SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended December 30, 2000
-----------------
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
Commission file number 0-17038
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Concord Camera Corp.
--------------------
(Exact name of registrant as specified in its charter)
New Jersey 13-3152196
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4000 Hollywood Blvd. Suite 650N, Hollywood, Florida 33021
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(Address of principal executive offices) (Zip Code)
954/331-4200
-------------
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, no par value - 27,227,842 shares as of February 5, 2001
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Index
Concord Camera Corp. and Subsidiaries
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets as of December 30, 2000 and July 1, 2000 2
Condensed consolidated statements of income for the quarters and the 3
six months ended December 30, 2000 and January 1, 2000
Condensed consolidated statements of cash flows for the six months ended 4
December 30, 2000 and January 1, 2000
Notes to condensed consolidated financial statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk 14
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds 15
Item 6. Exhibits and Reports on Form 8-K 15
1
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Concord Camera Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
December 30, 2000 July 1, 2000
----------------- ------------
(Unaudited) (Note 1)
Assets
Current Assets:
Cash and cash equivalents $ 122,040,680 $ 24,390,294
Accounts receivable, net 33,662,209 33,570,047
Inventories 35,569,705 31,603,147
Prepaid expenses and other current assets 5,956,091 7,374,719
-------------- -------------
Total current assets 197,228,685 96,938,207
Property, plant and equipment, net 24,326,776 22,810,021
Goodwill, net 3,826,172 3,561,770
Other assets 12,633,808 10,693,442
-------------- -------------
Total assets $ 238,015,441 $ 134,003,440
============== =============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 25,267,221 $ 25,510,625
Accrued expenses 10,269,421 12,788,653
Short-term debt - 2,190,263
Current portion of obligations under capital leases 787,612 1,252,967
Income taxes payable 2,337,332 2,024,157
Other current liabilities 305,974 571,706
-------------- -------------
Total current liabilities 38,967,560 44,338,371
Senior notes 14,901,786 14,891,071
Obligations under capital leases, net of current portion 116,377 1,221,128
Other long-term liabilities 7,273,355 7,262,903
-------------- -------------
Total liabilities 61,259,078 67,713,473
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, 100,000,000 shares
authorized; 28,734,068 and 23,825,734 shares issued as
of December 30, 2000 and July 1, 2000, respectively 139,612,745 42,145,256
Paid-in capital 2,625,828 2,625,828
Retained earnings 38,678,318 25,685,258
Notes receivable arising from common stock purchase
agreements (23,390) (29,237)
-------------- -------------
180,893,501 70,427,105
Less: treasury stock, at cost, 1,542,526 shares (4,137,138) (4,137,138)
-------------- -------------
Total stockholders' equity 176,756,363 66,289,967
-------------- -------------
Total liabilities and stockholders' equity $ 238,015,441 $ 134,003,440
============== =============
See accompanying notes.
2
Concord Camera Corp. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
For the three months ended For the six months ended
--------------------------------------- -------------------------------------
December 30, 2000 January 1, 2000 December 30, 2000 January 1, 2000
----------------- --------------- ----------------- ---------------
Net sales $ 58,945,123 $ 44,522,402 $ 121,668,025 $ 85,760,299
Cost of products sold 45,512,670 32,148,987 92,504,335 62,048,105
------------ ----------- ------------- ------------
Gross profit 13,432,453 12,373,415 29,163,690 23,712,194
Selling expenses 3,424,782 2,995,193 6,836,563 5,510,820
General and administrative expenses 4,344,956 3,732,437 8,763,086 7,537,280
Terminated acquisition costs - - 800,207 -
Interest expense 591,779 867,691 1,243,390 1,741,668
Other income, net (2,203,914) (99,104) (2,518,347) (227,398)
----------- ----------- ------------ -----------
Income before income taxes 7,274,850 4,877,198 14,038,791 9,149,824
Provision for income taxes 487,499 359,000 1,045,731 736,000
------------ ------------ ------------- ------------
Net income $ 6,787,351 $ 4,518,198 $ 12,993,060 $ 8,413,824
============ ============ ============= ============
Basic earnings per share $.25 $.21 $.52 $.38
============ ============ ============= ============
Diluted earnings per share $.23 $.19 $.47 $.35
============ ============ ============= ============
Weighted average
common shares outstanding-basic 26,954,034 21,839,442 24,995,736 21,879,116
Dilutive effect of stock options 2,935,042 2,399,202 2,838,724 2,252,346
------------ ------------ ------------- ------------
Weighted average
common shares outstanding-diluted 29,889,076 24,238,644 27,834,460 24,131,462
============ ============ ============= ============
See accompanying notes.
