONAL CONSIDERATIONS The technological revolution taking place in the communications industry, which includes DBS, is providing digital television to an increasing number of homes. Wireless cable systems and DSL over twisted pair phone lines also utilize digital compression to provide channel capacity which is competitive with CATV and other television delivery systems. In addition, franchise cable companies and alternative suppliers are building fiber optic networks to offer video, data, and telephony. There is also the possibility of convergence of data and video communications, wherein computer and television systems merge and the computer monitor replaces the television screen. While it is not possible to predict with certainty which technology will be dominant in the future, it is clear that digitized video and advances in the ability to compress the digitized video signal make both digital television and the convergence of computer, telephone and television systems technically possible. Since United States television sets are analog (not digital), direct satellite television and other digitally compressed programming requires headend products or expensive set-top decoding receivers or converters to convert the digitally transmitted satellite signals back to analog. The replacement of all television sets with digital sets will be costly and take many years to complete. The Company believes that for many years to come, program providers will be required to deliver an analog television signal on standard channels to subscribers' television sets using headend products at some distribution point in their networks or employ decoding receivers at each television set. Headend products are a large segment of Blonder Tongue's business and the Company believes interdiction is an ideal product for a system operator to use to control access to the multitude of programming that will be available. PRODUCTS Blonder Tongue's products can be separated, according to function, into the several categories described below: o HEADEND PRODUCTS used by a system operator for signal acquisition, processing and manipulation for further transmission. Among the products offered by the Company in this category are satellite receivers (digital and analog), integrated receiver/decoders, transcoders, demodulators, modulators, antennas and antenna mounts, amplifiers, equalizers, and processors. The headend of a television signal distribution system is the "brain" of the system, the central location where the multi-channel signal is initially received, converted and allocated to specific channels for distribution. In some cases, where the signal is transmitted in encrypted form or digitized and compressed, the receiver will also be required to decode the signal or, in the case where digital signals are to be carried on the distribution system, transcode its modulation from QPSK (quadrature phase shift key) to QAM (quadrature amplitude modulation) since one is optimum for satellite transmission and the other optimum for fiber/coaxial distribution. Blonder Tongue is a licensee of Motorola, Inc.'s ("Motorola") VideoCipher(R) and DigiCipher(R) encryption technologies and Hughes Network Systems', a Hughes Electronics Corporation ("Hughes") digital technologies, and integrates their decoders into integrated receiver/decoder products, where required. The Company estimates that Headend Products accounted for approximately 52% of the Company's revenues in 2001, 40% in 2000 and 60% in 1999. o DISTRIBUTION PRODUCTS used to permit signals to travel from the headend to their ultimate destination in a home, apartment unit, hotel room, office or other terminal location along a distribution network of fiber optic or coaxial cable. Among the products offered by the Company in this category are optical transmitters, optical receivers, line extenders, broadband amplifiers, directional taps, splitters and wall taps. In CATV systems, the distribution products are either mounted on exterior telephone poles or encased in pedestals, vaults or other security devices. In private cable systems the distribution system is typically enclosed within the walls of the building (if a single structure) or added to an existing structure using various techniques to hide the coaxial cable and devices. The non-passive devices within this category are designed to ensure that the signal distributed from the headend is of sufficient strength when it arrives at its final destination to provide high quality audio/video images. 5 o SUBSCRIBER PRODUCTS used to control access to programming at the subscriber's location and to split and amplify incoming signals for transmission to multiple sites and multiple television sets within a site. Among the products offered by the Company in this category are addressable interdiction devices, cable modems, splitters, couplers and multiplexers. The Company believes that the most significant products within this category are: (i) its VideoMask(TM) addressable signal jammer, licensed from Philips Electronics North America Corporation and its affiliate Philips Broadband Networks, Inc. in August 1995 under certain non-exclusive technology and patent license agreements (the "PHILIPS LICENSE AGREEMENTS"), (ii) the SMI Interdiction product line acquired from Scientific-Atlanta, Inc. as part of its interdiction business, and (iii) its recently introduced cable modems for high-speed Internet access. Interdiction products limit, through jamming of particular channels, the availability of programs to subscribers. Such products enable an integrator to control subscriber access to premium channels and other enhanced services through a computer located off-premises. They also eliminate the necessity of an operator having to make a service call to install or remove passive traps and eliminate the costs associated with damage or loss of analog set-top converters in the subscribers' locations. Interdiction products are also being successfully used by CATV operators as an anti-piracy system in conjunction with set-top converters. The Company believes that the reduction in operating costs, programming piracy, and converter loss which can be obtained through the use of interdiction will be a significant factor in further product penetration into the franchise cable market. While it is not possible to predict the breadth of market acceptance for these products, the Company believes the potential is substantial in both the private cable market and franchise cable market as alternatives to, or in conjunction with, set-top converters and as a viable option for companies and municipalities who are overbuilding existing cable infrastructures and are seeking a more consumer-friendly and cost-effective way to compete with the incumbent franchise cable operator. o MICROWAVE PRODUCTS used to transmit the output of a cable system headend to multiple locations using point-to-point communication links in the 18 GHz range of frequencies. Among the products offered by the Company in this category are power amplifiers, repeaters, receivers, transmitters and compatible accessories. These products convert the headend output up to the microwave band and transmit this signal using parabolic antennas. At each receiver site, a parabolic antenna-receiver combination converts the signal back to normal VHF frequencies for distribution to subscribers at the receiver site. Due to a Final Rule and Order adopted by the Federal Communications Commission ("FCC") in June, 2000, coupled with the availability and inherent superiority of fiber optics in linking adjacent properties in MDU applications, sales of microwave products have diminished. While microwave products will continue to be sold to maintain existing systems, the Company does not anticipate that these products will contribute significantly to the Company's revenues. o FIBER PRODUCTS used to transmit the output of a cable system headend to multiple locations using fiber optic cable. Among the products offered are optical transmitters, receivers, couplers, splitters and compatible accessories. These products convert RF frequencies to light (or infrared) frequencies and launch them on optical fiber. At each receiver site, an optical receiver is used to convert the signals back to normal VHF frequencies for distribution to subscribers. Sales of products in this category continue to increase as they have become the product of choice in applications formerly suitable to the use of microwave products. The Company will modify its products to meet specific customer requirements. Typically, these modifications are minor and do not materially alter the functionality of the products. Thus the inability of the customer to accept such products does not generally result in the Company being otherwise unable to sell such products to other customers. 6 RESEARCH AND PRODUCT DEVELOPMENT The markets served by Blonder Tongue are characterized by technological change, new product introductions, and evolving industry standards. To compete effectively in this environment, the Company must engage in continuous research and development in order to (i) create new products, (ii) expand the frequency range of existing products in order to accommodate customer demand for greater channel capacity, (iii) license new technology (such as digital satellite receiver decoders and high-speed cable modems), and (iv) acquire products incorporating technology that could not otherwise be developed quickly enough using internal resources, to suit the dynamics of the evolving marketplace. Research and development projects are often initially undertaken at the request of and in an effort to address the particular needs of the Company's customers and customer prospects with the expectation or promise of substantial future orders from such customers or customer prospects. Additional research and development efforts are also continuously underway for the purpose of enhancing product quality and engineering to lower production costs. For the acquisition of new technologies, the Company may rely upon technology licenses from third parties when the Company believes that it can obtain such technology more quickly and/or cost-effectively from such third parties than the Company could otherwise develop on its own, or when the desired technology is proprietary to a third party. There were 22 employees in the research and development department of the Company at December 31, 2001. MARKETING AND SALES Blonder Tongue markets and sells its products worldwide to private cable integrators (which accounted for approximately 48% of the Company's revenues for fiscal 2001, approximately 56% of the Company's revenues for fiscal year 2000 and approximately 80% for fiscal year 1999), to alternative suppliers, and to franchise cable integrators. Sales are made directly to customers by the Company's internal sales force, as well as through numerous domestic and international stocking distributors. The Company's sales and marketing function is predominantly performed by its internal sales force. Should it be deemed necessary, the Company may retain independent sales representatives in particular geographic areas or targeted to specific customer prospects. The Company's internal sales force consists of 26 employees, which currently includes 12 salespersons (eight salespersons in Old Bridge, New Jersey, one salesperson in each of Cincinnati, Ohio, Cudahy, Wisconsin, Folsom, California, and Miami, Florida) and 14 sales-support personnel at the Company headquarters in Old Bridge, New Jersey. The Company's standard customer payment terms are 2%-10, net 30 days. From time to time where the Company determines that circumstances warrant, such as when a customer agrees to commit to a large blanket purchase order, the Company extends payment terms beyond its standard payment terms. The Company has several marketing programs to support the sale and distribution of its products. Blonder Tongue participates in industry trade shows and conferences. The Company also publishes technical articles in trade and technical journals, distributes sales and product literature and has an active public relations plan to ensure complete coverage of Blonder Tongue's products and technology by editors of trade journals. The Company provides system design engineering for its customers, maintains extensive ongoing communications with many original equipment manufacturer customers and provides one-on-one demonstrations and technical seminars to potential new customers. Blonder Tongue supplies sales and applications support, product literature and training to its sales representatives and distributors. The management of the Company travels extensively, identifying customer needs and meeting potential customers. The Company had approximately $1.0 million and $4.0 million in purchase orders as of December 31, 2001 and December 31, 2000, respectively. All of the purchase orders outstanding as of December 31, 2001 are expected to be shipped prior to December 31, 2002. The purchase orders are for the future delivery of products and are subject to cancellation by the customer. 7 CUSTOMERS Blonder Tongue has a broad customer base, which in 2001 consisted of more than 800 active accounts. Approximately 39%, 56%, and 26% of the Company's revenues in fiscal years 2001, 2000, and 1999, respectively, were derived from sales of products to the Company's five largest customers. In 2001, sales to Toner Cable Equipment, Inc. accounted for approximately 14% of the Company's revenues. There can be no assurance that any sales to these entities, individually or as a group, will reach or exceed historical levels in any future period. However, the Company anticipates that these customers will continue to account for a significant portion of the Company's revenues in future periods, although none of them is obligated to purchase any specified amount of products (beyond outstanding purchase orders) or to provide the Company with binding forecasts of product purchases for any future period. The complement of leading customers may shift as the most efficient and better financed integrators grow more rapidly than others. The Company believes that many integrators will grow rapidly, and as such the Company's success will depend in part on the viability of those customers and on the Company's ability to maintain its position in the overall marketplace by shifting its emphasis to those customers with the greatest growth and growth prospects. Any substantial decrease or delay in sales to one or more of the Company's leading customers, the financial failure of any of these entities, or the Company's inability to develop and maintain solid relationships with the integrators which may replace the present leading customers, would have a material adverse effect on the Company's results of operations and financial condition. The Company's revenues are derived primarily from customers in the continental United States, however, the Company also derives revenues from customers outside the continental United States, primarily in underdeveloped countries. Television service is less developed in many international markets, particularly Latin America and Asia, creating opportunity for those participants who offer quality products at a competitive price. Sales to customers outside of the United States represented approximately 2% of the Company's revenues in fiscal years 2001, 2000 and 1999. All of the Company's transactions with customers located outside of the continental United States are denominated in U.S. dollars, therefore, the Company has no material foreign currency transactions. MANUFACTURING AND SUPPLIERS Blonder Tongue's manufacturing operations are located at the Company's headquarters in Old Bridge, New Jersey. The Company's manufacturing operations are vertically integrated and consist principally of the assembly and testing of electronic assemblies built from fabricated parts, printed circuit boards and electronic devices and the fabrication from raw sheet metal of chassis and cabinets for such assemblies. Management continues to implement a significant number of changes to the manufacturing process to increase production volume and reduce product cost, including logistics modifications on the factory floor, an increased use of surface mount, axial lead and radial lead robotics to place electronic components on printed circuit boards, a continuing program of circuit board redesign to make more products compatible with robotic insertion equipment and an increased integration in machining and fabrication. All of these efforts are consistent with and part of the Company's strategy to provide its customers with high performance-to-cost ratio products. Outside contractors supply standard components, etch-printed circuit boards, and electronic subassemblies to the Company's specifications. While the Company generally purchases electronic parts which do not have a unique source, certain electronic component parts used within the Company's products are available from a limited number of suppliers and can be subject to temporary shortages because of general economic conditions and the demand and supply for such component parts. If the Company were to experience a temporary shortage of any given electronic part, the Company believes that alternative parts could be obtained or system design changes implemented. However, in such situations the Company may experience temporary reductions in its ability to ship products affected by the component shortage. The Company purchases several products from sole suppliers for which alternative sources are not available, such as the VideoCipher(R) and DigiCipher(R) encryption systems manufactured by Motorola, which are standard encryption methodologies employed on U.S. C-Band and Ku-Band transponders and Hughes digital satellite receivers for delivery of DIRECTV(TM) programming. An inability to timely obtain sufficient quantities of these components could have a material adverse effect on the Company's operating results. The Company does not have a supply agreement with Motorola or any other supplier. The Company submits purchase orders to its suppliers on an as-needed basis. 