FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 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 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
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(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: 27,414,208 shares as of October 17, 2001
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Index
Page No.
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Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets as of September 29, 2001 and June 30, 2001 2
Condensed consolidated statements of operations for the three months ended 3
September 29, 2001 and September 30, 2000
Condensed consolidated statements of cash flows for the three months ended 4
September 29, 2001 and September 30, 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 13
Part II. Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
1
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Concord Camera Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
September 29, 2001 June 30, 2001
------------------ -------------
(Unaudited) (Note 1)
Assets
Current Assets:
Cash and cash equivalents $ 108,953,316 $ 57,474,828
Short-term investments -- 49,869,567
Accounts receivable, net 18,300,615 25,253,614
Inventories 31,830,310 30,766,198
Prepaid expenses and other current assets 2,801,407 4,128,858
------------- -------------
Total current assets 161,885,648 167,493,065
Property, plant and equipment, net 23,471,608 24,396,407
Goodwill, net 3,720,693 3,720,528
Other assets 19,725,299 18,055,713
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Total assets $ 208,803,248 $ 213,665,713
============= =============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 15,160,549 $ 17,991,337
Accrued expenses 13,061,288 15,447,170
Current portion of obligations under capital leases 294,709 503,547
Other current liabilities 1,557,713 2,547,719
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Total current liabilities 30,074,259 36,489,773
Senior notes 14,917,859 14,912,501
Other long-term liabilities 10,209,857 7,926,290
------------- -------------
Total liabilities 55,201,975 59,328,564
Commitments and contingencies
Stockholders' equity:
Blank check preferred stock, no par value
1,000,000 shares authorized, none issued -- --
Common stock, no par value, 100,000,000 shares
authorized; 28,956,734 and 28,911,734 shares issued as
of September 29, 2001 and June 30, 2001, respectively 140,384,441 140,255,065
Paid-in capital 4,321,856 4,321,856
Retained earnings 13,046,733 13,914,908
Notes receivable arising from common stock purchase
agreements (14,619) (17,542)
------------- -------------
157,738,411 158,474,287
Less: treasury stock, at cost, 1,542,526 shares (4,137,138) (4,137,138)
------------- -------------
Total stockholders' equity 153,601,273 154,337,149
------------- -------------
Total liabilities and stockholders' equity $ 208,803,248 $ 213,665,713
============= =============
See accompanying notes.
2
Concord Camera Corp. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
For the three months ended
---------------------------------------
September 29, 2001 September 30, 2000
------------------ ------------------
Net sales $ 35,287,377 $ 62,722,902
Cost of products sold 28,411,776 46,991,665
------------ ------------
Gross profit 6,875,601 15,731,237
Selling expenses 2,356,789 3,411,781
General and administrative expenses 5,463,958 4,418,130
Terminated acquisition costs -- 800,207
Interest expense 661,701 651,611
Other income, net 599,302 314,433
------------ ------------
(Loss) income before income taxes (1,007,545) 6,763,941
(Benefit) provision for income taxes (139,370) 558,232
------------ ------------
Net (loss) income $ (868,175) $ 6,205,709
============ ============
Basic (loss) earnings per share $ (.03) $ .28
============ ============
Diluted (loss) earnings per share $ (.03) $ .25
============ ============
Weighted average
common shares outstanding-basic 27,412,724 22,427,340
Effect of dilutive securities-stock options -- 2,389,012
------------ ------------
Weighted average
common shares and assumed conversions-diluted 27,412,724 24,816,352
============ ============
See accompanying notes.