3
Concord Camera Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the six months ended
------------------------------------------
December 30, 2000 January 1, 2000
----------------- ---------------
Cash flows from operating activties:
Net income $ 12,993,060 $ 8,413,824
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 2,689,648 2,203,933
Officers' notes forgiven, related interest income
and stock option expense 256,169 396,653
Changes in operating assets and liabilities:
Accounts receivable (92,159) (6,456,187)
Inventories (3,966,558) (2,229,662)
Prepaid expenses and other current assets 1,159,885 57,944
Other assets (1,933,184) (2,384,033)
Accounts payable (243,405) 5,189,841
Accrued expenses (2,519,231) 5,122,981
Income taxes payable 313,175 738,407
Other current liabilities (300,274) 685,159
Other long-term liabilities 93,327 2,253,648
------------ ------------
Total adjustments (4,542,607) 5,578,684
------------ ------------
Net cash provided by operating activities 8,450,453 13,992,508
------------ ------------
Cash flows from investing activities:
Purchases of property, plant and equipment (4,393,996) (3,810,415)
------------ ------------
Net cash used in investing activities (4,393,996) (3,810,415)
------------ ------------
Cash flows from financing activities:
Net (repayments) borrowings under short-term debt
agreements (2,304,098) 1,234,588
Principal repayments under capital lease obligations (1,569,461) (939,837)
Purchases of treasury stock - (758,626)
Net repayments of long-term debt - (2,016,711)
Net proceeds from issuance of common stock 97,467,488 93,207
------------ ------------
Net cash provided by (used in) financing activities 93,593,929 (2,387,379)
------------ ------------
Net increase in cash and cash equivalents 97,650,386 7,794,714
Cash and cash equivalents at beginning of period 24,390,294 30,706,761
------------ ------------
Cash and cash equivalents at end of period $122,040,680 $ 38,501,475
============ ============
See accompanying notes.
4
CONCORD CAMERA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2000
(Unaudited)
Note 1 - General
----------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six-month period ended December 30, 2000 are not necessarily
indicative of the results that may be expected for the fiscal year ending June
30, 2001. The balance sheet at July 1, 2000 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended July 1, 2000.
Concord Camera Corp. (the "Company") operates on a worldwide basis and its
results may be adversely or positively affected by fluctuations of various
foreign currencies against the U.S. Dollar, specifically, the Canadian Dollar,
German Mark, British Pound Sterling, French Franc and Japanese Yen. The majority
of the Company's foreign subsidiaries' sales and inventory purchases are made or
denominated in the U.S. Dollar. Accordingly, the U.S. Dollar is the functional
currency. However, certain sales to customers and purchases of certain
components needed to manufacture cameras are made in local currency, thereby
creating exposure to fluctuations in foreign currency exchange rates. The impact
of foreign currency exchange transactions is reflected in the statement of
income. The Company continues to analyze the benefits and costs associated with
hedging against foreign currency fluctuations.
Note 2 - Cash
-------------
The Company has a cash management program that provides for the investment of
excess cash balances into cash equivalents, which are highly liquid investments
with a maturity of three months or less that are readily convertible into known
amounts of cash. These investments consist primarily of U.S. treasury bills,
money market funds, and U.S. federal agency securities.
Note 3 - Inventories
--------------------
Inventories are comprised of the following:
December 30, 2000 July 1, 2000
----------------- ------------
Raw materials and components $29,407,364 $22,116,287
Finished goods 6,162,341 9,486,860
----------- -----------
$35,569,705 $31,603,147
=========== ===========
5
Note 4 - Supplemental Disclosures of Cash Flow Information:
-----------------------------------------------------------
For the six months ended
------------------------------------------
December 30, 2000 January 1, 2000
----------------- ---------------
Cash paid for interest $ 997,353 $ 1,475,985
=========== ===========
Cash paid for income taxes $ 1,405,219 $ -
=========== ===========
Note 5 - Public Offering
------------------------
On September 26, 2000, the Company sold, pursuant to an underwritten public
offering, 3,900,000 shares of its common stock at a price of $23.00 per share.
Pursuant to an over-allotment option granted to the underwriters, the Company
sold an additional 585,000 shares of common stock on October 3, 2000 at a price
of $23.00 per share. The net proceeds of the offering to the Company were
approximately $96,505,000, after offering costs and underwriting fees of
approximately $6,650,000. This amount will be used to repay outstanding
indebtedness including capital leases, for capital expenditures and for general
corporate and strategic purposes, including working capital and investments in
new technologies, product lines and complementary businesses.