8 Blonder Tongue maintains a quality assurance program which tests samples of component parts purchased, as well as its finished products, on an ongoing basis and also conducts tests throughout the manufacturing process using commercially available and in-house built testing systems that incorporate proprietary procedures. Blonder Tongue performs final product tests on 100% of its products prior to shipment to customers. COMPETITION All aspects of the Company's business are highly competitive. The Company competes with national, regional and local manufacturers and distributors, including companies larger than Blonder Tongue which have substantially greater resources. Various manufacturers who are suppliers to the Company sell directly as well as through distributors into the franchise and private cable marketplaces. Because of the convergence of the cable, telecommunications and computer industries and rapid technological development, new competitors may seek to enter the principal markets served by the Company. Many of these potential competitors have significantly greater financial, technical, manufacturing, marketing, sales and other resources than Blonder Tongue. The Company expects that direct and indirect competition will increase in the future. Additional competition could result in price reductions, loss of market share and delays in the timing of customer orders. The principal methods of competition are product differentiation, performance and quality, price and terms, service, and technical and administrative support. INTELLECTUAL PROPERTY The Company currently holds 30 United States patents and 14 foreign patents covering a wide range of electronic systems and circuits, of which 19 United States patents and 10 foreign patents were obtained in the Company's acquisition of Scientific-Atlanta, Inc.'s interdiction business during 1998. Other than certain of the patents acquired from Scientific-Atlanta, Inc., none of the Company's patents are considered material to the Company's present operations because they do not relate to high volume applications. Because of the rapidly evolving nature of the CATV industry, the Company believes that its market position as a supplier to cable integrators derives primarily from its ability to develop a continuous stream of new products which are designed to meet its customers' needs and which have a high performance-to-cost ratio. The Company is a licensee of Philips Electronics North America Corporation and its affiliate Philips Broadband Networks, Inc., Motorola, Hughes and several smaller software development companies. Under the Philips License Agreements, the Company is granted a non-exclusive license for a term which expires in 2010, concurrently with the last to expire of the relevant patents. The Philips License Agreements provide for the payment by the Company of a one-time license fee and for the payment by the Company of royalties based upon unit sales of licensed products. The Company is a licensee of Motorola relating to Motorola's VideoCipher(R) encryption technology and is also a party to a private label agreement with Motorola relating to its DigiCipher(R) technology. Under the VideoCipher(R) license agreement, the Company is granted a non-exclusive license under certain proprietary know-how, to design and manufacture certain licensed products to be compatible with the VideoCipher(R) commercial descrambler module. The VideoCipher(R) license agreement provides for the payment by the Company of a one-time license fee for the Company's first model of licensed product and additional one-time license fees for each additional model of licensed product. The VideoCipher(R) license agreement also provides for the payment by the Company of royalties based upon unit sales of licensed products. Under the DigiCipher(R) private label agreement, the Company is granted the non-exclusive right to sell DigiCipher(R) II integrated receiver decoders bearing the Blonder Tongue name for use in the commercial market. The DigiCipher(R) private label agreement provides for the payment by the Company of a one-time license fee for the Company's first model of licensed product and additional one-time license fees for each additional model of licensed product. During 1996, the Company entered into several software development and license agreements for specifically designed controller and interface software necessary for the operation of the Company's Video Central(TM) remote interdiction control system, which is used for remote operation of VideoMask(TM) signal jammers installed at subscriber locations. These licenses are perpetual and require the payment of a one-time license fee and in one case additional payments, the aggregate of which are not material. 9 In February, 1998, the Company entered into an exclusive license agreement with Hughes, pursuant to which the Company is licensed to design, manufacture, and market commercial digital satellite receivers which are compatible with DIRECTV(TM) programming, for use in headend applications in both the franchised and private cable markets. The agreement is for a term of five (5) years, expiring in February 2003. The Company relies on a combination of contractual rights and trade secret laws to protect its proprietary technologies and know-how. There can be no assurance that the Company will be able to protect its technologies and know-how or that third parties will not be able to develop similar technologies and know-how independently. Therefore, existing and potential competitors may be able to develop products that are competitive with the Company's products and such competition could adversely affect the prices for the Company's products or the Company's market share. The Company also believes that factors such as the technological and creative skills of its personnel, new product developments, frequent product enhancements, name recognition and reliable product maintenance are essential to establishing and maintaining its leadership position. REGULATION Private cable, while in some cases subject to certain FCC licensing requirements, is not presently burdened with extensive government regulations. Franchise cable operators had been subject to extensive government regulation pursuant to the Cable Television Consumer Protection and Competition Act of 1992, which among other things provided for rate rollbacks for basic tier cable service, further rate reductions under certain circumstances and limitations on future rate increases. The Telecommunications Act of 1996 has deregulated many aspects of franchise cable system operation and has opened the door to competition among cable operators and telephone companies in each of their respective industries. The Company believes that this legislation will increase the base of potential customers for the Company's products. In June, 2000, the FCC adopted and issued a Final Rule and Order relating to the re-designation of portions of the 18GHz-frequency band among the various currently allocated services. This matter was first discussed in 1998, at which time the FCC issued a Notice of Proposed Rulemaking, proposing to grant primary status for use of the 18GHz frequency band to Fixed Satellite Service Operators ("FSSO"), to the detriment of existing and future terrestrial fixed service operators ("TFSO"). The Final Rules regarding this issue provide for the grandfathering, for a period of ten years, of certain pre-existing (installed) TFSOs and TFSOs that had made application for a license prior to a certain date. The FCC segmented the 18GHz-frequency band into several sub-bands and has provided for varying obligations and rights as between the TFSOs and the FSSOs. Overall, the Final Rules are complex and place a measure of uncertainty upon TFSOs considering the use of microwave gear in new systems. These issues, coupled with the recent advances in the use of fiber optic cable and the inherent superiority in fiber due to its greater bandwidth capability, have resulted in a shift in customer purchases away from microwave gear and toward fiber optics. ENVIRONMENTAL REGULATIONS The Company is subject to a variety of federal, state and local governmental regulations related to the storage, use, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in its manufacturing processes. The Company did not incur in 2001 and does not anticipate incurring in 2002 material capital expenditures for compliance with federal, state and local environmental laws and regulations. There can be no assurance, however, that changes in environmental regulations will not result in the need for additional capital expenditures or otherwise impose additional financial burdens on the Company. Further, such regulations could restrict the Company's ability to expand its operations. Any failure by the Company to obtain required permits for, control the use of, or adequately restrict the discharge of, hazardous substances under present or future regulations could subject the Company to substantial liability or could cause its manufacturing operations to be suspended. The Company presently holds a permit from the New Jersey Department of Environmental Protection ("NJDEP"), Division of Environmental Quality, Air Pollution Control Program relating to its operation of certain process equipment, which permit expires in June, 2003. The Company has held such a permit for this equipment on a substantially continuous basis since approximately April, 1989. The Company also has authorization under the New Jersey Pollution Discharge Elimination System/Discharge to Surface Waters General Industrial Stormwater Permit, Permit No. NJ0088315. This permit will expire January 2003. 10 EMPLOYEES The Company employs approximately 418 people, including 320 in manufacturing, 22 in research and development, 15 in quality assurance, 16 in production services, 26 in sales and marketing, and 19 in a general and administrative capacity. 235 of the Company's employees are members of the International Brotherhood of Electrical Workers Union, Local 2066, which has a three year labor agreement with the Company expiring in February, 2005. The Company considers its relations with its employees to be good. ITEM 2. PROPERTIES The Company's principal manufacturing, engineering, sales and administrative facilities consist of one building totaling approximately 130,000 square feet located on approximately 20 acres of land in Old Bridge, New Jersey (the "OLD BRIDGE FACILITY") which is owned by the Company. The Company also leases office space in Cudahy, Wisconsin for which it pays rent of approximately $300 per month. Management believes that the Old Bridge Facility is adequate to support the Company's anticipated needs in 2002. Subject to compliance with applicable zoning and building codes, the Old Bridge real property is large enough to double the size of the plant to accommodate expansion of the Company's operations should the need arise. ITEM 3. LEGAL PROCEEDINGS The Company is a party to certain proceedings incidental to the ordinary course of its business, none of which, in the current opinion of management, is likely to have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter ended December 31, 2001, through the solicitation of proxies or otherwise. 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock has been traded on the American Stock Exchange since the Company's initial public offering on December 14, 1995. The following table sets forth for the fiscal quarters indicated, the high and low sale prices for the Company's Common Stock on the American Stock Exchange. MARKET INFORMATION Fiscal Year Ended December 31, 2001: HIGH LOW ---- --- First Quarter .................................. 4.125 2.120 Second Quarter.................................. 4.000 2.160 Third Quarter .................................. 4.230 2.960 Fourth Quarter ................................. 4.290 3.000 Fiscal Year Ended December 31, 2000: HIGH LOW ---- --- First Quarter .................................. 10 3/4 5 Second Quarter.................................. 9 3/4 6 7/16 Third Quarter .................................. 8 6 Fourth Quarter.................................. 6 1/4 2 5/8 The Company's Common Stock is traded on the American Stock Exchange under the symbol "BDR". HOLDERS As of March 22, 2002, the Company had approximately 65 holders of record of the Common Stock. Since a portion of the Company's common stock is held in "street" or nominee name, the Company is unable to determine the exact number of beneficial holders. DIVIDENDS The Company currently anticipates that it will retain all of its earnings to finance the operation and expansion of its business, and therefore does not intend to pay dividends on its Common Stock in the foreseeable future. Other than in connection with certain "S" corporation distributions prior to its initial public offering, the Company has never declared or paid any cash dividends on its Common Stock. Any determination to pay dividends in the future is at the discretion of the Company's Board of Directors and will depend upon the Company's financial condition, results of operations, capital requirements, limitations contained in loan agreements and such other factors as the Board of Directors deems relevant. The Company's loan agreement with Commerce Bank, N.A. prohibits the payment of cash dividends by the Company on its Common Stock. 12 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated statement of earnings data presented below for each of the years ended December 31, 2001, 2000 and 1999, and the selected consolidated balance sheet data as of December 31, 2001 and 2000, are derived from, and are qualified by reference to, the audited consolidated financial statements of the Company and notes thereto included elsewhere in this Form 10-K. The selected consolidated statement of earnings data for the years ended December 31, 1998 and 1997 and the selected consolidated balance sheet data as of December 31, 1999, 1998 and 1997 are derived from audited consolidated financial statements not included herein. The data set forth below is qualified in its entirety by, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements, notes thereto and other financial and statistical information appearing elsewhere herein.