3
Concord Camera Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the three months ended
---------------------------------------
September 29, 2001 September 30, 2000
------------------ ------------------
Cash flows from operating activities:
Net (loss) income $ (868,175) $ 6,205,709
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Depreciation and amortization 1,365,868 1,231,111
Non cash compensation expense 22,924 168,528
Provision for bad debt 1,610,871 --
Provision on inventory 1,761,274 --
Changes in operating assets and liabilities:
Accounts receivable 5,342,127 17,836
Inventories (2,825,390) (6,212,760)
Prepaid expenses and other current assets 1,327,452 1,047,301
Other assets (1,689,586) (1,754,961)
Accounts payable (2,830,788) 124,046
Accrued expenses (2,385,882) 1,652,370
Other current liabilities (990,005) (271,722)
Other long-term liabilities 2,283,298 64,202
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Net cash provided by operating activities 2,123,988 2,271,660
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Cash flows from investing activities:
Purchases of property, plant and equipment (435,607) (1,326,574)
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Net cash used in investing activities (435,607) (1,326,574)
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Cash flows from financing activities:
Proceeds from short-term investments 49,869,567 --
Net repayments under short-term debt
agreements -- (854,934)
Principal repayments under capital lease obligations (208,836) (1,377,915)
Net proceeds from issuance of common stock 129,376 84,106,788
------------- -------------
Net cash provided by financing activities 49,790,107 81,873,939
------------- -------------
Net increase in cash and cash equivalents 51,478,488 82,819,025
Cash and cash equivalents at beginning of period 57,474,828 24,390,294
------------- -------------
Cash and cash equivalents at end of period $ 108,953,316 $ 107,209,319
============= =============
See accompanying notes.
4
CONCORD CAMERA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
September 29, 2001
------------------
(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 three-month period ended September 29, 2001 are not necessarily
indicative of the results that may be expected for the fiscal year ending June
29, 2002 ("Fiscal 2002"). The balance sheet at June 30, 2001 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. Certain amounts
have been reclassified to conform to the current presentation. 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 June 30, 2001.
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 U.S. Dollars. 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
operations. The Company continues to analyze the benefits and costs associated
with hedging against foreign currency fluctuations. As of September 29, 2001,
the Company was not engaged in any hedging activities and there were no forward
exchange contracts outstanding.
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:
September 29, 2001 June 30, 2001
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Raw materials and components $20,421,077 $23,987,935
Finished goods 11,409,233 6,778,263
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$31,830,310 $30,766,198
=========== ===========
5
Note 4 - Supplemental Disclosures of Cash Flow Information:
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For the three months ended
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September 29, 2001 September 30, 2000
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Cash paid for interest $441,891 $539,373
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Cash paid for income taxes $ 1,000 $195,524
======== ========
Note 5 - Restructuring Initiatives and Other Charges
----------------------------------------------------
During the fourth quarter of the fiscal year ended June 30, 2001 ("Fiscal
2001"), the Company announced a restructuring and cost containment initiative
("Restructuring Initiative") to improve its competitiveness and operating
efficiency and to reduce its cost structure. The Restructuring Initiative, which
is expected to be fully implemented by the end of Fiscal 2002, consists of
facilities consolidation, the shut down of the Company's single use camera short
run labeling facility in the United States, and the reduction of the worldwide
workforce (outside of the People's Republic of China) by approximately 71
employees primarily employed in manufacturing, engineering, sales and marketing
and administration functions. The Company has also reduced its manufacturing
workforce in the PRC by approximately 2,000 workers. Costs for the Restructuring
Initiative were approximately $1,400,000, which was comprised of approximately
$400,000 related to the shut down of facilities and approximately $1,000,000
related to personnel termination costs. During the first quarter of Fiscal 2002,
the Company implemented certain elements of the Restructuring Initiative and
incurred approximately $302,000 in payments related to personnel redundancy
costs and facilities consolidation. The balance of the restructuring accrual of
approximately $1,098,000 was included under the caption accrued expenses in the
accompanying consolidated balance sheet at September 29, 2001. The table below
summarizes the balance of the accrued Restructuring Initiative expenses and the
movement in that accrual as of and for the three months ended September 29,
2001:
Accrued Balance Accrued Balance
June 30, 2001 Payments September 29, 2001
------------- -------- ------------------
Personnel Redundancy $1,000,000 $ 298,000 $ 702,000
Facilities Consolidation 400,000 4,000 396,000
---------- ---------- ----------
$1,400,000 $ 302,000 $1,098,000
========== ========== ==========
During the first quarter of Fiscal 2002, the Company recognized a provision
related to accounts receivable of approximately $1,611,000, and a provision
related to inventory of approximately $1,761,000. Both of these provisions
related to Polaroid Corporation ("Polaroid"), which filed for protection under
Chapter 11 of the U.S. Bankruptcy Code on October 12, 2001, and were included in
general and administrative expense and cost of sales, respectively, in the
accompanying statements of operations for the quarter ended September 29, 2001.