Note 6 - Terminated Acquisition Costs
-------------------------------------
Terminated acquisition costs of approximately $800,000, for the six months ended
December 30, 2000 were related to a proposed acquisition that was not
consummated. Negotiations regarding this acquisition were terminated in
September, 2000.
Note 7 - Litigation and Settlements
-----------------------------------
Jack C. Benun. On November 18, 1994, the Company filed a demand for arbitration
in New Jersey for money damages in excess of $1.5 million against Jack C. Benun
("Benun"), its former chief executive officer who was discharged for cause in
Fiscal 1995. This action was taken due to Benun's failure to fully compensate
the Company for damages it sustained as a result of Benun's breaching his
employment obligations, his fiduciary obligations and perpetrating frauds upon
the Company, including the misappropriation of funds from the Company. Benun has
submitted a counterclaim in which he alleges wrongful termination of his
employment and denial of benefits by the Company. Benun's counterclaim does not
contain any statement of the dollar amount of his alleged damages, although he
has written to the Company asserting damages of approximately $6.7 million. The
Company is vigorously pursuing its action as well as defending the counterclaim.
On August 24, 1999, the arbitrator upheld the propriety of Concord's termination
for cause of Benun. The arbitrator found that Benun perpetrated frauds on the
Company by diverting and embezzling Company monies. The Company is pursuing
damage claims against Benun related to the frauds and embezzlement. The final
phase of the arbitration (phase two), which is to determine the amount of the
Company's damages and any validity of Benun's counterclaim and alleged damages
related thereto, began during the week of September 25, 2000 and testimony
concluded on October 31, 2000. The parties have submitted their post-hearing
written position statements and a decision of the arbitrator is expected in the
latter part of March, 2001. Mr. Benun's post hearing written position statements
included damage claims for approximately $12.0 million exclusive of interest and
attorney fees. The Company continues to believe that such claims are without
merit.
Fuji. On December 30, 1997, the Company commenced in the United States District
Court of the Southern District of New York (the "Court") an action against Fuji
seeking to enforce the terms of a Settlement Agreement between the Company and
Fuji (the "Settlement Agreement") and to restrain Fuji from terminating the
Settlement Agreement. Under the terms of the Settlement Agreement, the Company
has been granted a worldwide (subject to certain geographic limitations),
non-exclusive license to use certain Fuji intellectual property in connection
with the manufacture and sale of single use cameras. Termination of the license
would have a material adverse effect on the Company's single use camera business
if Fuji's patents were found to be valid and infringed by the Company's single
use products. On January 9, 1998, the Court granted the Company's request for an
6
order restraining Fuji from terminating the Settlement Agreement. Pending a
final judicial determination of the disputes, the restraining order will
continue in effect as long as the Company refrains from making any further
shipments pursuant to the purchase order that gave rise to the dispute. Fuji
filed a motion for summary judgment, and the Company filed a motion seeking to
preclude Fuji from presenting certain expert testimony. Both motions were denied
by the Court, but Concord will be allowed to reassert its motion at trial if
Fuji does not establish an adequate evidentiary basis for the expert testimony.
The Court has allowed Fuji to amend its pleading to assert an additional cause
of action claiming damages on an alternative theory of liability outside the
scope of the license agreement. In the Company's opinion, the amended pleading
should not alter the total damages claimed by Fuji. The Court has also allowed
the Company to file a claim, based on Fuji's amended pleading, seeking the
return of royalties paid. This matter is scheduled for trial beginning in late
February 2001.
The Company is involved from time to time in routine legal matters incidental to
its business. In the opinion of the Company's management, the resolution of such
matters will not have a material adverse effect on its financial position or
results of operations.