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 2001 2000 1999 1998(1) 1997 ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF EARNINGS DATA: Net sales .................................. $53,627 $70,196 $56,805 $70,792 $62,057 Cost of goods sold ......................... 36,928 46,974 39,074 45,344 39,656 ------- ------- ------- ------- ------- Gross profit ............................. 16,699 23,222 17,731 25,448 22,401 ------- ------- ------- ------- ------- Operating expenses: Selling, general and administrative ...... 11,209 13,572 13,598 10,755 9,938 Research and development ................. 2,200 2,125 2,070 2,156 1,954 ------- ------- ------- ------- ------- Total operating expenses ................. 13,409 15,697 15,668 12,911 11,892 ------- ------- ------- ------- ------- Earnings from operations ................... 3,290 7,525 2,063 12,537 10,509 Interest expense ........................... 1,369 1,948 2,008 1,596 414 Other (income) expense, net ................ 0 (10) (6) (40) (595) ------- ------- ------- ------- ------- Earnings before income taxes ............... 1,921 5,587 61 10,981 10,690 Provision for income taxes ................. 704 2,011 2 3,868 4,276 ------- ------- ------- ------- ------- Net earnings ............................... $ 1,217 $ 3,576 $ 59 $ 7,113 $ 6,414 ======= ======= ======= ======= ======= Basic earnings per share ................... $ 0.16 $ 0.47 $ 0.01 $ 0.86 $ 0.78 Basic weighted average shares outstanding(2) ........................... 7,613 7,620 7,916 8,292 8,227 Diluted earnings per share ................. $ 0.16 $ 0.47 $ 0.01 $ 0.84 $ 0.77 Diluted weighted average shares outstanding(2) ........................... 7,637 7,632 7,958 8,471 8,375 YEAR ENDED DECEMBER 31, --------------------------------------------------------- 2001 2000 1999 1998(1) 1997 ------- ------- ------- ------- ------- (In thousands) CONSOLIDATED BALANCE SHEET DATA: Working capital ............................ $31,254 $27,154 $25,456 $17,049 $26,055 Total assets ............................... 64,386 62,834 66,076 69,651 42,272 Long-term debt (including current maturities) ...................... 16,195 16,184 20,607 22,359 5,054 Stockholders' equity ....................... 39,962 39,096 35,247 40,496 31,795
- ---------- (1) On March 26, 1998, the Company acquired all of the assets and technology rights of Scientific-Atlanta, Inc.'s interdiction business. (2) Weighted average shares are calculated in accordance with the provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share." 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION AND ANALYSIS OF THE COMPANY'S HISTORICAL RESULTS OF OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES SHOULD BE READ IN CONJUNCTION WITH "SELECTED CONSOLIDATED FINANCIAL DATA" AND THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND NOTES THERETO APPEARING ELSEWHERE HEREIN. OVERVIEW The Company was incorporated in November, 1988, under the laws of Delaware as GPS Acquisition Corp. for the purpose of acquiring the business of Blonder-Tongue Laboratories, Inc., a New Jersey corporation which was founded in 1950 by Ben H. Tongue and Isaac S. Blonder (the "FORMER BLONDER-TONGUE") to design, manufacture and supply a line of electronics and systems equipment principally for the Private Cable industry. Following the acquisition, the Company changed its name to Blonder Tongue Laboratories, Inc. The Company's success is due in part to management's efforts to leverage the Company's reputation by broadening its product line to offer one-stop shop convenience to private cable and franchise cable system integrators and to deliver products having a high performance-to-cost ratio. In December 1995, the Company successfully concluded an initial public offering of 2,200,000 shares of its Common Stock. Thereafter, in January 1996, the Company's underwriters exercised their over-allotment option, as a result of which an additional 181,735 shares of the Company's Common Stock were sold. The proceeds received by the Company from the sale of its Common Stock in the offering (including shares sold pursuant to the over-allotment option), net of expenses of the offering and certain S Corporation distributions to the Company's principal stockholders, were approximately $14,045,000. These funds were used to acquire the Company's Old Bridge Facility and to reduce the Company's outstanding bank debt. The Company has further enhanced its liquidity through a long-term loan secured by a mortgage against the Old Bridge Facility. On March 26, 1998, the Company acquired all of the assets and technology rights, including the SMI Interdiction product line, of the interdiction business (the "INTERDICTION BUSINESS") of Scientific-Atlanta, Inc. ("SCIENTIFIC") for a purchase price consisting of (i) $19 million in cash, (ii) 67,889 shares of the Company's common stock, (iii) a warrant to purchase 150,000 additional shares of the Company's common stock at an exercise price of $14.25 per share and (iv) assumption by the Company of certain obligations under executory contracts with vendors and customers and certain warranty obligations and other current liabilities of the Interdiction Business. The Company is utilizing the SMI Interdiction product line acquired from Scientific, which has been engineered primarily to serve the franchise cable market, as a supplement to the Company's VideoMask(TM) Interdiction products, which are primarily focused on the private cable market. In addition, the Company expects that the technology acquired as part of the Interdiction Business will enhance its ability to design products that meet the specific needs of all cable providers, while improving its position in the franchise cable market. RESULTS OF OPERATIONS The following table sets forth, for the fiscal periods indicated, certain consolidated statement of earnings data as a percentage of net sales: Year Ended December 31, --------------------------------------- 2001 2000 1999 ---------- --------- --------- Net sales 100.0% 100.0% 100.0% Costs of goods sold 68.9 66.9 68.8 Gross profit 31.1 33.1 31.2 Selling expenses 9.3 8.5 10.6 General and administrative expenses 11.6 10.9 13.3 Research and development expenses 4.1 3.0 3.6 Earnings from operations 6.1 10.7 3.6 Other (income) expense, net 2.5 2.8 3.5 Earnings before income taxes 3.6 7.9 0.1 14 2001 COMPARED WITH 2000 NET SALES. Net sales decreased $16,569,000 or 23.6%, to $53,627,000 in 2001 from $70,196,000 in 2000. The substantially higher sales recorded in the prior fiscal year were primarily attributable to shipments against a large interdiction order booked in the fourth quarter of 1999. Net sales included approximately $7,962,000 of interdiction equipment for 2001 compared to approximately $29,400,000 in 2000. COST OF GOODS SOLD. Cost of goods sold decreased to $36,928,000 for 2001 from $46,974,000 for 2000, primarily due to decreased volume, and increased as a percentage of sales to 68.9% in 2001 from 66.9% in 2000. The increase as a percentage of sales was caused primarily by a greater proportion of sales during the period being comprised of lower margin products, including the Motorola QAM decoder which was introduced in the fourth quarter of 2001, as well as an increase in obsolescence reserves. SELLING EXPENSES. Selling expenses decreased to $5,009,000 in 2001 from $5,943,000 in 2000, and increased as a percentage of sales to 9.3% in 2001 from 8.5% in 2000. The $934,000 decrease is primarily attributable to a decrease in wages and fringe benefits related to the decrease in headcount along with a decrease in commissions and freight expense as a result of reduced sales. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses decreased to $6,200,000 in 2001 from $7,629,000 in 2000, and increased as a percentage of sales to 11.6% in 2001 from 10.9% in 2000. The $1,429,000 decrease is primarily attributable to a decrease in consulting fees, investor relations fees, travel and entertainment, and bad debts. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased to $2,200,000 in 2001 from $2,125,000 in 2000, and increased as a percentage of sales to 4.1% in 2001 from 3.0% in 2000. The $75,000 increase is primarily attributable to an increase in wages, fringe benefits and consulting expenses. EARNINGS FROM OPERATIONS. Earnings from operations decreased 56.3% to $3,290,000 in 2001 from $7,525,000 in 2000. Earnings from operations as a percentage of sales decreased to 6.1% in 2001 from 10.7% in 2000. INTEREST AND OTHER EXPENSE. Interest and other expenses consisted of $1,369,000 of interest expense in 2001. Interest and other expenses in 2000 consisted of $1,948,000 of interest expense offset by $10,000 of interest income. The decrease in interest expense is primarily attributable to a reduction in the Company's long term debt and lower average interest rates. INCOME TAXES. The provision for income taxes for 2001 decreased to $704,000 from $2,011,000 in 2000, as a result of a decrease in taxable income. 2000 COMPARED WITH 1999 NET SALES. Net sales increased $13,391,000 or 23.6%, to $70,196,000 in 2000 from $56,805,000 in 1999. The increase in sales is primarily attributed to an increase in sales of interdiction equipment primarily to the franchise cable market. Net sales included approximately $29,400,000 of interdiction equipment for 2000 compared to approximately $11,006,000 in 1999. COST OF GOODS SOLD. Cost of goods sold increased to $46,974,000 for 2000 from $39,074,000 for 1999, primarily due to increased volume, and decreased as a percentage of sales to 66.9% in 2000 from 68.8% in 1999. The decrease as a percentage of sales was caused primarily by a greater proportion of sales during the period being comprised of higher margin products. SELLING EXPENSES. Selling expenses decreased to $5,943,000 in 2000 from $6,025,000 in 1999, and decreased as a percentage of sales to 8.5% in 2000 from 10.6% in 1999. The $82,000 decrease is primarily attributable to a decrease in the costs incurred for advertising and marketing materials. 15 GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased to $7,629,000 in 2000 from $7,573,000 in 1999 and decreased as a percentage of sales to 10.9% in 2000 from 13.3% in 1999. The $56,000 increase can be attributable primarily to an increase in depreciation expense related to computer equipment. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased 2.7 % to $2,125,000 in 2000 from $2,070,000 in 1999. The increase is primarily due to an increase in departmental supplies. Research and development expenses decreased as a percentage of sales to 3.0% from 3.6%. EARNINGS FROM OPERATIONS. Earnings from operations increased 264.8% to $7,525,000 in 2000 from $2,063,000 in 1999. Earnings from operations as a percentage of sales increased to 10.7% in 2000 from 3.6% in 1999. INTEREST AND EXPENSES. Other expenses in 2000 consisted of $1,948,000 of interest expense offset by $10,000 of interest income. Other expenses in 1999 consisted of $2,008,000 of interest expense offset by $6,000 of interest income. The decrease in interest expense is primarily attributed to decreased borrowings under the Company's revolving line of credit and a reduction in the Company's long term debt. INCOME TAXES. The provision for income taxes for 2000 increased to $2,011,000 from $2,000 for 1999 as a result of an increase in taxable income. The Company's effective rate increased to 36% for 2000 from 3% in 1999 as a result of state tax credits available to the Company and recognized in 1999, along with an increase in taxable income. INFLATION AND SEASONALITY Inflation and seasonality have not had a material impact on the results of operations of the Company. Fourth quarter sales in 2001 were slightly impacted by fewer production days. The Company expects sales each year in the fourth quarter to be impacted by fewer production days. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 2001 and 2000, the Company's working capital was $31,254,000 and $27,154,000, respectively. The increase in working capital is attributable primarily to the reclassification as long term debt, of the Company's obligations under its line of credit from First Union, as a result of the refinancing transaction consummated during the first quarter of 2002 of the Company's credit agreement. Historically, the Company has satisfied its cash requirements primarily from net cash provided by operating activities and from borrowings under its line of credit. The Company's net cash provided by operating activities for the year ended December 31, 2001 was $3,711,000 as a result of the Company's net earnings, increased by a $3,169,000 increase in accounts payable and accrued expenses, offset by the $4,423,000 increase in inventory, compared to cash provided by operating activities for the year ended December 31, 2000 of $6,256,000. Although sales decreased in 2001 as compared to 2000, accounts receivable and inventory increased. Accounts receivable was lower in 2000 despite higher sales, primarily due to the fact that accounts receivable relating to substantial purchases by Cablevision in 2000 were paid on an accelerated basis to take advantage of the Company's 2%-10, net 30 day terms. Inventory increased in connection with the Company becoming a value-added distributor of Motorola's QAM decoder under an agreement signed in October, 2001. Cash used in investing activities was $803,000, which was attributable primarily to capital expenditures for new computers and test equipment. The Company does not have any present plans or commitments for material capital expenditures for fiscal year 2002. Cash used in financing activities was $2,329,000 for the period ended December 31, 2001, comprised of $4,356,000 in repayments of long-term debt and $2,117,000 of increased borrowings under the First Union revolving line of credit. 