See Note 9 - Subsequent Event.
Note 6 - Litigation
-------------------
All of the Company's litigation and arbitration proceedings with its former
chief executive officer, Jack C. Benun ("Benun"), have been concluded. In early
October 2001, the Company realized the award of $1,133,246 plus $45,175 of post
award interest for a total of $1,178,421 and a total of $202,740 was remitted to
Benun in payment of a loan previously made by Benun to the Company. As a result
of the foregoing, the New Jersey action instituted by Benun was dismissed with
prejudice.
6
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 7 - Recent Accounting Pronouncements
-----------------------------------------
Emerging Issues Task Force ("EITF") Issue No. 00-25, Vendor Income Statement
Characterization of Consideration from a Vendor to a Retailer, addresses the
income statement classification of consideration between a vendor and a
retailer. Although management is still assessing the impact this EITF will have
on its consolidated financial statements, it believes that the adoption of EITF
No. 00-25 may result in lower gross margins and lower selling expenses as
certain variable selling expenses which have been historically classified as
operating expenses will be reclassified as a reduction of revenues. The Company
expects to adopt EITF 00-25 in its second quarter of Fiscal 2002.
On June 29, 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 applies to all
business combinations with a closing date after June 30, 2001, and eliminates
the pooling-of-interests method of accounting and further clarifies the criteria
for recognition of intangible assets separately from goodwill. SFAS No. 142
eliminates the amortization of goodwill and indefinite-lived intangible assets
and initiates an annual review for impairment. Identifiable intangible assets
with a determinable useful live will continue to be amortized. The amortization
provisions apply to goodwill and other intangible assets acquired after June 30,
2001. Goodwill and other intangible assets acquired prior to June 30, 2001 will
be effected upon adoption. The Company has adopted SFAS No. 142 effective July
1, 2001, and has ceased amortization of its remaining net goodwill balances and
is required to perform an impairment test of its existing goodwill based on a
fair value concept. Management does not anticipate any goodwill impairment as a
result of its adoption. The accounting standard requires that a reconciliation
of previously reported net income and earnings per share to the amounts adjusted
for the exclusion of the goodwill amortization net of related tax effect be
presented. Because the goodwill amortization is immaterial, no reconciliation is
presented.
Note 8 - Exchange Offer
-----------------------
On August 28, 2001, the Company launched an offer to exchange outstanding stock
options with an exercise price of more than $7.00 per share for new options to
purchase 75% of the shares subject to the outstanding options at an exercise
price of $5.97 per share (the closing price of the Common Stock as reported on
the NASDAQ National Market on the date the Board of Directors approved the
exchange offer.) The exchange offer expired on October 16, 2001. Options to
purchase 1,375,876 shares of Common Stock were tendered in the exchange offer
and accepted by the Company for cancellation and new options to purchase
1,031,908 shares of Common Stock were issued in exchange therefor. The Company
will apply variable accounting for these stock option grants until the options
are exercised or expire.
Note 9 - Subsequent Events
--------------------------
On October 8, 2001, the Company committed $1,000,000 as a charitable
contribution to relief efforts for victims of the September 11 Attack on
America. The Company also committed up to $250,000 to match charitable
contributions made to relief efforts for victims of the September 11 Attack on
America by members of its Board of Directors and its employees.