Note 8 - Recent Accounting Pronouncements
-----------------------------------------
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB 101"),
"Revenue Recognition in Financial Statements." SAB 101 summarizes the
requirements that must be met in order to recognize revenue and provides
guidance for disclosure of revenue recognition policies. In June 2000, the SEC
issued SAB No. 101B which delays the implementation date of SAB 101 until no
later than the fourth quarter of Fiscal 2001. The Company has assessed the
provisions of SAB 101 and does not expect that the adoption of SAB 101 will have
a material effect on its financial position or results of operations.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
---------------------
The quarter ended December 30, 2000 compared to the quarter ended
-----------------------------------------------------------------
January 1, 2000
---------------
Sales
-----
Total net sales for the quarters ended December 30, 2000 and January 1, 2000
were approximately $58,945,000 and $44,522,000, respectively, an increase of
approximately $14,423,000, or 32.4%. The increase in net sales for the quarter
ended December 30, 2000 compared to the quarter ended January 1, 2000 resulted
principally from increases in sales to both original equipment manufacturer
("OEM") and retail sales and distribution ("RSD") customers. OEM sales for the
quarters ended December 30, 2000 and January 1, 2000 were approximately
$31,645,000 and $28,131,000, respectively, an increase of approximately
$3,514,000, or 12.5%. This increase is primarily attributable to sales of new
products, including digital cameras, to new and existing OEM customers, and to a
lesser extent, sales of existing products to existing OEM customers. RSD
customer sales for the quarters ended December 30, 2000 and January 1, 2000 were
approximately $27,300,000 and $16,391,000, respectively, an increase of
approximately $10,909,000, or 66.6%. The increase in sales is primarily
attributable to sales to existing customers, and to a lesser extent, sales to
new customers. The sales mix between OEM and RSD customers may vary somewhat in
the short term from historical trends due to the product mix and significant
differences in average unit prices between digital products and traditional film
based products the Company sells to its OEM and RSD customers.
Sales for the Company's operations in Asia ("Concord Asia") for the quarters
ended December 30, 2000 and January 1, 2000, were approximately $31,711,000 and
$28,136,000, respectively, an increase of approximately $3,575,000, or 12.7%.
The increase in sales for Concord Asia was due to higher sales to OEM customers.
Sales to customers of the Company's operations in the United States, Latin
America and Canada ("Concord Americas") for the quarters ended December 30,
2000, and January 1, 2000, including FOB Hong Kong sales to Concord Americas
customers, were approximately $20,631,000 and $10,050,000, respectively, an
increase of approximately $10,581,000, or 105.3%. The increase was primarily due
to successful implementation of new programs with new and existing customers
with new and existing products.
Sales to the Company's customers of Concord Camera (Europe) Limited, Goldline
(Europe) Limited, Concord Camera GmbH, and Concord Camera France S.A.R.L.
("Concord Camera Europe") for the quarters ended December 30, 2000, and January
1, 2000, including FOB Hong Kong sales to Concord Europe customers, were
approximately $6,603,000 and $6,336,000, respectively, an increase of
approximately $267,000, or 4.2%. This increase was primarily due to increased
sales to both existing and new customers.
Gross Profit
------------
Gross profit, expressed as a percentage of sales, decreased to 22.8% for the
quarter ended December 30, 2000 from 27.8% for the quarter ended January 1,
2000. This decrease was primarily the result of (i) a change in product mix for
the quarter ended December 30, 2000 compared to the same prior year quarter and
(ii) increased pricing pressures due to a weakened retail environment.
Sales for the quarter ended December 30, 2000 included revenues from digital
products, which are sold at significantly higher unit prices, but generate lower
gross profits as a percentage of sales, compared to the traditional film based
products the Company has historically sold. The Company's historical product
mix, which consisted entirely of traditional film based products, is expected to
change with the introduction of more digital products in the future, and
consequently, gross profits as a percentage of sales are anticipated to be lower
compared to historical gross profits as a percentage of sales. However, since
digital products are expected to generate greater sales revenue and gross profit
on a per unit basis, as compared to the traditional film based products Concord
has sold historically, average revenue and gross profit amounts per unit can be
expected to increase as digital products contribute to a greater percentage of
the product mix. As digital products continue to contribute to a greater
proportion of the Company's manufacturing product mix, Concord's overall
business will become more exposed to greater gross profit fluctuations due to
possible digital component shortages. Since component availability fluctuates
8
from time to time and is subject to lead time and other constraints, it could
possibly limit net profit growth and might have a negative impact on sales and
gross margins in the foreseeable future.
The increased proportion of RSD sales for the quarter ended December 30 2000,
which was primarily attributable to increased FOB Hong Kong sales to Concord
Americas customers compared to the prior year period, resulted in lower gross
profits as a percentage of sales due to pricing pressures that resulted from a
weakened retail environment and softer consumer demand.
Included in costs of products sold, were product development costs of
approximately $1,712,000 for the quarter ended December 30, 2000 as compared to
approximately $1,206,000 for the quarter ended January 1, 2000.
Expenses
--------
As a percentage of sales, operating expenses, consisting of selling, general and
administrative and interest expense, decreased to 14.2% for the quarter ended
December 30, 2000 from 17.1% for the quarter ended January 1, 2000. Operating
expenses increased to approximately $8,362,000 for the quarter ended December
30, 2000 from approximately $7,595,000 for the quarter ended January 1, 2000, an
increase of $767,000, or 10.1%.