16 During 2001, the Company commenced efforts to refinance its line of credit with First Union, and on March 20, 2002 the Company executed a credit agreement with Commerce Bank, N.A. for a $19.5 million credit facility, comprised of (i) a $7 million revolving line of credit under which funds may be borrowed at LIBOR, plus a margin ranging from 1.75% to 2.50%, in each case depending on the calculation of certain financial covenants, with a floor of 5% through March 30, 2003, (ii) a $9 million term loan which bears interest at a rate of 6.75% through September 30, 2002, and thereafter at a fixed rate ranging from 6.50% to 7.25% to reset quarterly depending on the calculation of certain financial covenants and (iii) a $3.5 million mortgage loan bearing interest at 7.5%. Borrowings under the revolving line of credit are limited to certain percentages of eligible accounts receivable and inventory, as defined in the credit agreement. The credit facility is collateralized by a security interest in all of the Company's assets. The agreement also contains restrictions that require the Company to maintain certain financial ratios as well as restrictions on the payment of cash dividends. The maturity date of the new line of credit with Commerce Bank is March 20, 2004. The term loan requires equal monthly principal payments of $187,800 and matures on March 20, 2006. The mortgage loan requires equal monthly principal payments of $19,444 and matures on March 20, 2017. The mortgage loan is callable after five years at the lender's option. Upon execution of the credit agreement with Commerce Bank, $14,953,900 was advanced to the Company, of which $14,827,000 was used to pay all unpaid principal and accrued interest under the Company's prior line of credit and term loans with First Union National Bank ("FIRST UNION"). As a result of the new credit agreement, the First Union debt has been reflected based on the new terms in the accompanying balance sheet. Prior to March 20, 2002, the Company had a $5.5 million revolving line of credit with First Union on which funds could be borrowed at either the bank's base rate plus a margin ranging from 0% to .625%, or LIBOR, plus a margin ranging from 1.50% to 2.625%, in each case depending upon the calculation of certain financial covenants (5.25% at December 31, 2001). At December 31, 2001, the Company had $4,367,000 outstanding under the First Union line of credit. The agreement contained restrictions that required the Company to maintain certain financial ratios as well as restrictions on the payment of dividends. The Company also had, prior to March 20, 2002, two outstanding term loans with First Union (Old Term Loan A and Old Term Loan B) which accrued interest at a variable interest rate. At December 31, 2001, the aggregate amount outstanding under both term loans was $10,941,000. At June 30, 2001, September 30, 2001 and December 31, 2001, the Company was unable to meet certain of its financial covenants under the First Union credit agreement, compliance with which was waived by First Union as of June 30, 2001 and September 30, 2001. Also, in November 2001, the maturity date of the First Union line of credit was extended until March 31, 2002 and the Company agreed that one of the financial covenants which had previously been deleted from the credit agreement would again become effective as of December 31, 2001. The average amount outstanding on the line of credit during 2001 was $3,661,000 at a weighted average interest rate of 7.02%. The maximum amount outstanding on the line of credit during 2001 was $5,183,000. Annual maturities of long-term debt at December 31, 2001 are: 2002....................... $ 2,917,000 2003....................... 2,632,000 2004....................... 7,008,000 2005....................... 2,649,000 2006....................... 989,000 Thereafter................. -- ----------- $16,195,000 =========== The Company leases certain factory and automotive equipment under noncancellable operating leases expiring at various dates through December, 2006. 17 Future minimum rental payments, required for all noncancellable leases are as follows: Capital Operating ---------- --------- 2002 ................................................. $ 327,000 $ 78,000 2003 ................................................. 194,000 58,000 2004 ................................................. 191,000 12,000 2005 ................................................. 186,000 -- 2006 ................................................. 157,000 -- Thereafter ........................................... -- -- ---------- -------- Total future minimum lease payments .................. 1,055,000 $148,000 ======== Less: amounts representing interest ................. 168,000 ---------- Present value of minimum lease payments .............. $ 887,000 ========== The Company currently anticipates that the cash generated from operations, existing cash balances and amounts available under its credit facility with Commerce Bank, will be sufficient to satisfy its foreseeable working capital needs. CRITICAL ACCOUNTING POLICIES The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States. Preparing financial statements in accordance with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The following paragraphs include a discussion of some critical areas where estimates are required. You should also review Note 1 to the financial statements for further discussion of significant accounting policies. The Company records revenue when products are shipped. Legal title and risk of loss with respect to the products pass to customers at the point of shipment. Customers do not have a right to return products shipped. The Company provides an allowance for doubtful accounts on an estimated basis. The Company evaluates its long-lived assets for impairment based on the undiscounted future cash flows of such assets. If a long-lived asset is identified as impaired, the value of the asset will be reduced to its fair value. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("FAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." FAS 133 was adopted by the Company on January 1, 2001. FAS 133 requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of the hedge transaction and the type of hedge transaction. In August, 2001 the Company terminated a previous interest rate swap agreement and recorded $82,000 in additional interest expense. At December 31, 2001, the Company did not have any derivative financial instruments. The adoption of this pronouncement did not have a material effect on the Company's financial position or results of operations. In July 2001, the FASB issued FAS No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets." FAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. FAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. FAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. FAS 142 is required to be applied for fiscal years beginning after December 15, 2001. This statement also requires that entities complete a transitional goodwill impairment test six months from the date of adoption and reassess the useful lives of other intangible assets within the first quarter of its adoption. The Company is in the process of completing this test and, accordingly, has not yet determined what effect the adoption of this statement 18 will have on its financial statements. The Company's previous business combinations were accounted for using the purchase method. As of December 31, 2001, the net carrying amount of goodwill is $10,760,000 and other intangible assets is $4,038,000. Amortization of goodwill during the year ended December 31, 2001 was $970,000. In August 2001, the FASB issued FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The new guidance resolves significant implementation issues related to FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." FAS 144 supersedes FAS 121, but it retains its fundamental provisions. It also amends Accounting Research Bulletin No. 51, Consolidated Financial Statements, to eliminate the exception to consolidate a subsidiary for which control is likely to be temporary. FAS 144 retains the requirement of FAS 121 to recognize an impairment loss only if the carrying amount of a long-lived asset within the scope of FAS 144 is not recoverable from its undiscounted cash flows and exceeds its fair value. FAS 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The provisions of FAS 144 generally are to be applied prospectively. The Company believes that the adoption of FAS 144 will not have a material impact on the Company's financial position or results of operations. ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK Blonder Tongue's business operates in a rapidly changing environment that involves a number of risks, some of which are beyond the Company's control. The following discussion highlights some of these risks which are not otherwise addressed elsewhere in this Annual Report. There can be no assurance that the Company will anticipate the evolution of industry standards in CATV or the communications industry generally, changes in the market and customer needs, or that technologies and applications under development by the Company will be successfully developed, or if they are successfully developed, that they will achieve market acceptance. The competition to attract and retain highly-skilled engineering, manufacturing, marketing and managerial personnel is intense. Capital spending by cable operators for constructing, rebuilding, maintaining or upgrading their systems (upon which the Company's sales and profitability are dependent) is dependent on a variety of factors, including access to financing, demand for their cable services, availability of alternative video delivery technologies, and general economic conditions. Factors such as announcements of technological innovations or new products by the Company, its competitors or third parties, quarterly variations in the Company's actual or anticipated results of operations, market conditions for emerging growth stocks or cable industry stocks in general, or the failure of revenues or earnings in any quarter to meet the investment community's expectations, may cause the market price of the Company's Common Stock to fluctuate significantly. The stock price may also be affected by broader market trends unrelated to the Company's performance. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The market risk inherent in the Company's financial instruments and positions represents the potential loss arising from adverse changes in interest rates. At December 31, 2001 and 2000 the principal amount of the Company's aggregate outstanding variable rate indebtedness was $15,308,000 and $17,178,000, respectively. A hypothetical 1% adverse change in interest rates would have had an annualized unfavorable impact of approximately $7,191 and $15,852, respectively, on the Company's earnings and cash flows based upon these year-end debt levels. At December 31, 2001, the Company did not have any derivative financial instruments. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated by reference from the consolidated financial statements and notes thereto of the Company which are attached hereto beginning on page 24. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 19 PART III ITEMS 10. THROUGH 13. INCORPORATED BY REFERENCE The information called for by Item 10 "Directors and Executive Officers of the Registrant," Item 11 "Executive Compensation," Item 12 "Security Ownership of Certain Beneficial Owners and Management" and Item 13 "Certain Relationships and Related Transactions" is incorporated herein by reference to the Company's definitive proxy statement for its Annual Meeting of Stockholders scheduled to be held May 3, 2002, which definitive proxy statement is expected to be filed with the Commission not later than 120 days after the end of the fiscal year to which this report relates. Note that the sections in the definitive proxy statement entitled "Report of Compensation Committee on Executive Compensation Policies" and "Comparative Stock Performance" pursuant to Regulation S-K, Item 402(a)(9), are not deemed "soliciting material" or "filed" as part of this report. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A)(1) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Report of Independent Certified Public Accountants ............. 25 Consolidated Balance Sheets as of December 31, 2001 and 2000 ... 26 Consolidated Statements of Earnings for the Years Ended December 31, 2001, 2000 and 1999 ............................. 27 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2001, 2000 and 1999 ....................... 28 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 ....................... 29 Notes to Consolidated Financial Statements ..................... 30 (A)(2) FINANCIAL STATEMENT SCHEDULES. Included in Part IV of this report: Schedule II Valuation and Qualifying Accounts and Reserves All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the applicable instructions or are inapplicable and therefore have been omitted. (A)(3) EXHIBITS The exhibits are listed in the Index to Exhibits appearing below and are filed herewith or are incorporated by reference to exhibits previously filed with the Commission. (B) No reports on Form 8-K were filed in the quarter ended December 31, 2001. 