On October 12, 2001, Polaroid filed for protection under Chapter 11 of the
United States Bankruptcy Code. Accordingly, the Company recorded provisions for
its pre and post petition financial exposure associated with accounts receivable
and inventory related to Polaroid at September 29, 2001. The provisions were
approximately $1,611,000 and $1,761,000, respectively. The Company does not
anticipate that the loss, of the previously budgeted sales to Polaroid for the
remaining three quarters of Fiscal 2002, would affect its business. See Note 5 -
Restructuring Initiatives and Other Charges.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
---------------------
Three months ended September 29, 2001 compared to the three months ended
September 30, 2000
------------------------------------------------------------------------
Revenues
--------
Revenues for the first quarter Fiscal 2002 were approximately $35,287,000, a
decrease of approximately $27,436,000, or 43.7%, as compared to revenues for the
first quarter of Fiscal 2001. The decrease in sales resulted principally from
decreases in sales to original equipment manufacture ("OEM") customers partially
offset by increases in sales to new and existing retail sales and distribution
("RSD") customers. The increase in RSD sales was primarily due to increased
sales to new and existing RSD customers of single-use and digital camera
products. RSD customer sales for the first quarter of Fiscal 2002 were
approximately $23,752,000, an increase of approximately $3,794,000, or 19.0%, as
compared to the first quarter of Fiscal 2001. OEM sales for the first quarter of
Fiscal 2002 were approximately $11,535,000, a decrease of approximately
$31,230,000, or 73.0%, as compared to the first quarter of Fiscal 2001.
Sales of the Company's operations in Asia ("Concord Asia") for the first quarter
of Fiscal 2002, excluding FOB Hong Kong sales to its customers in the Americas
and Europe of approximately $13,618,000, were approximately $11,577,000, a
decrease of approximately $31,196,000, or 72.9%, as compared to the first
quarter of Fiscal 2001. The decrease was primarily due to lower sales to
existing OEM customers partially offset by an increase in sales to new OEM
customers.
Sales of the Company's operations in the United States, Latin America and Canada
("Concord Americas") for the first quarter of Fiscal 2002, including FOB Hong
Kong sales to customers in the Americas, were approximately $16,609,000, an
increase of approximately $7,449,000, or 81.3%, as compared to the first quarter
of Fiscal 2001. The increase was primarily due to successful implementation of
new programs with new and existing customers, increased market share from
existing customers and the positive sell through of certain new and existing
products.
Sales of the Company's operations in Europe ("Concord Europe") for the first
quarter of Fiscal 2002, including FOB Hong Kong sales to customers in Europe,
were approximately $7,101,000, a decrease of approximately $3,689,000, or 34.2%,
as compared to the first quarter of Fiscal 2001. This decrease was primarily
attributable to lower sales of single-use cameras.
Gross Profit
Gross profit for the first quarter of Fiscal 2002 was approximately $6,876,000,
a decrease of approximately $8,855,000, or 56.3% as compared to the first
quarter of Fiscal 2001. Gross profit, expressed as a percentage of sales,
decreased to 19.5% for the first quarter of Fiscal 2002 as compared to 25.1% for
the first quarter of Fiscal 2001. The decrease in gross profit as a percentage
of sales in the first quarter of Fiscal 2002 compared to the first quarter of
Fiscal 2001 was mostly attributable to a provision related to inventory of
approximately $1,761,000 which was recorded in the first quarter of Fiscal 2002
and related to Polaroid Corporation ("Polaroid") which filed for protection
under Chapter 11 of the United States Bankruptcy Code on October 12, 2001.
Product development costs for the first quarter of Fiscal 2002 and 2001 were
approximately $2,090,000 and $1,505,000, respectively.