Selling expenses increased to approximately $3,425,000, or 5.8% of net sales,
for the quarter ended December 30, 2000 compared to approximately $2,995,000, or
6.7% of net sales, for the quarter ended January 1, 2000. The increase of
$430,000 was primarily attributable to higher sales related salaries and
commissions, and travel and entertainment partially offset by lower freight
costs.
General and administrative expenses increased to approximately $4,345,000, or
7.4% of net sales, for the quarter ended December 30, 2000 compared to
approximately $3,732,000, or 8.4% of net sales, for the quarter ended January 1,
2000. The increase of $613,000 was the result of the Company continuing to build
its infrastructure to support its growth.
Interest expense decreased to approximately $592,000, or 1.0% of net sales, for
the quarter ended December 30, 2000 compared to approximately $868,000, or 1.9%
of net sales, in the quarter ended January 1, 2000 as a result of lower debt
levels during the quarter.
Other Income, Net
-----------------
Other income, net was approximately $2,204,000 and $99,000 for the quarters
ended December 30, 2000 and January 1, 2000, respectively. Other income, net
primarily consists of interest income, and to a lesser extent net foreign
exchange gains partially offset by directors' fees, and certain public relations
costs. The increase is primarily attributable to higher interest income for the
quarter ended December 30, 2000 as compared to the same prior year quarter.
Income Taxes
------------
The Company's provision for income taxes increased to approximately $487,000 for
the quarter ended December 30, 2000 from $359,000 for the quarter ended January
1, 2000. The increase was primarily related to increased income before income
taxes. In general, the effective income tax rate is largely a function of the
balance between income from domestic and foreign operations. Currently,
Concord's foreign operations taken as a whole are effectively taxed at a higher
rate than those in the United States due to the utilization of domestic
operating loss carryforwards.
Net Income
----------
As a result of the matters described above, the Company had net income of
approximately $6,787,000, or $0.23 per diluted share, for the quarter ended
December 30, 2000, as compared to net income of approximately $4,518,000, or
$0.19 per diluted share, for the quarter ended January 1, 2000.
9
The six months ended December 30, 2000 compared to the six months ended
-----------------------------------------------------------------------
January 1, 2000
---------------
Sales
-----
Total net sales for the six months ended December 30, 2000 and January 1, 2000
were approximately $121,668,000 and $85,760,000, respectively, an increase of
approximately $35,908,000, or 41.9%. The increase in net sales for the six
months ended December 30, 2000 compared to the six months ended January 1, 2000
resulted principally from increases in sales to both OEM and RSD customers. OEM
sales for the six months ended December 30, 2000 and January 1, 2000 were
approximately $74,410,000 and $56,214,000, respectively, an increase of
approximately $18,196,000, or 32.4%. This increase is primarily attributable to
sales of new products, including digital cameras, to new and existing OEM
customers, and to a lesser extent, sales of existing products to existing OEM
customers. RSD customer sales for the six months ended December 30, 2000 and
January 1, 2000 were approximately $47,258,000 and $29,546,000, respectively, an
increase of approximately $17,712,000, or 59.9%. The increase in sales is
primarily attributable to sales to existing customers, and to a lesser extent,
sales to new customers.
Sales for Concord Asia for the six months ended December 30, 2000 and January 1,
2000, were approximately $74,484,000 and $56,219,000, respectively, an increase
of approximately $18,265,000, or 32.5%. The increase in sales for Concord Asia
was due to higher sales to OEM customers.
Sales for Concord Americas for the six months ended December 30, 2000, and
January 1, 2000, including FOB Hong Kong sales to Concord Americas customers,
were approximately $29,938,000 and $17,955,000, respectively, an increase of
approximately $11,983,000, or 66.7%. The increase was primarily due to
successful implementation of new programs with new and existing customers with
new and existing products.
Sales for Concord Europe for the six months ended December 30, 2000, and January
1, 2000, including FOB Hong Kong sales to Concord Europe customers, were
approximately $17,246,000 and $11,586,000, respectively, an increase of
approximately $5,660,000, or 48.9%. This increase was primarily due to increased
sales to both existing and new customers.
Gross Profit
------------
Gross profit, expressed as a percentage of sales, decreased to 24.0% for the six
months ended December 30, 2000 from 27.6% for the six months ended January 1,
2000. This decrease was primarily the result of (i) a change in product mix for
the six months ended December 30, 2000, and (ii) increased pricing pressures due
to a weakened retail environment.