20 (C) EXHIBITS: EXHIBIT # DESCRIPTION LOCATION - --------- ----------- -------- 3.1 Restated Certificate of Incorporated by reference from Incorporation of Blonder Tongue Exhibit 3.1 to Registrant's S-1 Laboratories, Inc. Registration Statement No. 33-98070, filed October 12, 1995, as amended. 3.2 Restated Bylaws of Blonder Tongue Incorporated by reference from Laboratories, Inc. Exhibit 3.2 to Registrant's S-1 Registration Statement No. 33-98070, filed October 12, 1995, as amended. 4.1 Specimen of stock certificate Incorporated by reference from Exhibit 4.1 to Registrant's S-1 Registration Statement No. 33-98070, filed October 12, 1995, as amended. 10.1 Consulting Agreement, dated Incorporated by reference from January 1, 1995, between Blonder Exhibit 10.3 to Registrant's S-1 Tongue Laboratories, Inc. and Registration Statement No. James H. Williams. 33-98070, filed October 12, 1995, as amended. 10.2 1994 Incentive Stock Option Plan. Incorporated by reference from Exhibit 10.5 to Registrant's S-1 Registration Statement No. 33-98070, filed October 12, 1995, as amended. 10.3 1995 Long Term Incentive Plan. Incorporated by reference from Exhibit 10.6 to Registrant's S-1 Registration Statement No. 33-98070, filed October 12, 1995, as amended. 10.4 Amended and Restated 1996 Incorporated by reference from Director Option Plan. Appendix B to Registrant's Proxy Statement for its 1998 Annual Meeting of Stockholders, filed March 27, 1998. 10.5 Employment Agreement, dated Incorporated by reference from August 1, 1995, between Blonder Exhibit 10.9 to Registrant's S-1 Tongue Laboratories, Inc. and Registration Statement No. Daniel J. Altiere. 33-98070, filed October 12, 1995, as amended. 10.6 Form of Indemnification Agreement Incorporated by reference from entered into by Blonder Tongue Exhibit 10.10 to Registrant's S-1 Laboratories, Inc. in favor of Registration Statement No. each of its Directors and 33-98070, filed October 12, 1995, Officers. as amended. 10.7 VideoCipher(R) IICM Commercial Incorporated by reference from Descrambler Module Master Exhibit 10.11 to Registrant's S-1 Purchase and License Agreement, Registration Statement No. dated August 23, 1990, between 33-98070, filed October 12, 1995, Blonder Tongue Laboratories, Inc. as amended. and Cable/Home Communication Corp. +10.8 Patent License Agreement, dated Incorporated by reference from August 21, 1995, between Blonder Exhibit 10.12 to Registrant's S-1 Tongue Laboratories, Inc. and Registration Statement No. Philips Electronics North America 33-98070, filed October 12, 1995, Corporation. as amended. +10.9 Interdiction Technology License Incorporated by reference from Agreement, dated August 21, 1995, Exhibit 10.13 to Registrant's S-1 between Blonder Tongue Registration Statement No. Laboratories, Inc. and Philips 33-98070, filed October 12, 1995, Broadband Networks, Inc. as amended. 21 EXHIBIT # DESCRIPTION LOCATION - --------- ----------- -------- 10.10 401(k) Savings & Investment Incorporated by reference from Retirement Plan. Exhibit 10.21 to S-1 Registration Statement No. 33-98070, filed October 12, 1995, as amended. 10.11 Bargaining Unit Pension Plan. Incorporated by reference from Exhibit 10.22 to S-1 Registration Statement No. 33-98070, filed October 12, 1995, as amended. 10.12 Mortgage, Assignment of Leases, Incorporated by reference from and Security Agreement dated May Exhibit 10.2 to Registrant's 23, 1996 by Blonder Tongue Quarterly Report on Form 10-Q for Laboratories, Inc. in favor of the period ended June 30, 1996, CoreStates Bank, N.A., successor filed August 14, 1996. to Meridian Bank. 10.13 Real Estate Loan Note dated May Incorporated by reference from 23, 1996 from Blonder Tongue Exhibit 10.3 to Registrant's Laboratories, Inc. in favor of Quarterly Report on Form 10-Q for CoreStates Bank, N.A., successor the period ended June 30, 1996, to Meridian Bank. filed August 14, 1996. 10.14 Allonge to Real Estate Loan Note, Incorporated by reference from dated September 26, 1996 from Exhibit 10.3 to Registrant's Blonder Tongue Laboratories, Quarterly Report on Form 10-Q for Inc., in favor of CoreStates the period ended September 30, Bank, N.A., successor to Meridian 1996, filed November 14, 1996. Bank. 10.15 Executive Officer Bonus Plan Incorporated by reference from Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1997, filed May 13, 1997. 10.16 Third Amendment to 1995 Long Term Incorporated by reference from Incentive Plan Appendix A to Registrant's Proxy Statement for its 2000 Annual Meeting of Stockholders, filed April 4, 2000. 10.17 Fifth Amended and Restated Loan Incorporated by reference from Agreement dated November 12, 1999 Exhibit 10.18 to Registrant's between Blonder Tongue Annual Report on Form 10-K for Laboratories, Inc. and First fiscal year ended December 31, Union National Bank 1999, filed March 30, 2000. 10.18 Third Allonge to Real Estate Note Incorporated by reference from dated November 12, 1999 from Exhibit 10.20 to Registrant's Blonder Tongue Laboratories, Inc. Annual Report on Form 10-K for to First Union National Bank fiscal year ended December 31, 1999, filed March 30, 2000. 10.19 Term Note dated November 12, 1999 Incorporated by reference from by Blonder Tongue Laboratories, Exhibit 10.21 to Registrant's Inc. in favor of First Union Annual Report on Form 10-K for National Bank fiscal year ended December 31, 1999, filed March 30, 2000. 10.20 First Amendment and Waiver to Incorporated by reference from Fifth Amended and Restated Loan Exhibit 10.1 to Registrant's Agreement dated March 24, 2000 Quarterly Report on Form 10-Q for the period ended March 31, 2000, filed May 12, 2000. 10.21 Second Restatement of the Fifth Incorporated by reference from Amended and Restated Line of Exhibit 10.1 to Registrant's Credit Note dated as of August Quarterly Report on Form 10-Q for 11, 2000 the period ended September 30, 2000, filed November 14, 2000. 10.22 Second Amendment and Waiver to Incorporated by reference from Fifth Amended and Restated Loan Exhibit 10.2 to Registrant's Agreement dated as of August 11, Quarterly Report on Form 10-Q for 2000 the period ended September 30, 2000, filed November 14, 2000. 22 EXHIBIT # DESCRIPTION LOCATION - --------- ----------- -------- 10.23 Second Amendment to Consulting Incorporated by reference from and Non-Competition Agreement Exhibit 10.1 to Registrant's between Registrant and James H. Quarterly Report on Form 10-Q for Williams, dated as of June 30, the period ended June 30, 2000, 2000. filed August 14, 2000. 10.24 Fourth Amendment to Fifth Amended Incorporated by reference from and Restated Loan Agreement dated Exhibit 10.1 to Registrant's as of March 27, 2001 between Quarterly Report on Form 10-Q for Blonder Tongue Laboratories, Inc. the period ended March 31, 2001, and First Union National Bank. filed May 14, 2001. 10.25 Waiver dated August 13, 2001, to Incorporated by reference from Fifth Amended and Restate Loan Exhibit 10.1 to Registrant's Agreement between Blonder Tongue Quarterly Report on Form 10-Q for Laboratories, Inc. and First the period ended September 30, Union National Bank. 2001, filed November 14, 2001. 21 Subsidiaries of Blonder Tongue Filed herewith. Laboratories, Inc. 23 Consent of BDO Seidman, LLP Filed herewith. - ---------- + Certain portions of exhibit have been afforded confidential treatment by the Securities and Exchange Commission. (D) FINANCIAL STATEMENT SCHEDULES: Report of BDO Seidman, LLP on financial statement schedule. The following financial statement schedule is included on page 45 of this Annual Report on Form 10-K: Schedule II. Valuation and Qualifying Accounts and Reserves All other schedules for which provision is made in the applicable accounting regulations of the Commission are not required under the applicable instructions or are inapplicable and therefore have been omitted. 23 BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE Report of Independent Certified Public Accountants .......................... 25 Consolidated Balance Sheets as of December 31, 2001 and 2000 ................ 26 Consolidated Statements of Earnings for the Years Ended December 31, 2001, 2000 and 1999 .......................................... 27 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2001, 2000 and 1999 .................................... 28 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 .......................................... 29 Notes to Consolidated Financial Statements .................................. 30 24 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS -------------------------------------------------- The Board of Directors and Stockholders Blonder Tongue Laboratories, Inc.: We have audited the accompanying consolidated balance sheets of Blonder Tongue Laboratories, Inc. and subsidiaries as of December 31, 2001 and 2000 and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Blonder Tongue Laboratories, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. BDO Seidman, LLP Woodbridge, New Jersey February 22, 2002, except for Note 4 which is dated March 20, 2002 25 BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) December 31, -------------------- 2001 2000 -------- -------- ASSETS (Note 4) Current assets: Cash .................................................. $ 942 $ 363 Accounts receivable, net of allowance for doubtful accounts of $1,833 and $1,424 respectively (Note 8) ... 8,564 7,125 Inventories, net (Note 2) ............................. 30,216 26,333 Other current assets .................................. 932 3,264 Deferred income taxes (Note 12) ....................... 1,746 1,804 -------- -------- Total current assets ................................ 42,400 38,889 Property, plant and equipment, net of accumulated depreciation and amortization (Notes 3 and 5) ......... 7,137 7,644 Patents, net ............................................ 3,454 3,943 Goodwill, net ........................................... 10,760 11,730 Other assets ............................................ 585 628 Deferred income taxes (Note 12) ......................... 50 -------- -------- $ 64,386 $ 62,834 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Revolving line of credit (Note 4) ..................... $ -- $ 2,250 Current portion of long-term debt (Note 4) ............ 2,917 4,382 Accounts payable ...................................... 6,672 2,833 Accrued compensation .................................. 867 1,143 Accrued benefit liability ............................. 270 -- Other accrued expenses ................................ 218 659 Income taxes .......................................... 202 468 -------- -------- Total current liabilities ........................... 11,146 11,735 -------- -------- Deferred income taxes (Note 12) ......................... -- 201 Long-term debt (Note 4) ................................. 13,278 11,802 Commitments and contingencies (Notes 5, 6 and 7) ........ -- -- Stockholders' equity (Notes 9 and 11): Preferred stock, $.001 par value; authorized 5,000 shares; no shares outstanding ................... -- -- Common stock, $.001 par value; authorized 25,000 shares, 8,444 shares issued .................... 8 8 Paid-in capital ....................................... 24,143 24,143 Retained earnings ..................................... 22,448 21,231 Accumulated other comprehensive loss (Note 6) ......... (351) -- Treasury stock, at cost, 831 shares (Note 9) .......... (6,286) (6,286) -------- -------- Total stockholders' equity .......................... 39,962 39,096 -------- -------- $ 64,386 $ 62,834 ======== ======== See accompanying notes to consolidated financial statements 26 BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA) Year Ended December 31, ---------------------------------- 2001 2000 1999 -------- -------- -------- Net sales (Note 8) ....................... $ 53,627 $ 70,196 $ 56,805 Cost of goods sold ....................... 36,928 46,974 39,074 -------- -------- -------- Gross profit ......................... 16,699 23,222 17,731 -------- -------- -------- Operating expenses: Selling expenses ..................... 5,009 5,943 6,025 General and administrative ........... 6,200 7,629 7,573 Research and development ............. 2,200 2,125 2,070 -------- -------- -------- 13,409 15,697 15,668 -------- -------- -------- Earnings from operations ................. 3,290 7,525 2,063 -------- -------- -------- Other income (expense): Interest expense ..................... (1,369) (1,948) (2,008) Other income ......................... -- 10 6 -------- -------- -------- (1,369) (1,938) (2,002) -------- -------- -------- Earnings before income taxes ............. 1,921 5,587 61 Provision for income taxes (Note 12) ..... 704 2,011 2 -------- -------- -------- Net earnings ......................... $ 1,217 $ 3,576 $ 59 ======== ======== ======== Basic earnings per share (Note 10) ....... $ 0.16 $ 0.47 $ 0.01 ======== ======== ======== Basic weighted average shares outstanding (Note 10) .................. 7,613 7,620 7,916 ======== ======== ======== Diluted earnings per share (Note 10) ..... $ 0.16 $ 0.47 $ 0.01 ======== ======== ======== Diluted weighted average shares outstanding (Note 10) .................. 7,637 7,632 7,958 ======== ======== ======== See accompanying notes to consolidated financial statements 27 BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