The Company's product mix, which historically consisted entirely of reloadable
and single use cameras, is expected to continue changing with the introduction
of more digital products in the future. Digital products are sold at
significantly higher unit prices, but generate lower gross margins as a
percentage of sales, than the reloadable and single use cameras the Company has
historically sold. Digital products however generate a greater gross profit per
unit than reloadable and single use cameras. As a result, as the percentage of
digital products in the Company's sales mix increases, gross margins as a
percentage of sales can be expected to decrease and average revenue and gross
profit per unit can be expected to increase. In addition, as the proportion of
the Company's manufacturing product mix represented by digital products
increases, the risk of gross profit fluctuations due to digital component
availability and related costs will increase. Since component availability can
fluctuate and is subject to possible procurement delays and other constraints,
it could possibly limit net profit growth and might have a negative impact on
sales and gross margins. Additionally, the Company's customer revenue mix
between its OEM and RSD customers may fluctuate significantly in the future
compared to historical customer revenue mix.
8
Operating Expenses
Operating expenses, consisting of selling, general and administrative,
terminated acquisition costs and interest expense decreased by approximately
$799,000, to $8,483,000 for the first quarter of Fiscal 2002 from approximately
$9,282,000 for the first quarter of Fiscal 2001. Included in general and
administrative costs in the first quarter of Fiscal 2002 was a provision related
to accounts receivable of approximately $1,611,000 which related to Polaroid. As
a percentage of sales, operating expenses increased to 24.0% for the first
quarter of Fiscal 2002 from 14.8% for the first quarter of Fiscal 2001.
Excluding the provision of approximately $1,611,000 in the first quarter of
Fiscal 2002, and terminated acquisition costs related to a proposed acquisition
that was not consummated in the first quarter of Fiscal 2001, operating expenses
as a percentage of sales would have been 19.5% for the first quarter of Fiscal
2002 compared to 13.5% for the first quarter of Fiscal 2001.
Selling expenses decreased by approximately $1,055,000, or 30.9%, to
approximately $2,357,000 for the first quarter of Fiscal 2002 from approximately
$3,412,000 for the first quarter of Fiscal 2001. The decrease was primarily due
to a decrease in certain variable selling expenses. As a percentage of sales,
selling expenses increased to 6.7% for the first quarter of Fiscal 2002 from
5.4% for the first quarter of Fiscal 2001.
General and administrative expenses increased by approximately $1,046,000, or
23.7%, to approximately $5,464,000 for the first quarter of Fiscal 2002 from
approximately $4,418,000 for the first quarter of Fiscal 2001. Excluding the
provision of approximately $1,611,000, general and administrative expenses would
have been approximately $3,853,000 for the first quarter of Fiscal 2002. The
decrease was primarily attributable to lower compensation expense. As a
percentage of sales, general and administrative expenses increased to 15.5% for
the first quarter of Fiscal 2002 from 7.0% for the first quarter of Fiscal 2001.
Excluding the provision of approximately $1,611,000, as a percentage of sales,
general and administrative expenses were 10.9% for the first quarter of Fiscal
2002.
Interest expense increased to approximately $662,000 for the first quarter of
Fiscal 2002 from approximately $652,000 for the first quarter of Fiscal 2001.
Interest expense was in line with the prior year amount as the level of
borrowing was approximately the same in the first quarter of Fiscal 2002
compared to the first quarter of Fiscal 2001.
Other Income, Net
-----------------
Other income, net was approximately $599,000 and $314,000 for the first quarter
of Fiscal 2002 and Fiscal 2001, respectively. The increase in the first quarter
of Fiscal 2002 as compared to the first quarter of Fiscal 2001 was primarily
attributable to higher interest income earned in the quarter partially offset by
higher foreign exchange losses in the quarter.
Income Taxes
------------
The Company's benefit for income taxes was approximately $139,000 for the first
quarter of Fiscal 2002 compared to a tax provision of approximately $558,000 for
the first quarter of Fiscal 2001. The benefit was primarily related to a foreign
tax loss partially offset by domestic income before income taxes. In general,
the effective income tax rate is largely a function of the balance between
income and loss from domestic and foreign operations.