Sales for the six months ended December 30, 2000 included revenues from digital
products, which are sold at significantly higher unit prices, but generate lower
gross profits as a percentage of sales, compared to the traditional film based
products the Company has historically sold. The Company's historical product
mix, which consisted entirely of traditional film based products, is expected to
change with the introduction of more digital products in the future, and
consequently, gross profits as a percentage of sales are anticipated to be lower
compared to historical gross profits as a percentage of sales. However, since
digital products are expected to generate greater sales revenue and gross profit
on a per unit basis, as compared to the traditional film based products Concord
has sold historically, average revenue and gross profit amounts per unit are
expected to increase as digital products contribute to a greater percentage of
the product mix. As digital products continue to contribute to a greater
proportion of the Company's manufacturing product mix, Concord's overall
business will become more exposed to greater gross profit fluctuations due to
possible digital component shortages. Since component availability fluctuates
from time to time and is subject to lead time and other constraints, it could
possibly limit net profit growth and might have a negative impact on sales and
gross margins in the foreseeable future.
The increased proportion of RSD sales for the six ended December 30 2000, which
was primarily attributable to increased FOB Hong Kong sales to Concord Americas
customers compared to the prior year period, resulted in lower gross profits as
a percentage of sales due to pricing pressures that resulted from a weakened
retail environment and softer consumer demand.
Included in costs of products sold, were product development costs of
approximately $3,217,000 for the six months ended December 30, 2000 as compared
to approximately $2,388,000 for the six months ended January 1, 2000.
10
Expenses
--------
As a percentage of sales, operating expenses, consisting of selling, general and
administrative, terminated acquisition costs and interest expense, decreased to
14.5% for the six months ended December 30, 2000 from 17.2% for the six months
ended January 1, 2000. Operating expenses increased to approximately $17,643,000
for the six months ended December 30, 2000 from approximately $14,790,000 for
the six months ended January 1, 2000, an increase of $2,853,000, or 19.3%.
Selling expenses increased to approximately $6,837,000, or 5.6% of net sales,
for the six months ended December 30, 2000 compared to approximately $5,511,000,
or 6.4% of net sales, for the six months ended January 1, 2000. The increase was
primarily attributable to increases in promotional allowances, increases in
sales related salaries and commissions and freight costs.
General and administrative expenses increased to approximately $8,763,000, or
7.2% of net sales, for the six months ended December 30, 2000 compared to
approximately $7,537,000, or 8.8% of net sales, for the six months ended January
1, 2000. The increase of $1,226,000 was the result of the Company continuing to
build its infrastructure to support its growth.
Terminated acquisition costs of approximately $800,000, for the six months ended
December 30, 2000 related to a proposed acquisition that was not consummated.
Negotiations regarding this acquisition were terminated in September, 2000.
Interest expense decreased to approximately $1,243,000, or 1.0% of net sales,
for the six months ended December 30, 2000 compared to approximately $1,742,000,
or 2.0% of net sales, in the six months ended December 30, 2000 as a result of
lower debt levels during the six months ended December 30, 2000.
Other Income, Net
-----------------
Other income, net was approximately $2,518,000 and $228,000 for the six months
ended December 30, 2000 and January 1, 2000, respectively. Other income, net
primarily consists of interest income, and to a lesser extent net foreign
exchange gains partially offset by directors' fees, and certain public relations
costs. The increase is primarily attributable to higher interest income for the
six months ended December 30, 2000 as compared to the same prior year period.
Income Taxes
------------
The Company's provision for income taxes increased to approximately $1,046,000
for the six months ended December 30, 2000 from approximately $736,000 for the
six months ended January 1, 2000. The increase was primarily related to
increased income before income taxes. In general, the effective income tax rate
is largely a function of the balance between income from domestic and foreign
operations. Currently, Concord's foreign operations taken as a whole are
effectively taxed at a higher rate than those in the United States due to
domestic operating loss carryforwards.
Net Income
----------
As a result of the matters described above, the Company had net income of
approximately $12,993,000, or $0.47 per diluted share, for the six months ended
December 30, 2000, as compared to net income of approximately $8,414,000, or
$0.35 per diluted share, for the six months ended January 1, 2000.
11
Liquidity and Capital Resources
-------------------------------
At December 30, 2000, the Company had working capital of $158,261,000 as
compared to $52,600,000 at July 1, 2000. The increase in working capital was
primarily attributable to the net proceeds of approximately $96,505,000 the
Company received from a public offering in September and October 2000. Cash
provided by operating activities was approximately $8,450,000 and $13,993,000
for the six months ended December 30, 2000 and January 1, 2000, respectively.