Accumulated Common Stock Other ------------------ Paid-in Retained Comprehensive Treasury Shares Amount Capital Earnings Loss Stock Total ------ ------- ------- ------- ------- -------- -------- Balance at January 1, 1999 .................. 8,370 $ 8 $23,743 $17,596 $ -- $ (851) $ 40,496 Proceeds from exercise of stock options ... 22 -- 127 -- -- -- 127 Acquisition of treasury stock ............. -- -- -- -- -- (5,435) (5,435) Net earnings .............................. -- -- -- 59 -- -- 59 ----- ------- ------- ------- ------- -------- -------- Balance at December 31, 1999 ................ 8,392 8 23,870 17,655 -- (6,286) 35,247 Proceeds from exercise of stock options ... 52 -- 273 -- -- -- 273 Net earnings .............................. -- -- -- 3,576 -- -- 3,576 ----- ------- ------- ------- ------- -------- -------- Balance at December 31, 2000 ................ 8,444 8 24,143 21,231 -- (6,286) 39,096 Net earnings ................................ -- -- -- 1,217 -- -- 1,217 Unrecognized pension liability, net of tax (Note 6) ....................... -- -- -- -- (351) -- (351) -------- Comprehensive income ........................ 866 ----- ------- ------- ------- ------- -------- -------- Balance at December 31, 2001 ................ 8,444 $ 8 $24,143 $22,448 $ (351) $ (6,286) $ 39,962 ===== ======= ======= ======= ======= ======== ========
See accompanying notes to consolidated financial statements 28 BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) Year Ended December 31, -------------------------- 2001 2000 1999 ------ ------ ------ Cash Flows From Operating Activities: Net earnings .................................... $1,217 $3,576 $ 59 Adjustments to reconcile net earnings to cash provided by operating activities: Depreciation .................................. 1,310 1,464 1,464 Amortization .................................. 1,502 1,537 1,530 Provision for inventory reserves .............. 540 211 119 Provision for doubtful accounts ............... 307 741 1,043 Deferred income taxes ......................... 4 (570) 67 Changes in operating assets and liabilities: Accounts receivable ......................... (1,746) 2,103 4,976 Inventories ................................. (4,423) 249 (2,695) Other current assets ........................ 2,054 (1,257) (1,410) Other assets ................................ 43 -- (47) Income taxes ................................ (266) 154 44 Accounts payable and accrued expenses ....... 3,169 (1,952) 2,233 ------ ------ ------ Net cash provided by operating activities . 3,711 6,256 7,383 ------ ------ ------ Cash Flows From Investing Activities: Capital expenditures ......................... (803) (368) (1,197) Acquisition of licenses ...................... -- (501) -- ------ ------ ------ Net cash used in investing activities ..... (803) (869) (1,197) ------ ------ ------ Cash Flows From Financing Activities: Net borrowings (repayments) under revolving line of credit ...................... 2,117 (922) 1,345 Repayments of long-term debt .................... (4,356) (4,423) (2,717) Deferred financing costs ........................ (90) -- -- Proceeds from exercise of stock options ......... -- 273 127 Acquisition of treasury stock ................... -- -- (5,435) ------ ------ ------ Net cash used in financing activities ..... (2,329) (5,072) (6,680) ------ ------ ------ Net increase (decrease) in cash ................... 579 315 (494) Cash, beginning of year ........................... 363 48 542 ------ ------ ------ Cash, end of year ................................. $ 942 $ 363 $ 48 ====== ====== ====== Supplemental Cash Flow Information: Cash paid for interest .......................... $1,447 $1,955 $2,025 Cash paid for income taxes ...................... 966 2,070 660 ====== ====== ====== Non-cash investing and financing activities: Capital lease obligations ....................... $ -- $ -- $ 965 See accompanying notes to consolidated financial statements 29 BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) COMPANY AND BASIS OF PRESENTATION Blonder Tongue Laboratories, Inc. (the "COMPANY") is a designer, manufacturer and supplier of electronics and systems equipment for the cable television industry, primarily throughout the United States. The consolidated financial statements include the accounts of Blonder Tongue Laboratories, Inc. and subsidiaries as discussed below. Significant intercompany accounts and transactions have been eliminated in consolidation. (B) INVENTORIES Inventories are stated at the lower of cost, determined by the first-in, first-out ("FIFO") method, or market. (C) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. The Company provides for depreciation generally on the straight-line method based upon estimated useful lives of 3 to 5 years for office equipment, 5 to 7 years for furniture and fixtures, 6 to 10 years for machinery and equipment, 10 to 15 years for building improvements and 40 years for the manufacturing and administrative office facility. (D) INCOME TAXES The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Deferred income taxes are provided for temporary differences in the recognition of certain income and expenses for financial and tax reporting purposes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. (E) INTANGIBLE ASSETS Intangible assets, net totaling $14,799 and $16,301 as of December 31, 2001 and 2000, respectively, consist of goodwill, prepaid licensing fees, and acquired patent rights, and are carried at cost less accumulated amortization. Amortization is computed utilizing the straight-line method over the estimated useful life of the respective asset, 3 to 15 years. Accumulated amortization was $6,628 and $5,126 for 2001 and 2000, respectively. (F) LONG-LIVED ASSETS The Company follows Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 standardized the accounting practices for the recognition and measurement of impairment losses on certain long-lived assets based on non-discounted cash flows. No impairment losses have been recorded through December 31, 2001. (G) STATEMENTS OF CASH FLOWS For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with a maturity of less than three months at purchase to be cash equivalents. The Company did not have any cash equivalents at December 31, 2001, 2000 and 1999. (H) RESEARCH AND DEVELOPMENT Research and development expenditures for the Company's projects are expensed as incurred. 30 BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (I) REVENUE RECOGNITION The Company records revenues when products are shipped. Customers do not have a right to return products shipped. The Company provides an allowance for doubtful accounts on an estimated basis. (J) EARNINGS PER SHARE Earnings per share are calculated in accordance with the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which provides for the calculation of "basic" and "diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing net earnings by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the effect of common shares issuable upon exercise of stock options. (K) TREASURY STOCK Treasury Stock is recorded at cost. Gains and losses on disposition are recorded as increases or decreases to additional paid-in capital with losses in excess of previously recorded gains charged directly to retained earnings. (L) DERIVATIVE FINANCIAL INSTRUMENTS The Company utilizes interest rate swaps to manage interest rate exposures. The Company specifically designates interest rate swaps as hedges of debt instruments and recognizes interest differentials as adjustments to interest expense in the period they occur. The Company does not hold or issue financial instruments for trading purposes. (M) SIGNIFICANT RISKS AND UNCERTAINTIES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Approximately 56% of the Company's employees are covered by a three year collective bargaining agreement, which expires in February 2005. The Company estimates that headend products accounted for approximately 52% of the Company's revenues in 2001, 40% in 2000 and 60% in 1999. Any substantial decrease in sales of headend products could have a material adverse effect on the Company's results of operations, financial condition, and cash flows. The Company purchases several products from sole suppliers for which alternative sources are not available, such as the VideoCipher(R) and DigiCipher(R) encryption systems manufactured by Motorola, Inc., which are standard encryption methodologies employed on U.S. C-Band and Ku-Band transponders and Hughes Network Systems digital satellite receivers for delivery of DIRECTV(TM) programming. An inability to timely obtain sufficient quantities of these components could have a material adverse effect on the Company's operating results. The Company does not have a supply agreement with Motorola, Inc. or any other supplier. The Company submits purchase orders to its suppliers on an as-needed basis. (N) SHIPPING AND HANDLING COSTS Shipping and handling costs are recorded as a component of selling expenses. Revenues from shipping and handling are not significant. 31 BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (O) NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("FAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." FAS 133 was adopted by the Company on January 1, 2001. FAS 133 requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of the hedge transaction and the type of hedge transaction. In August, 2001 the Company terminated a previous interest rate swap agreement and recorded $82 in additional interest expense. At December 31, 2001 the Company did not have any derivative financial instruments. The adoption of this pronouncement did not have a material effect on the Company's financial position or results of operations. In July 2001, the FASB issued FAS No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets." FAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. FAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. FAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. FAS 142 is required to be applied for fiscal years beginning after December 15, 2001. This statement also requires that entities complete a transitional goodwill impairment test six months from the date of adoption and reassess the useful lives of other intangible assets within the first quarter of its adoption. The Company is in the process of completing this test and, accordingly, has not yet determined what effect the adoption of this statement will have on its financial statements. The Company's previous business combinations were accounted for using the purchase method. As of December 31, 2001, the net carrying amount of goodwill is $10,760 and other intangible assets is $4,038. Amortization of goodwill during the year ended December 31, 2001 was $970. In August 2001, the FASB issued FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The new guidance resolves significant implementation issues related to FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." FAS 144 supersedes FAS 121, but it retains its fundamental provisions. It also amends Accounting Research Bulletin No. 51, Consolidated Financial Statements, to eliminate the exception to consolidate a subsidiary for which control is likely to be temporary. FAS 144 retains the requirement of FAS 121 to recognize an impairment loss only if the carrying amount of a long-lived asset within the scope of FAS 144 is not recoverable from its undiscounted cash flows and exceeds its fair value. FAS 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The provisions of FAS 144 generally are to be applied prospectively. The Company believes that the adoption of FAS 144 will not have a material impact on the Company's financial position or results of operations. NOTE 2 - INVENTORIES Inventories, net of reserves, are summarized as follows: December 31, ------------------ 2001 2000 ------- ------- Raw materials ............................................ $13,071 $11,346 Work in process .......................................... 2,797 3,261 Finished goods ........................................... 14,348 11,726 ------- ------- $30,216 $26,333 ======= ======= 32 BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) NOTE 3 - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are summarized as follows: December 31, ------------------ 2001 2000 ------- ------- Land ..................................................... $ 1,000 $ 1,000 Building ................................................. 3,361 3,361 Machinery and equipment .................................. 7,365 6,817 Furniture and fixtures ................................... 398 398 Office equipment ......................................... 1,713 1,482 Building improvements .................................... 