9
Net (Loss) Income
-----------------
As a result of the matters described above, the Company had a net loss of
approximately $869,000, or $0.03 per share, for the first quarter of Fiscal 2002
as compared to net income of approximately $6,205,000, or $0.25 per diluted
share, for the first quarter of Fiscal 2001. The Company does not anticipate
that the loss, of the previously budgeted sales to Polaroid for the remaining
three quarters of Fiscal 2002, would affect its business.
Liquidity and Capital Resources
-------------------------------
At September 29, 2001, the Company had working capital of approximately
$131,811,000 compared to approximately $131,003,000 at June 30, 2001. Cash
provided by operations in the first quarter of Fiscal 2002 was approximately
$2,124,000, which was in line with cash provided by operations of approximately
$2,272,000 for the first quarter of Fiscal 2001. The changes in cash provided by
operating activities for the respective quarters in Fiscal 2002 and Fiscal 2001
were primarily attributable to changes in accounts receivable, inventories,
accounts payable and accrued expenses.
Capital expenditures for the first quarter of Fiscal 2002, were approximately
$436,000 compared to approximately $1,327,000 for the first quarter of Fiscal
2001. The decrease was primarily the result of significantly reduced
expenditures on plant and equipment purchases for the Company's manufacturing
facility located in the People's Republic of China.
Cash provided by financing activities was approximately $49,790,000 for the
first quarter of Fiscal 2002, which compared unfavorably to cash provided by
financing activities of approximately $81,874,000 in the first quarter of Fiscal
2001. The decrease was attributable to the Company's public offering (described
more fully below) in September and October 2000. Additionally, in the first
quarter of Fiscal 2002, the Company received proceeds of approximately
$49,870,000 upon the maturity of short-term investments made in Fiscal 2001.
Public Offering. On September 26, 2000, pursuant to an underwritten public
offering, the Company sold 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, on October 2, 2000 the Company sold an additional 585,000 shares
of Common Stock at a price of $23.00 per share. The net proceeds to the Company
of the offering were approximately $96,881,000, after offering costs and
underwriting fees of approximately $6,274,000. The net proceeds have been used,
or are intended to be used, for the repayment of 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 remaining net
proceeds are currently invested in cash equivalents.
Senior Notes Payable. On July 30, 1998, the Company consummated a private
placement of $15,000,000 of unsecured 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.
Hong Kong Credit Facilities. 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. Since 1983 the Hong Kong dollar
has been pegged to the United States dollar. The revolving credit facilities are
comprised of 1) an approximate $11,000,000 Import Facility, 2) an approximate
$2,600,000 Packing Credit and Export Facility, 3) an approximate $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 account receivables of Concord HK and guaranteed by the Company. The
Company also guarantees a significant portion of the remaining $15,500,000 of
borrowing capacity. Availability under the Accounts Receivable Financing
Facility is subject to advance formulas based on Eligible Accounts Receivable
and all the credit facilities are subject to certain financial ratios and
covenants. The revolving credit facilities bear interest at variable rates. At
September 29, 2001, no amounts were outstanding under the Hong Kong Credit
Facilities.
10
United Kingdom Credit Facility. In November 1999, a United Kingdom subsidiary of
the Company, obtained a credit facility (the "UK Facility") in the United
Kingdom that is secured by substantially all of the assets of the Company's
United Kingdom subsidiary. The UK Facility bears interest at 1.5% above the UK
prime lending rate and was principally utilized for working capital needs and
allows borrowings of up to approximately $1,000,000. At September 29, 2001,
there were no amounts outstanding under the UK Facility.
United States Credit Facilities. In June 2000, Concord Camera Corp. and a U.S.
subsidiary each entered into a credit facility (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. The US Facilities bear interest at 1.75% above the London
Interbank Offer Rate ("LIBOR"). No amounts were outstanding under the US
Facilities at September 29, 2001.
Common Stock Buyback Program. In February 2001, the Company adopted a Common
Stock share repurchase program pursuant to which the Board of Directors
allocated up to $10,000,000 for the repurchase of shares of the Company's Common
Stock. The Company has not repurchased any shares pending completion of a review
of the Company's other capital investment opportunities but continues to believe
that the Common Stock is significantly undervalued at current prices and
represents an attractive investment opportunity for the Company. As appropriate,
the Company intends to act on this opportunity.