The changes in cash provided by operating activities for the respective six
months ended December 30, 2000, and January 1, 2000, were primarily attributable
to changes in accounts receivable, accounts payable and accrued expenses.
Capital expenditures for the six months ended December 30, 2000 and January 1,
2000 were approximately $4,394,000 and $3,810,000, respectively, and related
primarily to plant and equipment purchases for the manufacturing facility
located in the People's Republic of China.
Cash provided by financing activities was $93,594,000 for the six months ended
December 30, 2000 compared to cash used of $2,387,000 for the six months ended
January 1, 2000. The increase in cash for the six months ended December 30, 2000
was primarily attributable to a public offering (more fully discussed below)
completed in September and October, 2000.
Senior Notes Payable. On July 30, 1998, the Company consummated a private
placement of $15,000,000 of senior notes. The notes bear interest at 11.0%, and
mature on July 15, 2005. Interest payments are due quarterly. The indenture
governing the notes contains certain restrictive covenants relating to, among
other things, incurrence of additional indebtedness and dividend and other
payment restrictions affecting the Company and its subsidiaries. The indenture
also includes an early redemption fee, currently at 5% of the outstanding
principal, which decreases 2% annually, every July 16, commencing in 2001.
Hong Kong Credit Facilities. A Company subsidiary, Concord Camera HK Limited
("Concord HK") has various revolving credit facilities in place providing an
aggregate of approximately $33,500,000 in borrowing capacity. Certain of the
revolving credit facilities are denominated in Hong Kong dollars. The revolving
credit facilities are comprised of 1) an $11,000,000 Import Facility, 2) a
$2,600,000 Packing Credit and Export Facility, 3) a $1,900,000 Foreign Exchange
Facility and 4) an $18,000,000 Accounts Receivable Financing Facility. The
$18,000,000 Accounts Receivable Financing Facility is secured by certain
accounts receivables of Concord HK and guaranteed by the Company. A significant
portion of the remaining $15,500,000 of borrowing capacity is also guaranteed by
the Company. Availability under the Accounts Receivable Financing Facility is
subject to advance formulae based on Eligible Accounts Receivable and all the
credit facilities are subject to certain financial ratios and covenants. At
December 30, 2000, there were no amounts outstanding under these facilities.
United Kingdom Credit Facility. A United Kingdom subsidiary of the Company, has
a revolving credit facility in place which provides approximately $1,000,000 of
borrowing capacity. The facility is secured by substantially all of the assets
of the subsidiary, and is principally utilized for working capital needs. There
were no amounts outstanding under the facility as of December 30, 2000.
Concord Americas Credit Facilities. Concord Camera Corp. and a U.S. subsidiary
each entered into credit facilities (collectively, the "US Facilities") with
lenders that provide Concord Keystone Sales Corp. and Concord Camera Corp. with
up to $5,000,000 and $2,500,000, respectively, of unsecured working capital. No
amounts were outstanding under the US Facilities at December 30, 2000.
Public Offering. On September 26, 2000, the Company sold pursuant to an
underwritten public offering, 3,900,000 shares of its common stock at a price of
$23.00 per share. Pursuant to an over-allotment option granted to the
underwriters, the Company sold an additional 585,000 shares of common stock at a
price of $23.00 per share. The net proceeds of the offering to the Company were
$96,505,000, after offering costs and underwriting fees of $6,650,000. This
amount will be used to repay outstanding indebtedness including capital leases,
for capital expenditures and for general corporate and strategic purposes,
including working capital and investments in new technologies, product lines and
complementary businesses. The net proceeds are currently invested in cash
equivalents.
12
Future Cash Commitments. Management believes that anticipated cash flow from
operations, amounts available under its credit facilities and the proceeds from
the offering will be sufficient to fund its operating cash needs for the
foreseeable future.
The Company is evaluating various growth opportunities which could require
significant funding commitments. The Company has from time to time held, and
continues to hold, discussions and negotiations with (i) companies that
represent potential acquisition or investment opportunities, (ii) potential
strategic and financial investors who have expressed an interest in making an
investment in or acquiring the Company, (iii) potential joint venture partners
looking toward formation of strategic alliances that would broaden the Company's
product base or enable the Company to enter new lines of business and (iv)
potential new and existing OEM customers where the design, development and
production of new products, including certain new technologies, would enable the
Company to expand its existing business, and enter new markets outside its
traditional business including new ventures focusing on wireless connectivity
and other new communication technologies. There can be no assurance any
definitive agreement will be reached regarding any of the foregoing, nor does
management believe such agreements are necessary for successful implementation
of the Company's strategic plans.