640 616 ------- ------- 14,477 13,674 Less: Accumulated depreciation and amortization ......... (7,340) (6,030) ------- ------- $ 7,137 $ 7,644 ======= ======= NOTE 4 - DEBT During 2001, the Company commenced efforts to refinance its line of credit with First Union, and on March 20, 2002 the Company executed a credit agreement with Commerce Bank, N.A. for a $19,500 credit facility, comprised of (i) a $7,000 revolving line of credit under which funds may be borrowed at LIBOR, plus a margin ranging from 1.75% to 2.50%, in each case depending on the calculation of certain financial covenants, with a floor of 5% through March 30, 2003, (ii) a $9,000 term loan which bears interest at a rate of 6.75% through September 30, 2002, and thereafter at a fixed rate ranging from 6.50% to 7.25% to reset quarterly depending on the calculation of certain financial covenants and (iii) a $3,500 mortgage loan bearing interest at 7.5%. Borrowings under the revolving line of credit are limited to certain percentages of eligible accounts receivable and inventory, as defined in the credit agreement. The credit facility is collateralized by a security interest in all of the Company's assets. The agreement also contains restrictions that require the Company to maintain certain financial ratios as well as restrictions on the payment of cash dividends. The maturity date of the new line of credit with Commerce Bank is March 20, 2004. The term loan requires equal monthly principal payments of $187 and matures on March 20, 2006. The mortgage loan requires equal monthly principal payments of $19 and matures on March 20, 2017. The mortgage loan is callable after five years at the lender's option. Upon execution of the credit agreement with Commerce Bank, $14,954 was advanced to the Company, of which $14,827 was used to pay all unpaid principal and accrued interest under the Company's prior line of credit and term loans with First Union National Bank ("FIRST UNION"). As a result of the new credit agreement, the First Union debt has been reflected based on the new terms in the accompanying balance sheet. Prior to March 20, 2002, the Company had a $5,500 revolving line of credit with First Union on which funds could be borrowed at either the bank's base rate plus a margin ranging from 0% to .625%, or LIBOR, plus a margin ranging from 1.50% to 2.625%, in each case depending upon the calculation of certain financial covenants (5.25% at December 31, 2001). At December 31, 2001, the Company had $4,367 outstanding under the First Union line of credit. The agreement contained restrictions that required the Company to maintain certain financial ratios as well as restrictions on the payment of dividends. The Company also had, prior to March 20, 2002, two outstanding term loans with First Union (Old Term Loan A and Old Term Loan B) which accrued interest at a variable interest rate. At December 31, 2001, the aggregate amount outstanding under both term loans was $10,941. At June 30, 2001, September 30, 2001 and December 31, 2001, the Company was unable to meet certain of its financial covenants under the First Union credit agreement, compliance with which was waived by First Union as of June 30, 2001 and September 30, 2001. Also, in November 2001, the maturity date of the First 33 BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) Union line of credit was extended until March 31, 2002 and the Company agreed that one of the financial covenants which had previously been deleted from the credit agreement would again become effective as of December 31, 2001. The average amount outstanding on the line of credit during 2001 was $3,661 at a weighted average interest rate of 7.02%. The maximum amount outstanding on the line of credit during 2001 was $5,183. The fair value of the debt approximates the recorded value based on the borrowing rates currently available to the Company for loans with similar terms and maturities. Long-term debt consists of the following: December 31, ------------------ 2001 2000 ------- ------- Revolving Line of Credit ................................. $ 4,367 $ -- Term Loan ................................................ 9,000 -- Mortgage loan ............................................ 1,941 -- Old Term Loan B .......................................... -- 1,944 Old Term Loan A .......................................... -- 12,983 Capital leases (Note 5) .................................. 887 1,257 ------- ------- 16,195 16,184 Less: Current portion ................................... (2,917) (4,382) ------- ------- $13,278 $11,802 ======= ======= Annual maturities of long-term debt at December 31, 2001 are: 2002....................... $ 2,917 2003....................... 2,632 2004....................... 7,008 2005....................... 2,649 2006....................... 989 Thereafter................. - --------- $ 16,195 ========= NOTE 5 - COMMITMENTS AND CONTINGENCIES LEASES The Company leases certain factory and automotive equipment under noncancellable operating leases expiring at various dates through December, 2006. 34 BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) Future minimum rental payments, required for all noncancellable leases are as follows: Capital Operating ------- ------- 2002 ..................................................... $ 327 $ 78 2003 ..................................................... 194 58 2004 ..................................................... 191 12 2005 ..................................................... 186 -- 2006 ..................................................... 157 -- Thereafter ............................................... -- -- ------- ------- Total future minimum lease payments ...................... 1,055 $ 148 ======= Less: amounts representing interest ..................... 168 ------- Present value of minimum lease payments .................. $ 887 ======= Property, plant and equipment included capitalized leases of $2,552, less accumulated amortization of $1,477, at December 31, 2001, and capitalized leases of $2,514, less accumulated amortization of $1,149, at December 31, 2000. Rent expense was $111, $160 and $217 for the years ended December 31, 2001, 2000 and 1999, respectively. LITIGATION The Company is a party to certain proceedings incidental to the ordinary course of its business, none of which, in the current opinion of management, is likely to have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. NOTE 6 - BENEFIT PLANS DEFINED CONTRIBUTION PLAN The Company has a defined contribution plan covering all full time non-union employees qualified under Section 401(k) of the Internal Revenue Code, in which the Company matches a portion of an employee's salary deferral. The Company's contributions to this plan were $208, $185, and $254 for the years ended December 31, 2001, 2000 and 1999, respectively. DEFINED BENEFIT PENSION PLAN Substantially all union employees who meet certain requirements of age, length of service and hours worked per year are covered by a Company sponsored non-contributory defined benefit pension plan. Benefits paid to retirees are based upon age at retirement and years of credited service. Net periodic pension cost for this plan includes the following components: December 31, --------------------------- Components of net periodic pension cost: ...... 2001 2000 1999 ----- ----- ----- Service cost .................................. $ 155 $ 121 $ 121 Interest cost ................................. 116 80 76 Actual return on plan assets .................. (105) (148) (29) Recognized net actuarial (gain) loss .......... 27 63 (33) ----- ----- ----- Net periodic pension cost ..................... $ 193 $ 116 $ 135 ===== ===== ===== 35 BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) The funded status of the plan and the amounts recorded in the Company's consolidated balance sheets are as follows: December 31, ------------------ 2001 2000 ------- ------- Change in benefit obligation: Benefit obligation at beginning of year .......... $ 1,299 $ 1,248 Service cost ..................................... 155 121 Interest cost .................................... 116 80 Actuarial (gain) loss ............................ 369 (87) Benefits paid .................................... (34) (63) ------- ------- Benefit obligation at end of year ................ 1,905 1,299 ------- ------- Change in plan assets: Fair value of plan assets at beginning of year ... 1,427 1,158 Actual return on plan assets ..................... (9) 148 Employer contribution ............................ 191 184 Benefits paid .................................... (34) (63) ------- ------- Fair value of plan assets at end of year ......... 1,575 1,427 ------- ------- Funded status..................................... (329) 129 Unrecognized net actuarial loss .................. 694 209 Unrecognized net transition liability ............ (50) (60) ------- ------- Prepaid benefit cost ............................. $ 315 $ 278 ======= ======= Key economic assumptions used in these determinations were: December 31, ------------------ 2001 2000 ------- ------- Discount rate .................................... 7.0% 7.0% Expected long-term rate of return ................ 7.0% 7.0% During 2001, the Company recorded an unrecognized pension liability of $351 as an accumulated other comprehensive loss adjustment to stockholders' equity. This amount represents a portion of the unrecognized net actuarial loss for the year ending December 31, 2001. NOTE 7 - RELATED PARTY TRANSACTIONS On January 1, 1995, the Company entered into a consulting and non-competition agreement with a director, who is also the second largest stockholder. Under the agreement, the director provides consulting services on various operational and financial issues and is currently paid at an annual rate of $158 but in no event is such annual rate permitted to exceed $200. The director also agreed to keep all Company information confidential and will not compete directly or indirectly with the Company for the term of the agreement and for a period of two years thereafter. The initial term of this Agreement expires on December 31, 2004 and automatically renews thereafter for successive one-year terms (subject to termination at the end of the initial term or any renewal term on at least 90 days' notice). 36 BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) NOTE 8 - CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash deposits and trade accounts receivable. The Company maintains cash balances at several banks located in the northeastern United States. As part of its cash management process, the Company periodically reviews the relative credit standing of these banks. Credit risk with respect to trade accounts receivable is concentrated with five of the Company's customers. These customers accounted for approximately 29% and 35% of the Company's outstanding trade accounts receivable at December 31, 2001 and 2000, respectively. These customers are distributors of telecommunications and private cable television components, and providers of franchise and private cable television service. The Company performs ongoing credit evaluations of its customers' financial condition, uses credit insurance and requires collateral, such as letters of credit, to mitigate its credit risk. The deterioration of the financial condition of one or more of its major customers could adversely impact the Company's operations. From time to time where the Company determines that circumstances warrant, such as when a customer agrees to commit to a large blanket purchase order, the Company extends payment terms beyond its standard payment terms. For the year ended December 31, 2001, the Company's largest customer accounted for approximately 14% of the Company's sales. This customer also accounted for approximately 11% of the Company's sales in 2000 and for approximately 14% of the Company's sales in 1999. At December 31, 2001, this customer accounted for approximately 11% of the Company's outstanding trade accounts receivable. At December 31, 2001, two other customers accounted for 12% and 11%, respectively, of the Company's outstanding trade accounts receivable. Management believes these amounts to be collectible. For the year ending December 31, 2000, the Company's largest customer accounted for approximately 29% of the Company's sales. NOTE 9 - STOCKHOLDERS' EQUITY On May 17, 1999, the Company commenced a self tender offer to purchase 750 shares of its common stock at a purchase price ranging from $6.00 to $8.00 per share. As of June 22, 1999, approximately 1,600 shares were tendered and the Company accepted 750 shares for purchase at a price of $7.00 per share. The stock repurchase was funded by a combination of the Company's cash on hand and borrowings against its revolving line of credit. 37 BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) NOTE 10 - EARNINGS PER SHARE Basic and diluted earnings per share for each of the three years ended December 31, 2001, 2000 and 1999 are calculated as follows: Net Income Shares Per Share (Numerator) (Denominator) Amount ------------------------------------- For the year ended December 31, 2001: Basic earnings per share $1,217 7,613 $0.16 Effect of assumed conversion of employee stock options -- 24 -- -------------------------------- Diluted earnings per share $1,217 7,637 $0.16 ================================ For the year ended December 31, 2000: Basic earnings per share $3,576 7,620 $0.47 Effect of assumed conversion of employee stock options -- 12 -- -------------------------------- Diluted earnings per share $3,576 7,632 $0.47 ================================ For the year ended December 31, 1999: Basic earnings per share $ 59 7,916 $0.01 Effect of assumed conversion of employee stock options -- 42 -- -------------------------------- Diluted earnings per share $ 59 7,958 $0.01 ================================ The diluted share base excludes incremental shares of 888, 850, and 837 related to stock options and a warrant for December 31, 2001, 2000 and 1999, respectively. These shares were excluded due to their antidilutive effect. NOTE 11 - STOCK OPTION PLANS In 1994, the Company established the 1994 Incentive Stock Option Plan (the "1994 PLAN"). The 1994 Plan provides for the granting of Incentive Stock Options to purchase shares of the Company's common stock to officers and key employees at a price not less than the fair market value at the date of grant as determined by the compensation committee of the Board of Directors. The maximum number of shares available for issuance under the plan was 298. Options become exercisable as determined by the compensation committee of the Board of Directors at the date of grant. Options expire ten years from the date of grant. 