Exchange Offer. On August 28, 2001, the Company launched an offer to exchange
outstanding stock options with an exercise price of more than $7.00 per share
for new options to purchase 75% of the shares subject to the outstanding options
at an exercise price of $5.97 per share (the closing price of the Common Stock
reported on the NASDAQ National Market on the date the Board of Directors
approved the exchange offer.) The exchange offer expired on October 16, 2001.
Options to purchase 1,375,876 shares of Common Stock were tendered in the
exchange offer and accepted by the Company for cancellation and new options to
purchase 1,031,908 shares of Common Stock were issued in exchange therefor. The
Company will apply variable accounting for these stock option grants until they
are exercised or expire.
Future Cash Commitments. The Company believes that its cash and cash
equivalents, short-term investments, anticipated cash flow from operations, and
amounts available under its credit facilities will be sufficient to meet its
working capital and anticipated capital expenditure 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 that 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.
Terrorist attacks in New York and Washington, D.C. in September of 2001 have
disrupted commerce throughout the United States and other parts of the world.
The continued threat of terrorism within the United States and abroad and the
potential for military action and heightened security measures in response to
such threat may cause significant disruption to commerce throughout the world.
To the extent that such disruptions result in delays or cancellations of
customer orders, a general decrease in consumer spending, or our inability to
effectively market and sell our products, our business and results of operations
could be materially and adversely affected. We are unable to predict whether the
threat of terrorism or the responses thereto will result in any long term
commercial disruptions or if such activities or responses will have a long term
material adverse effect on our business, results of operations or financial
condition.
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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. For a discussion of some of the factors that could cause
actual results to differ, please see the discussion under "Risk Factors"
contained in the Company's most recent Annual Report filed with the SEC on Form
10-K for the fiscal year ended June 30, 2001 and subsequently filed reports.
Management wishes to caution the reader that these forward-looking statements,
such as statements regarding the 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. Any
forward-looking statements contained in this report represent the Company's
estimates only as of the date of this report, or as of such earlier dates as are
indicated herein, and should not be relied upon as representing its estimates as
of any subsequent date. While the Company may elect to update forward-looking
statements at some point in the future, it specifically disclaims any obligation
to do so, even if its estimates change.
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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
exchange rates through its regular operating and financing activities.
The Company's exposure to changes in interest rates results from its borrowing
activities used to meet its liquidity needs. Its borrowing activities include
the use of fixed and variable rate financial instruments which allows the
Company flexibility regarding the timing of the short and long term maturities
of such financial instruments. Long-term debt is generally used to finance
long-term investments, while short-term debt is used to meet working capital
requirements. The Company's current debt structure consists principally of
borrowings of a long-term nature with a fixed rate of interest. The remainder of
the borrowings are of a short-term nature typically subject to variable interest
rates based on a prime or LIBOR rate plus or minus a margin. Since the
significant outstanding borrowings of the Company are of a fixed rate nature,
the Company does not deem interest rate risk to be significant or material to
its financial position or results of operations. 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. The Company continues to
monitor its capital structure and interest rate risk exposure, and believes it
mitigates such risk principally through its strong working capital position.
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. As of
September 29, 2001, the Company was not engaged in any hedging activities and
there were no forward exchange contracts outstanding. The Company continues to
analyze the benefits and costs associated with hedging against foreign currency
fluctuations.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
See Note 6 to the Condensed Consolidated Financial Statements regarding the
matter between the Company and Jack C. Benun.
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 annual
through May 9, 2000 report on Form 10-K for the year ended July 1, 2000.
3.2 Restated By-Laws, as amended through Incorporated by reference to the Company's
December 21, 2000 quarterly report on Form 10-Q for the quarter ended
December 30, 2000.
(b) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the quarter ended
September 29, 2001.
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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: October 29, 2001
15