Forward-Looking Statements
The statements contained in this report that are not historical facts are
"forward-looking statements" (as such term is defined in the Private Securities
Litigation Reform Act of 1995), which can be identified by the use of
forward-looking terminology such as: "estimates," "projects," "anticipates,"
"expects," "intends," "believes," "plans," or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in such forward-looking statements as a result
of certain factors including, but not limited to, those discussed in the
Company's most recent Annual Report filed with the SEC on Form 10-K and the
factors set forth under the caption "Risk Factors" in the Company's Prospectus
dated September 21, 2000, filed with the SEC. Management wishes to caution the
reader that these forward-looking statements, such as statements regarding
development of the Company's business, the Company's anticipated capital
expenditures, projected profits and other statements contained in this report
regarding matters that are not historical facts, are only estimates or
predictions. No assurance can be given that future results will be achieved.
Actual events or results may differ materially as a result of risks facing the
Company or actual results differing from the assumptions underlying such
statements. In particular, expected revenues could be adversely affected by
production difficulties or economic conditions negatively affecting the market
for the Company's products. Obtaining the results expected from the introduction
of the Company's new products will require timely completion of development,
successful ramp-up of full-scale production on a timely basis and customer and
consumer acceptance of those products. In addition, the Company's OEM agreements
require an ability to meet high quality and performance standards, successful
implementation of production at greatly increased volumes and an ability to
sustain production at greatly increased volumes, as to all of which there can be
no assurance. There also can be no assurance that products under development
will be successfully developed or that once developed such products will be
commercially successful.
13
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company, as a result of its global operating and financial activities, is
exposed to changes in interest rates and foreign currency exchange rates which
may adversely affect its results of operations and financial position. In
seeking to minimize the risks and/or costs associated with such activities, the
Company manages exposures to changes in interest rates and foreign currency
rates through its regular operating and financing activities. Each of the
Company's foreign subsidiaries purchases its inventories in U.S. Dollars and
sells them in local currency, thereby creating an exposure to fluctuations in
foreign currency exchange rates. Certain components needed to manufacture
cameras are purchased in Japanese Yen. The impact of foreign exchange
transactions is reflected in the profit and loss statement. The Company's
hedging activities were immaterial and as of December 30, 2000 there were no
forward exchange contracts outstanding. The Company continues to analyze the
benefits and costs associated with hedging against foreign currency
fluctuations. The Company's exposure to changes in interest rates results from
its borrowing activities used to meet its liquidity needs. Long-term debt is
generally used to finance long-term investments, while short-term debt is used
to meet working capital requirements. Derivative instruments are not presently
used to adjust the Company's interest rate risk profile. The Company does not
utilize financial instruments for trading or speculative purposes, nor does it
utilize leveraged financial instruments.
14
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
(c) Sales of Unregistered Securities
A corporation controlled by J. David Hakman has provided consulting services to
the Company since 1997 pursuant to an engagement agreement entered into on
September 25, 1997, as later amended and supplemented (the "Hakman Agreement").
Pursuant to the Hakman Agreement, the Company granted a warrant to purchase up
to 260,000 shares of Common Stock at an exercise price of $2.25 per share to the
corporation controlled by Mr. Hakman. On October 10, 2000, Hakman Capital
Corporation exercised the warrant as to the 113,000 shares that were vested. The
price was $2.25 per share for an aggregate price of $254,250. No underwriting
discounts or commissions were paid. Certificate(s) for the shares were issued
with an appropriate restrictive legend. The transaction was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933 as a
transaction by an issuer not involving any public offering.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
No. Description Method of Filing
--- ----------- ----------------
3.1 Certificate of Incorporation, as amended Incorporated by reference to the Company's
through May 9, 2000 annual report on Form 10-K for the year ended
July 1, 2000.
3.2 Restated By-Laws, as amended through Filed herewith.
December 21, 2000
10.1 Terms of Employment between Urs W. Stampfli, Filed herewith.
dated effective as of January 1, 2000
(b) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the quarter
ended December 30, 2000.
15
S I G N A T U R E
Pursuant to the requirements 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.
CONCORD CAMERA CORP.
--------------------
(Registrant)
BY: /s/Harlan I. Press
------------------
(Signature)
Harlan I. Press
Vice President and Treasurer
DULY AUTHORIZED AND CHIEF ACCOUNTING OFFICER
DATE: February 12, 2001