38 BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) In October, 1995, the Company's Board of Directors and stockholders approved the 1995 Long Term Incentive Plan (the "1995 PLAN"). The 1995 Plan provides for grants of "incentive stock options" or nonqualified stock options, and awards of restricted stock, to executives and key employees, including officers and employee Directors. The 1995 Plan is administered by the Compensation Committee of the Board of Directors, which determines the optionees and the terms of the options granted under the 1995 Plan, including the exercise price, number of shares subject to the option and the exercisability thereof, as well as the recipients and number of shares awarded for restricted stock awards; provided, however, that no employee may receive stock options or restricted stock awards which would result, separately or in combination, in the acquisition of more than 100 shares of Common Stock of the Company under the 1995 Plan. The exercise price of incentive stock options granted under the 1995 Plan must be equal to at least the fair market value of the Common Stock on the date of grant. With respect to any optionee who owns stock representing more than 10% of the voting power of all classes of the Company's outstanding capital stock, the exercise price of any incentive stock option must be equal to at least 110% of the fair market value of the Common Stock on the date of grant, and the term of the option may not exceed five years. The term of all other incentive stock options granted under the 1995 Plan may not exceed ten years. The aggregate fair market value of Common Stock (determined as of the date of the option grant) for which an incentive stock option may for the first time become exercisable in any calendar year may not exceed $100. The exercise price for nonqualified stock options is established by the Compensation Committee, and may be more or less than the fair market value of the Common Stock on the date of grant. Stockholders have previously approved a total of 900 shares of common stock for issuance under the 1995 Plan, as amended to date. In May, 1998, the stockholders of the Company approved the Amended and Restated 1996 Director Option Plan (the "AMENDED 1996 PLAN"). Under the plan, Directors who are not currently employed by the Company or any subsidiary of the Company and have not been so employed within the preceding six months are eligible to receive options from time to time to purchase the number of shares of Common Stock determined by the Board in its discretion; provided, however, that no Director is permitted to receive options to purchase more than 5 shares of Common Stock in any one calendar year. The exercise price for such shares is the fair market value thereof on the date of grant, and the options vest as determined in each case by the Board of Directors. Options granted under the Amended 1996 Plan must be exercised within 10 years from the date of grant. A maximum of 100 shares of Common Stock are subject to issuance under the Amended 1996 Plan. The plan is administered by the Board of Directors. In 1996, the Board of Directors granted a non-plan, non-qualified option for 10 shares to an individual, who was not an employee or director of the Company at the time of the grant. The option was originally exercisable at $10.25 per share and expires in 2006. This option was repriced to $6.88 per share on September 17, 1998. 39 BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) The following tables summarize information about stock options outstanding for each of the three years ended December 31, 1999, 2000 and 2001:
Weighted- Average Weighted-Average 1994 Exercise 1995 Exercise 1996 Weighted-Average Plan (#) Price ($) Plan (#) Price ($) Plan (#) Exercise Price ($) --------------------------------------------------------------------------------------------- Shares under option: Outstanding at January 1, 1999 122 5.30 661 7.00 26 6.91 Granted -- -- 51 6.54 8 6.53 Exercised (8) 3.97 (14) 6.88 -- -- Forfeited (3) 4.33 (42) 6.88 -- -- Outstanding at December 31, 1999 111 5.42 656 6.97 34 6.82 Granted -- -- 156 6.78 20 7.03 Exercised (23) 3.44 (28) 6.88 -- -- Forfeited -- -- (55) 6.82 -- -- Outstanding at December 31, 2000 88 5.93 729 6.94 54 6.90 Granted 34 2.88 130 2.95 20 2.88 Exercised -- -- -- -- -- -- Forfeited (35) 9.19 (92) 7.72 -- -- Outstanding at December 31, 2001 87 3.42 767 6.18 74 5.80 Options exercisable at December 31, 2001 56 3.72 497 6.85 54 6.90 Weighted-average fair value of options granted during: 1999 -- $4.93 $4.97 2000 -- $4.49 $4.51 2001 $2.22 $2.28 $2.22
Total options available for grant were 105 and 106 at December 31, 2001 and December 31, 2000, respectively. 40 BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS)
Options Outstanding Options Exercisable --------------------------------------- ---------------------------------- Range of Number of Options Weighted-Average Weighted-Average Number Weighted-Average Exercise Outstanding at Remaining Exercise Price Exercisable Exercise Price Prices ($) 12/31/01 Contractual Life ($) at 12/31/01 ($) - ------------------ -------------------- ------------------ ------------------ -------------- ------------------ 1994 Plan: 2.57 to 2.88 55 6.3 2.74 24 2.57 4.33 29 3.4 4.33 29 4.33 6.88 3 4.9 6.88 3 6.88 ---- ---- 2.57 to 6.88 87 5.3 3.42 56 3.72 ==== ==== 1995 Plan: 2.79 to 3.19 120 9.1 2.89 - - 3.64 10 9.6 3.64 - - 5.88 to 6.75 159 8.4 6.63 67 6.57 6.88 to 7.38 473 5.4 6.89 427 6.88 8.63 5 7.7 8.63 3 8.63 ---- ---- 767 6.6 6.18 497 6.85 ==== ==== 1996 Plan: 2.88 20 9.1 2.88 - - 6.53 8 7.5 6.53 8 6.53 6.88 to 7.03 45 6.9 6.95 45 6.95 8.50 1 1.0 8.50 1 8.50 ---- ---- 74 7.5 5.80 54 6.90 ==== ====
41 BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) The Corporation has adopted the disclosures only provisions of SFAS 123. Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation cost been recognized for the stock option plans based on the fair value at the date of grant consistent with the provisions of SFAS No. 123, the Corporation's net earnings and net earnings per share would have been reduced to the pro forma amounts indicated below: YEAR ENDED DECEMBER 31, ------------------------ 2001 2000 1999 ------ ------ ------ Net earnings - as reported $1,217 $3,576 $ 59 Net (loss) earnings - pro forma 748 3,103 (625) Basic earnings per share - as reported 0.16 0.47 0.01 Basic (loss) earnings per share - pro forma 0.10 0.41 (0.08) Diluted earnings per share - as reported 0.16 0.47 0.01 Diluted (loss) earnings per share - pro forma 0.10 0.41 (0.08) The fair market value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants: Year Ended December 31, ----------------------------- 2001 2000 1999 ------- ------- ------- Expected volatility 71% 68% 63% Risk-free interest rate 5.03% 6.2% 5.7% Expected lives 9.5 6 10 Dividend yield none none none NOTE 12 - INCOME TAXES The following summarizes the provision for income taxes: Year Ended December 31, -------------------------- 2001 2000 1999 ------- ------- ---- Current: Federal ....................................... $ 660 $ 2,438 $ 59 State and local ............................... 40 143 10 ------- ------- ---- 700 2,581 69 Deferred: Federal ....................................... 3 (554) (58) State and local ............................... 1 (16) (9) ------- ------- ---- 4 (570) (67) ------- ------- ---- Provision for income taxes ....................... $ 704 $ 2,011 $ 2 ======= ======= ==== 42 BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) The provision for income taxes on adjusted historical income differs from the amounts computed by applying the applicable Federal statutory rates due to the following: Year Ended December 31, ---------------------- 2001 2000 1999 ---- ------ ---- Provision for Federal income taxes at the statutory rate .................................. $653 $1,900 $ 21 State and local income taxes, net of Federal benefit ..................................... 26 75 6 Adjustment of prior year's accruals ................... -- -- (25) Other, net ............................................ 25 36 -- ---- ------ ---- Provision for income taxes ............................ $704 $2,011 $ 2 ==== ====== ==== Significant components of the Company's deferred tax assets and liabilities are as follows: December 31, ------------------ 2001 2000 ------- ------- Deferred tax assets: Allowance for doubtful accounts $ 660 $ 513 Inventory 946 633 Accrued vacation 140 240 Other - Long Term 316 522 ------- ------- Total deferred tax assets 2,062 1,908 ------- ------- Deferred tax liabilities: Depreciation (266) (305) ------- ------- Total deferred tax liabilities (266) (305) ------- ------- $ 1,796 $ 1,603 ======= ======= NOTE 13 - QUARTERLY FINANCIAL INFORMATION - UNAUDITED
2001 QUARTERS 2000 QUARTERS -------------------------------------- ---------------------------------------- First Second Third Fourth First Second Third Fourth ---------------------------------------------------------------------------------- Net sales $10,745 $12,752 $16,064 $14,066 $21,180 $18,062 $18,937 $12,017 Gross profit 3,646 4,577 5,251 3,225 6,990 7,028 5,651 3,553 Net earnings (loss) (207) 498 1,034 (108) 1,581 1,752 828 (585) Basic earnings (loss) per share (.03) .07 .14 (.02) .21 .23 .11 (.08) Diluted earnings (loss) per share (.03) .07 .14 (.02) .21 .23 .11 (.08)
43 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Stockholders Blonder Tongue Laboratories, Inc.: The audits referred to in our report dated February 22, 2002, except for Note 4 which is dated March 20, 2002, relating to the consolidated financial statements of Blonder Tongue Laboratories, Inc. and subsidiaries, which is contained in Item 8 of this Form 10-K, included the audit of the financial statement schedule listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based upon our audits. In our opinion, such financial statement schedule presents fairly, in all material respects, the information set forth therein. BDO Seidman, LLP Woodbridge, New Jersey February 22, 2002 44 BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (DOLLARS IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------- -------- --------- -------- -------- Additions Balance at Charged Charged Allowance for Doubtful Beginning to to Other Deductions Balance at Accounts of Period Expenses Accounts Write-offs End of Period -------- --------- -------- -------- ---------- ------------- Year ended December 31, 2001: $1,424 $ 409 -- -- $1,833 Year ended December 31, 2000: $ 683 $ 741 -- -- $1,424 Year ended December 31, 1999: $1,201 $1,043 -- ($1,561) $ 683 INVENTORY RESERVE Year ended December 31, 2001: $1,403 $ 540 -- -- $1,943 Year ended December 31, 2000: $1,192 $ 211 -- -- $1,403 Year ended December 31, 1999: $1,073 $ 119 -- -- $1,192
45 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BLONDER TONGUE LABORATORIES, INC. Date: March 28, 2002 By: /s/ JAMES A. LUKSCH ------------------------------------------ James A. Luksch President and Chief Executive Officer By: /s/ ERIC SKOLNIK ------------------------------------------- Eric Skolnik, Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. NAME TITLE DATE Director, President and Chief March 28, 2002 /s/ JAMES A. LUKSCH Executive Officer (Principal - --------------------------- Executive Officer) James A. Luksch Chief Financial Officer March 28, 2002 /s/ ERIC SKOLNIK (Principal Financial - --------------------------- Officer and Principal Eric Skolnik Accounting Officer) Director, Executive Vice March 28, 2002 /s/ ROBERT J. PALLE, JR. President, Chief Operating - --------------------------- Officer, Secretary Robert J. Palle, Jr. and Treasurer /s/ JOHN E. DWIGHT Director March 28, 2002 - --------------------------- John E. Dwight /s/ JAMES H. WILLIAMS Director March 28, 2002 - --------------------------- James H. Williams /s/ JAMES F. WILLIAMS Director March 28, 2002 - --------------------------- James F. Williams 46 /s/ ROBERT B. MAYER Director March 28, 2002 - --------------------------- Robert B. Mayer /s/ GARY P. SCHARMETT Director March 28, 2002 - --------------------------- Gary P. Scharmett /s/ ROBERT E. HEATON Director March 28, 2002 - --------------------------- Robert E. Heaton 47 EX-21 3 c23861_ex-21.txt LIST OF SUBSIDIARIES EXHIBIT 21 LIST OF SUBSIDIARIES OF BLONDER TONGUE LABORATORIES, INC. 1. Blonder Tongue International, Inc. 2. Blonder Tongue Investment Company 3. Vu-Tech Communications, Inc. (79% - owned subsidiary) EX-23 4 c23861_ex-23.txt CONSENT OF INDEPENDENT CPA EXHIBIT 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Blonder Tongue Laboratories, Inc. We hereby consent to the incorporation by reference in Registration No. 333-15039 of Blonder Tongue Laboratories, Inc. on Form S-8, and Registration No. 333-53045 of Blonder Tongue Laboratories, Inc. on Form S-3, of our report dated February 22, 2002, except for Note 4 which is dated March 20, 2002 relating to the consolidated financial statements and schedule of Blonder Tongue Laboratories, Inc. included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. BDO Seidman, LLP Woodbridge, New Jersey March 26, 2002 -----END PRIVACY-ENHANCED MESSAGE-----